[Federal Register Volume 65, Number 126 (Thursday, June 29, 2000)]
[Rules and Regulations]
[Pages 40170-40332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15648]



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Part II





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Parts 417 and 422



Medicare Program; Medicare+Choice Program; Final Rule

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 417 and 422

[HCFA-1030-FC]
RIN 0938-AI29


Medicare Program; Medicare+Choice Program

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period responds to comments on 
the June 26, 1998 interim final rule that implemented the 
Medicare+Choice (M+C) program and makes revisions to those regulations 
where warranted. We also are making revisions to the regulations that 
are necessary to reflect the changes to the M+C program resulting from 
the Balanced Budget Refinement Act of 1999 (BBRA). Revisions to the 
regulations reflecting changes in the law made by the BBRA are subject 
to public comment. Issues discussed in this rule include eligibility, 
election, and enrollment policies; marketing requirements; access 
requirements; service area and benefit policy; quality improvement 
standards; payment rates, risk adjustment methodology, and encounter 
data submission; provider participation rules; beneficiary appeals and 
grievances; contractual requirements; and preemption of State law by 
Federal law.
    This final rule also addresses comments on the interim final rule 
published on December 2, 1997, which implemented user fees for section 
1876 risk contractors for 1998, and formed the basis for the M+C user 
fee provisions in the June 26, 1998 interim final rule, and the 
provider-sponsored organization (PSO) interim final rule published 
April 14, 1998.

DATES: Effective date: This final rule is effective July 31, 2000.
    Comment period: Comments on provisions reflecting provisions of the 
Balanced Budget Refinement Act of 1999 will be considered if received 
at the appropriate address, as provided below, no later than August 28, 
2000. We will not consider comments concerning regulatory provisions 
that remain unchanged or that are revised in this final rule based on 
previous public comment.

ADDRESSES: Mail written comments (one original and three copies) to the 
following address ONLY: Health Care Financing Administration, 
Department of Health and Human Services, Attention: HCFA-1030-FC, P.O. 
Box 8013, Baltimore, MD 21244-8013.
    Since comments must be received by the date specified above, please 
allow sufficient time for mailed comments to be received timely in the 
event of delivery delays.
    If you prefer, you may deliver by courier, your written comments 
(one original and three copies) to one of the following addresses: Room 
443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, 
Washington, DC 20201; or C5-14-03, Central Building, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    Comments mailed to the two above addresses may be delayed and 
received too late to be considered. Because of staffing and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission. 
In commenting, please refer to file code HCFA-1030-FC.
    Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, in Room 443-G of the Department's offices at 
200 Independence Avenue, SW, Washington, DC, on Monday through Friday 
of each week from 8:30 a.m. to 5 p.m. (Phone (202) 690-7890).
    For comments that relate to information collection requirements, 
see section IV of the SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Marty Abeln (410) 786-1032 (for issues 
related to user fees, service area, point-of-service option, PSOs, and 
intermediate sanctions).
    Wendy Burger (410) 786-1566 and Lynn Orlosky (410) 786-5930 (for 
issues related to eligibility, elections, and enrollment).
    Carol Barnes (410) 786-5496 (for issues related to continuation 
areas and marketing).
    Anne Manley (410) 786-1096 (for issues related to emergency and 
urgently needed services, provider participation rules, and Federal 
preemption).
    Eileen Zerhusen (410) 786-7803 (for issues related to post-
stabilization care).
    Tony Hausner (410) 786-1093 (for issues related to access, 
discrimination, and physician incentive rules).
    Amy Chapper (410) 786-0367 (for issues related to information 
disclosure and confidentiality).
    Brian Agnew (410) 786-5964 (for issues related to quality assurance 
and accreditation).
    Al D'Alberto (410) 786-1100 (for issues related to payments, 
premiums, and ACRs).
    James Hart (410) 786-4474 (for issues related to risk adjustment 
and encounter data).
    Chris Eisenberg (410) 786-5509 (for issues related to contracts and 
contract appeals).
    Michele Edmondson (410) 786-6478 (for issues related to beneficiary 
appeals).
    Anita Heygster (410) 786-4486 (for issues related to M+C private 
fee-for-service plans).
    Cindy Mason (410) 786-6680 (for issues related to M+C MSA plans).

SUPPLEMENTARY INFORMATION: For the convenience of the reader, we are 
providing a complete outline of this final rule, including a topical 
listing of the major areas raised by the comments, along with numerical 
regulatory citations.

I. Background
    A. Balanced Budget Act of 1997
    B. Overview of M+C Regulations
    1. Interim Final Rule
    2. Correction Notice
    3. February 17, 1999 Final Rule
    C. M+C Provisions of the Balanced Budget Refinement Act of 1999
II. Analysis of and Responses to Public Comments
    A. Overview
    1. Comments on June 26, 1998 Interim Final Rule
    2. Issues in February 17, 1999 Final Rule
    3. Organization of this Final Rule
    4. General Comments and Subpart A Issues
    a. Administrative Procedure Act Issues
    b. Types of M+C Plans (Sec. 422.4)
    c. Application Requirements and Procedures (Secs. 422.6 and 
422.8)
    d. User Fees (Sec. 422.10)
    B. Eligibility, Election and Enrollment (Subpart B)
    1. Eligibility to Elect an M+C Plan (Sec. 422.50)
    2. Continuation of Enrollment (Sec. 422.54)
    3. Election Process (Sec. 422.60)
    4. Enrollment Capacity (Sec. 422.60(b))
    5. Election of Coverage Under an M+C Plan (Sec. 422.62)
    6. Information about the M+C Program (Sec. 422.64)
    7. Coordination of Enrollment and Disenrollment Through M+C 
Organizations (Sec. 422.66)
    8. Effective Dates of Coverage and Change of Coverage 
(Sec. 422.68)
    9. Disenrollment by the M+C Organization (Sec. 422.74)
    10. Approval of Marketing Materials and Election Forms 
(Sec. 422.80)
    C. Benefits and Beneficiary Protections (Subpart C)
    1. Introduction
    2. Emergency, Urgently Needed, and Post-Stabilization Care 
Services (Secs. 422.2, 422.100, 422.112, and new Sec. 422.113)
    a. Definitions
    b. Enforcement of Emergency Requirements

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    c. Access to Emergency and Urgently Needed Services
    d. Post-Stabilization Care Services
    3. Service Area Requirements (Secs. 422.2, 422.100)
    4. Benefits (Secs. 422.2, 422.100, 422.101, 422.106)
    5. Special Rules for Screening Mammography, Influenza Vaccine, 
and Pneumococcal Vaccine (Sec. 422.100(h))
    6. Special Rules for Point-of-Service (POS) Option 
(Sec. 422.105)
    7. Medicare Secondary Payer (MSP) Procedures (Sec. 422.108)
    8. National Coverage Determinations (Sec. 422.109)
    9. Discrimination Against Beneficiaries Prohibited 
(Sec. 422.110)
    10. Disclosure Requirements (Sec. 422.111)
    11. General Access Requirements (Sec. 422.112)
    a. Introduction
    b. Provider Network (Sec. 422.112(a)(1))
    c. Primary Care Providers (PCP) Panels (Sec. 422.112(a)(2))
    d. Specialty Care (Sec. 422.112(a)(3))
    e. Serious Medical Conditions (Sec. 422.112(a)(4))
    f. Written Standards (Sec. 422.112(a)(7))
    g. Cultural Considerations (Sec. 422.112(a)(9))
    12. Confidentiality and Accuracy of Enrollee Records 
(Sec. 422.118)
    13. Information on Advance Directives (Sec. 422.128)
    D. Quality Assurance (Subpart D)
    1. Overview
    2. Quality Assessment and Performance Improvement Requirements 
(Sec. 422.152)
    3. External Review (Sec. 422.154)
    4. Deemed Compliance Based on Accreditation (Sec. 422.156)
    5. Accreditation Organizations (Sec. 422.157)
    6. Procedures for Approval of Accreditation as a Basis for 
Deeming Compliance (Sec. 422.158)
    E. Relationships With Providers (Subpart E)
    1. Provider Participation Procedures (Secs. 422.202(a), and 
422.204(c))
    2. Consultation Requirements (Sec. 422.202(b))
    3. Treatment of Subcontracted Networks (Sec. 422.202(c))
    4. Provider Antidiscrimination (Secs. 422.100(j), 422.204(b), 
and new Sec. 422.205)
    5. Provider Credentialing (Sec. 422.204(a))
    6. Prohibition on Interference with Health Care Professionals' 
Communication with Enrollees (Sec. 422.206)
    7. Physician Incentive Plans (Secs. 422.208 and 422.210)
    8. Special Rules for Services Furnished by Noncontract Providers 
(Sec. 422.214)
    9. Exclusion of Services Furnished Under a Private Contract 
(Sec. 422.220)
    10. M+C Plans and the Physician Referral Prohibition
    F. Payments to M+C Organizations (Subpart F)
    1. General Provisions (Sec. 422.250)
    2. Risk Adjustment and Encounter Data (Sec. 422.256 through 
Sec. 422.258)
    3. Special Rules for Hospice Care (Sec. 422.266)
    G. Premiums and Cost-Sharing (Subpart G)
    1. General Provisions (Sec. 422.300)
    2. Rules Governing Premiums and Cost-Sharing (Sec. 422.304)
    3. Submission Requirements of the Proposed Premiums and Related 
Information (Sec. 422.306)
    4. Limits on Premiums and Cost-Sharing Amounts (Sec. 422.308)
    5. Incorrect Collections of Premiums and Cost-Sharing Amounts 
(Sec. 422.309)
    6. ACR Approval Process (Sec. 422.310)
    7. Requirement for Additional Benefits (Sec. 422.312)
    H. Provider-Sponsored Organizations (Subpart H)
    I. Organization Compliance With State Law and Preemption by 
Federal Law (Subpart I)
    1. State Licensure and Scope of Licensure (Sec. 422.400)
    2. Federal Preemption of State Law (Sec. 422.402)
    a. General Preemption (Sec. 422.402(a))
    b. Specific Preemption (Sec. 422.402(b))
    3. Prohibition on State Premium Taxes (Sec. 422.404)
    4. Medigap
    J. (Subpart J--Reserved)
    K. Contracts with M+C Organizations (Subpart K)
    1. Definitions (Sec. 422.500)
    2. National Contracting (Sec. 422.501)
    3. Compliance Plan (Sec. 422.501(b)(3)(vi))
    4. Access to Facilities and Records (Sec. 422.502(e))
    5. Disclosure of Information (Sec. 422.502(f)(2)(v))
    6. Beneficiary Financial Protection (Sec. 422.502(g))
    7. Requirements of Other Laws and Regulations (Sec. 422.502(h))
    8. Contracting/Subcontracting Issues (Sec. 422.502(i))
    9. Certification of Data that Determine Payment/Certification of 
Accuracy of ACR (Sec. 422.502(l))
    10. Effective Date and Term of Contract (Sec. 422.504)
    11. Nonrenewal of M+C Contracts (Sec. 422.506)
    12. Provider Prior Notification and Disclosure 
(Secs. 422.506(a), 422.508, 422.510(b), and 422.512)
    13. Mutual Termination of a Contract (Sec. 422.508)
    14. Termination of Contract by HCFA (Sec. 422.510)
    15. Minimum Enrollment Requirements (Sec. 422.514)
    16. Reporting Requirements (Sec. 422.516)
    17. Prompt Payment by M+C Organization (Sec. 422.520)
    L. Effect of Change of Ownership or Leasing of Facilities During 
Term of Contract (Subpart L)
    M. Grievances, Organization Determinations, and Appeals (Subpart 
M)
    1. Background and General Provisions (Secs. 422.560, 422.561, 
and 422.562)
    2. Grievance Procedures (Sec. 422.564)
    3. Organization Determinations (Secs. 422.566 through 422.576)
    4. Reconsiderations by an M+C Organization or Independent Review 
Entity (Secs. 422.578 through 422.616)
    5. Effectuation of a Reconsidered Determination (Sec. 422.618)
    6. Notification of Noncoverage in Inpatient Hospital Settings 
(Secs. 422.620 and 422.622)
Subpart M--Comments and Responses
    7. Definitions and General Provisions
    8. Grievances
    9. Organization Determinations
    10. Written Notice
    11. Time Frames
    12. Expedited Organization/Reconsidered Determinations
    13. Authorized Representatives
    14. Other Appeal Rights
    15. Inpatient Hospital Notice of Discharge
    16. Other Comments
    N. Medicare Contract Appeals (Subpart N)
    O. Intermediate Sanctions (Subpart O)
    P. Medicare+Choice MSA Plans
    1. Background
    2. General Provisions (Subpart A)
    3. Eligibility, Election and Enrollment Rules (Subpart B)
    a. Eligibility and Enrollment (Sec. 422.56)
    b. Election (Sec. 422.62)
    4. Benefits (Subpart C)
    a. Basic Benefits Under an M+C MSA Plan (Sec. 422.102)
    b. Supplemental Benefits (Secs. 422.102 and 422.103)
    5. Quality Assurance (Subpart D)
    6. Relationships with Providers (Subpart E)
    7. Payments Under MSA Plans (Subpart F)
    8. Premiums (Subpart G)
    9. Other M+C Requirements
    10. Responses to Comments
    Q. M+C Private Fee-for-Service Plans
    1. Background and General Comments (Sec. 422.4(a)(3))
    2. Beneficiary Issues
    3. Provider Payment Issues
    4. Noncontracting Provider
    5. Quality Assurance (Secs. 422.152 and 422.154)
    6. Access to Services (Sec. 422.214)
    7. Physician Incentive Plans (Secs. 422.208)
    8. Special Rules for M+C Private Fee-for-Service Plans 
(Sec. 422.216)
    9. Deemed Contracting Providers
III. Provisions of this Final Rule (Changes to the M+C Regulations)
IV. Collection of Information Requirements--Paperwork Reduction Act
V. Regulatory Impact Statement
VI. Other Required Information
    A. Federalism Summary Impact Statement
    B. Waiver of Notice of Proposed Rulemaking
    C. Response to Comments

I. Background

A. Balanced Budget Act of 1997

    Section 4001 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-
33), enacted August 5, 1997, added sections 1851 through 1859 to the 
Social Security Act (the Act) to establish a new Part C of the Medicare 
program, known as the ``Medicare+Choice (M+C) Program.'' (The previous 
Part C of the statute, which included provisions in section 1876 of the 
Act governing existing Medicare health maintenance

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organization (HMO) contracts, was redesignated as Part D.) Under 
section 1851(a)(1) of the Act, every individual entitled to Medicare 
Part A and enrolled under Part B, except for individuals with end-stage 
renal disease, may elect to receive benefits through either the 
existing Medicare fee-for-service program (``Original Medicare'') or a 
Part C M+C plan, if one is offered where he or she lives.
    As its name implies, the primary goal of the M+C program is to 
provide Medicare beneficiaries with a wider range of health plan 
choices through which to obtain their Medicare benefits. The M+C 
statute authorizes a variety of private health plan options for 
beneficiaries, including both the traditional managed care plans (such 
as those offered by HMOs) that traditionally have been offered under 
section 1876 of the Act, and new options that were not previously 
authorized. Specifically, section 1851(a)(2) of the Act describes three 
types of M+C plans authorized under Part C:
    <bullet> M+C coordinated care plans, including HMO plans (with or 
without point of service options), provider-sponsored organization 
(PSO) plans, and preferred provider organization (PPO) plans.
    <bullet> M+C medical savings account (MSA) plans (that is, 
combinations of a high-deductible M+C health insurance plan and a 
contribution to an M+C MSA).
    <bullet> M+C private fee-for-service plans.
    An entity contracting with us to offer any of the above plans to 
Medicare beneficiaries is called an ``M+C organization.''
    In addition to expanding the types of health plans that can be 
offered to Medicare beneficiaries, the M+C program introduces several 
other fundamental changes to the managed care component of the Medicare 
program. These changes include:
    <bullet> Establishment of an expanded array of quality assurance 
standards and other consumer protection requirements;
    <bullet> Introduction of an annual coordinated enrollment period, 
in conjunction with the distribution by us of uniform, comprehensive 
information about M+C plans that is needed to promote informed choices 
by beneficiaries;
    <bullet> Revisions in the way we calculate payment rates to M+C 
organizations that will narrow the range of payment variation across 
the country and increase incentives for organizations to offer M+C 
plans in diverse geographic areas; and
    <bullet> Establishment of requirements concerning provider 
participation procedures.

B. Overview of M+C Regulations

1. Interim Final Rule
    On June 26, 1998, we published in the Federal Register a 
comprehensive interim final rule (63 FR 34968) to implement the 
provisions of section 4001 of the BBA that established the M+C program. 
That interim final rule set forth the new M+C regulations in 42 CFR 
Part 422--Medicare+Choice Program. The major subjects covered in each 
subpart of part 422 are as follows:
    <bullet> Subpart A--Definitions, including definitions of types of 
plans, application process, and user fees.
    <bullet> Subpart B--Requirements concerning beneficiary 
eligibility, election, enrollment and disenrollment procedures, and 
plan information and marketing materials.
    <bullet> Subpart C--Requirements concerning benefits, point of 
service options, access to services (including rules on enrollee 
assessments and notification upon termination of specialists), and 
others.
    <bullet> Subpart D--Quality assurance standards, external review, 
and deeming of accredited organizations.
    <bullet> Subpart E--Provider participation rules and the 
prohibition against interference with health care professionals' advice 
to enrollees.
    <bullet> Subpart F--Payment methodology for M+C organizations, risk 
adjustment, and encounter data requirements.
    <bullet> Subpart G--Requirements concerning premiums, cost-sharing, 
and determination of adjusted community rate.
    <bullet> Subpart H--Requirements concerning PSOs.
    <bullet> Subpart I--Organization compliance with State law and 
preemption by Federal law.
    <bullet> Subpart K--Contract requirements.
    <bullet> Subpart L--Change of ownership rules.
    <bullet> Subpart M--Beneficiary grievances, organization 
determinations, and appeals.
    <bullet> Subpart N--Contractor appeals of nonrenewals or 
terminations of contracts.
    <bullet> Subpart O--Procedures for imposing intermediate sanctions.
2. Correction Notice
    On October 1, 1998, we issued a correction notice in the Federal 
Register (63 FR 52610) to correct technical errors that appeared in the 
interim final rule. All references in this document to regulation text 
are to the corrected text unless otherwise noted.
3. February 17, 1999 Final Rule
    Additionally, on February 17, 1999, we published a final rule in 
the Federal Register (64 FR 7968) that set forth limited changes to the 
M+C regulations published in the June 26, 1998 interim final rule. It 
specifically addressed only a limited number of issues raised by 
commenters on the June 26, 1998 interim final rule. We indicated in the 
preamble to the February 17, 1999 final rule that we intended to 
address all other issues raised by commenters on the M+C interim final 
rule in a comprehensive M+C final rule to be published at a later date. 
The types of comments we addressed in the February final rule are 
discussed in more detail in section II.A.2.

C. M+C Provisions of the Balanced Budget Refinement Act of 1999

    On November 29, 1999, as we were completing the development of this 
final rule, the Balanced Budget Refinement Act of 1999 (Pub. L. 106-
113) (BBRA) was enacted. The BBRA includes a number of provisions that 
affect the M+C program, and these provisions have necessitated a number 
of corresponding changes so that the changes in the law made by the 
BBRA are reflected in the text of the M+C regulations. For the most 
part, the statutory changes are self-explanatory, and have already 
taken effect. As noted above, we are accepting public comment on 
conforming changes to the M+C regulations made as a result of the BBRA 
provisions. We are revising the regulations to reflect the provisions 
of the BBRA as follows:
1. Changes in M+C Enrollment Rules (Section 501 of the BBRA)

a. Enrollment in Alternative M+C Plans and Medigap Coverage After 
Involuntary Terminations

    Section 1851(e)(4) of the Act establishes special election periods 
during which M+C-eligible individuals may disenroll from an M+C plan or 
elect another M+C plan, including a special election period when an M+C 
organization or we have terminated a plan or the organization has 
otherwise discontinued providing the plan in the area in which the 
individual resides. Section 501(a)(1) of the BBRA revised section 
1851(e)(4) to specify that this special election period now becomes 
available either upon termination or discontinuation or when the 
organization ``has notified the individual of an impending termination 
or discontinuation of such a plan.'' We have revised Sec. 422.62(b)(1) 
to reflect this earlier opportunity for an affected

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enrollee to elect an alternative M+C plan or return to original 
Medicare. We note that section 501(b) of the BBRA set forth conforming 
amendments to section 1882(s)(3) of the Act (concerning beneficiary 
rights to guaranteed issue of a Medicare supplemental policy, that is, 
a Medigap policy) to allow an individual guaranteed issue rights to a 
Medigap policy within 63 days of an organization's notification of an 
impending termination or service area reduction.

b. Open Enrollment for Institutionalized Individuals (Section 501(b))

    Section 1851(e) of the Act establishes the time frames, or election 
periods, for making or changing elections. Section 501(b) of the BBRA 
amended section 1851(e)(2) of the Act by adding a new subparagraph (D), 
which provides for continuous open enrollment for institutionalized 
individuals after 2001. Thus, on or after January 1, 2002 (which 
represents the first day when limitations are placed on an M+C-eligible 
individual's enrollment and disenrollment opportunities), M+C-eligible 
individuals who are institutionalized, as defined by HCFA, may continue 
to change from original Medicare to an M+C plan, from an M+C plan to 
original Medicare, or from one M+C plan to another. We have added 
Sec. 422.62(a)(6) to reflect this provision, with conforming changes at 
Sec. 422.62(a)(4)(i) and Sec. 422.62(a)(5)(i). We intend to provide 
guidance on the meaning of the term ``institutionalized'' in due time 
to permit orderly implementation of this change before it takes effect 
in 2002.

c. Continued Enrollment for Certain M+C Enrollees

    Section 1851(b)(1) of the Act establishes the residence 
requirements for eligibility to elect an M+C plan. Section 501(c) of 
the BBRA amended section 1851(b)(1) of the Act by adding a new 
subparagraph (C) to allow an individual to choose to continue 
enrollment in an M+C plan offered by the organization if (1) the M+C 
organization eliminates the M+C plan in the service area in which the 
individual resides and, (2) no other M+C plan is offered in the service 
area at the time of the elimination of the M+C plan in the service area 
and, (3) the M+C organization chooses to allow the option to continue 
enrollment in an M+C plan offered by the organization. If the 
individual chooses to retain his or her enrollment in the M+C plan, the 
M+C organization may require that he or she agree to obtain the full 
range of basic benefits (excluding emergency and urgently needed care) 
through facilities designated by the organization within the plan's 
HCFA-approved service area. In the case of home health services, since 
this is a basic benefit that by its nature involves receipt of services 
in the home, while the provider of the home health services may be 
located in the service area, actual services would have to be offered 
in the beneficiary's home. We have reflected this provision in 
Sec. 422.74(b)(3), with a conforming change made in Sec. 422.66(e)(2).
2. Change in Effective Date of Elections (Section 502 of the BBRA)
    Section 1851(f) of the Act establishes the effective dates for 
elections and changes to elections made during the various enrollment 
periods. Prior to enactment of the BBRA, section 1851(f)(2) stated that 
an election made during an open enrollment period was effective the 
first day of the following calendar month. Section of the 502 BBRA 
amended section 1851(f)(2) of the Act to state that an election made 
during an open enrollment period is effective the first day of the 
following calendar month, except that if the election or change in 
election is made after the 10th day of the calendar month, the election 
is effective the first day of the second calendar month following the 
date the election or change in election is made. We have revised 
Sec. 422.68(c) to reflect this provision.
3. Extension of Reasonable Cost Contracts (Section 503 of the BBRA)
    Section 503 of the BBRA amended section 1876(h)(5)(B) of the Act to 
permit the extension or renewal of Medicare cost contracts for an 
additional 2 years, that is, through December 31, 2004. We are revising 
Sec. 417.402(b) to effect this change.
4. Phase-In of New Risk Adjustment Methodology (Section 511 of the 
BBRA)
    Consistent with section 1853(a) of the Act, Sec. 422.256 of the M+C 
regulations provides that M+C capitation payments are adjusted for age, 
gender, institutional status, and other appropriate factors, including 
health status, beginning January 1, 2000. In the January 15, 1999, 
Advance Notice of Methodological Changes for the CY 2000 M+C Payment 
Rates, we announced the risk adjustment methodology to implement this 
requirement. One element of the risk adjustment methodology we 
developed was a transition period during which M+C payments would be 
based on a blend of payment amounts under the previous system of 
demographic adjustments and payment amounts based on principal 
inpatient hospital diagnoses (the PIP-DCG risk adjustment methodology). 
Under a blend, payment amounts for each enrollee are separately 
determined using the demographic and risk methodologies, respectively. 
Those payment amounts are then blended according to the percentages for 
the transition year. On January 15, 1999, we announced the following 
transition schedule:

------------------------------------------------------------------------
                                               Demographic
                    Year                         method      Risk method
                                                (percent)     (percent)
------------------------------------------------------------------------
CY 2000.....................................            90            10
CY 2001.....................................            70            30
CY 2002.....................................            45            55
CY 2003.....................................            20            80
CY 2004.....................................  ............           100
------------------------------------------------------------------------

(Using encounter data from multiple sites of care.)
    Section 511(a) of the BBRA revised the original transition schedule 
for 2000 and 2001 to provide that the blend percentages will be:

------------------------------------------------------------------------
                                  Demographic method      Risk method
              Year                    (percent)            (percent)
------------------------------------------------------------------------
CY 2000........................  90.................  10
CY 2001........................  90.................  10
CY 2002........................  at least 80........  no more than 20
------------------------------------------------------------------------

    This provision does not require any changes in the existing M+C 
regulations, but we have described it here for the convenience of the 
reader.
5. Encouraging Offering of M+C Plans in Areas Without Plans (Section 
512 of the BBRA)
    Section 512 of the BBRA amended section 1853 of the Act by adding a 
new paragraph (i) to provide for ``new entry bonus'' payments to 
encourage M+C organizations to offer plans in payment areas (generally, 
counties) that currently do not have M+C plans serving the area. Under 
this provision, which we are incorporating into regulations under 
Sec. 422.250(g), the amount of the monthly payment otherwise made to an 
M+C organization that offers the first M+C plan in a previously 
unserved county will be increased by 5 percent for the first 12 months 
that the plan is offered and by 3 percent for the second 12 months. 
These bonus payments will be available only for plans that are first 
offered during the 2-year period beginning January 1, 2000, and only in 
counties where no M+C plan has been offered, or where any plan offered 
was no longer offered as of January 1, 2000.
    New section 1853(i)(3) specifies that if more than one M+C 
organization first

[[Page 40174]]

offers a plan in an uncovered area on the same date, the new entry 
bonus applies to the payments of both organizations. The BBRA does not 
expressly address situations in which an M+C organization or 
organizations begin offering more than one M+C plan simultaneously. 
Since the bonus is offered to the organization that first offers an M+C 
plan in an area, or to all organizations that do so on the same date, 
we interpret this to mean that the bonus would apply to all plans 
offered by a bonus-eligible organization on the same date. Thus, when 
an M+C organization offers two M+C plans simultaneously in a previously 
unserved county, the organization will receive the bonus payment for 
both plans. Similarly, if two or more M+C organizations first offer two 
M+C plans on the same date, each M+C organization will receive the 
bonus payments for each of its plans. Consistent with section 
1853(i)(3) of the Act, the bonus payments are not available to M+C 
organizations offering a plan in a county that is already partially 
served by another plan, even if the new plan includes a portion of the 
payment area not previously covered by an existing plan. As we have 
stated in OPL 2000.117, a plan is considered to be offered when the 
sponsoring M+C organization has a contract in effect to serve 
beneficiaries in the previously unserved area and the plan is open for 
enrollment.
6. Modification of 5-Year Re-Entry Rule for Contract Terminations 
(Section 513 of the BBRA)
    Section 513(a) of the BBRA amended section 1857(c)(4) of the Act to 
reduce from 5 to 2 years the period during which an M+C organization 
that has terminated its M+C contract at the organization's request is 
barred from re-entering into an M+C contract (absent our finding of 
special circumstances warranting an exception). Section 513(b)(1) 
further amended section 1857(c)(4) to provide for a new exception to 
this general exclusion period if, during the 6-month period after an 
M+C organization notified us of its intention to terminate an M+C 
contract, a legislative or regulatory change was adopted that resulted 
in increased Medicare payment amounts for the given payment area. In 
addition, section 513(b)(2) of the BBRA expressly states that the 
creation of the new exception does not affect our existing authority to 
grant an exception to this rule where ``circumstances which warrant 
special consideration,'' including in the circumstances identified in 
OPL #103 (OPL 99.103). OPL 99.103 states that we will grant an 
exception, for example, when an organization proposes to offer a 
different M+C plan type than it had previously offered, or an 
organization is proposing to introduce an M+C plan (1) in a geographic 
area currently served by two or fewer M+C plans, or (2) in an area 
other than that from which the organization had previously withdrawn 
when it ended its earlier contract with the Medicare program. We have 
incorporated the BBRA's revisions to section 1857(c)(4) of the Act into 
Sec. 422.501(b)(5).
7. Flexibility to Tailor Benefits under M+C Plans (Section 515 of the 
BBRA)
    Section 515 of the BBRA amended section 1854 of the Act to permit 
M+C organizations to elect to apply the premium and benefit provisions 
of section 1854 of the Act uniformly to separate segments of a service 
area, provided that the segments are composed of one or more M+C 
payment areas. This change, which is effective for contract years 
beginning on or after January 1, 2001, is largely consistent with our 
existing administrative policy, under which an M+C organization may 
offer multiple M+C plans, each with its own HCFA-approved service area, 
but must offer uniform benefits and premiums within each plan. For a 
full discussion of the implications of this change, and the conforming 
changes to the M+C regulations, we refer the reader to section II.C.3 
of this preamble.
8. Delay in Deadline for Submission of Adjusted Community Rates 
(Section 516 of the BBRA)
    Section 516 of the BBRA amended section 1854(a)(1) of the Act to 
delay the annual deadline for submission of adjusted community rate 
(ACR) proposals and information about enrollment capacity from May 1 to 
July 1. The statute provides that this change was effective for 
information submitted by M+C organizations in 1999 for benefits in 
calendar year 2000, and we are making changes to Secs. 422.60(b)(1), 
422.300(b)(2), and 422.306(a)(1) to reflect the new law.
9. Reduction in Adjustment in National Per Capita M+C Growth Percentage 
for 2002 (Section 517 of the BBRA)
    An important element in the methodology used to calculate M+C 
payment rates involves the determination by the Secretary under section 
1853(c)(6) of the Act of a ``national per capita M+C growth 
percentage.'' Each year, when determining M+C capitation rates, as 
explained in detail in the June 1998 interim final rule (63 FR 35004), 
this national growth percentage is applied to the area-specific 
component of the blended rate and to the minimum amount, also referred 
to as the ``floor''. The national per capita growth percentage is 
HCFA's estimate of the per capita rate of growth in expenditures. 
Section 1853(c)(6)(B) of the Act provided that in years from 1998 
through 2002, the national per capita M+C growth percentage would be 
reduced, by 0.8 percentage points in 1998 and 0.5 percentage points in 
1999 through 2002. Section 517 of the BBRA amended section 
1853(c)(6)(B)(v) of the Act to change the adjustment for 2002 from 0.5 
percentage point reduction to a reduction of 0.3 percentage points, and 
we are revising Sec. 422.254(b)(2) to reflect this change.
10. Deeming of M+C Organizations to Meet Requirements (Section 518 of 
the BBRA)
    Section 518 of the BBRA amended section 1852(e)(4) of the Act to 
set forth several changes related to (1) the process by which an M+C 
organization can be deemed, based on an accreditation organization's 
findings, to meet M+C requirements and (2) the standards for which such 
deeming is permissible. Revised section 1852(e)(4) now includes the 
following among requirements that must be deemed met if an 
accreditation body applies and enforces standards at least as stringent 
as those in this part: those requirements derived from section 1852(b) 
(concerning antidiscrimination), section 1852(d) (concerning access to 
services), section 1852(i) (concerning information on advance 
directives), and section 1852(j) (concerning provider participation 
rules), in addition to the requirements under section 1852(e)(1) and 
(2) concerning an M+C organization's quality assurance program and 
under 1852(h) concerning the confidentiality and accuracy of enrollee 
records. We are revising Sec. 422.156(b) to add these requirements. In 
addition, new section 1852(e)(4) specifies that the Secretary must make 
a determination within 210 days on a private accrediting organization's 
application to act as an accrediting organization for M+C requirements. 
This provision in effect mandates the same approval time frame that 
applies to original Medicare accreditation under section 1865(b) of the 
Act, and we are incorporating this requirement into Sec. 422.158(e).

[[Page 40175]]

11. Quality Assurance Requirements for PPO Plans (Section 520 of the 
BBRA)
    Section 520 of the BBRA amended section 1852(e)(2) of the Act to 
change the quality assurance requirements for PPO plans, effective for 
contract years beginning on or after January 1, 2000. In the past, PPO 
plans had been treated under the M+C statute and regulations in the 
same manner as all other M+C coordinated care plans. New section 
1852(e)(2)(D) establishes that, for purposes of the M+C quality 
assurance requirements, a PPO plan is an M+C plan that (1) has a 
network of providers that have agreed to a contractually specified 
reimbursement for covered benefits with the organization offering the 
plan; (2) provides for reimbursement for all covered benefits 
regardless of whether such benefits are provided within such network of 
providers; and (3) is offered by an organization that is not licensed 
or organized under State law as a health maintenance organization. We 
are incorporating this definition into the M+C regulations at 
Sec. 422.4. The quality assurance requirements that now will apply for 
PPO plans are identical to the existing requirements for non-network 
M+C MSA plans and M+C private fee-for-service plans. Thus, as set forth 
under revised Sec. 422.152, M+C organizations are no longer required to 
conduct performance improvement projects relative to their PPO plans, 
or to have their PPO plans meet minimum performance levels. M+C 
organizations offering PPO plans must still report on standard 
measures, however, and continue to comply with the quality assessment 
and performance improvement requirements that apply to all plans, such 
as those relating to health information and program review. See section 
II.E of this preamble for further detail on the quality assurance 
requirements for various types of plans.
12. User Fee for M+C Organizations Based on Number of Enrolled 
Beneficiaries (Section 522 of the BBRA)
    Under section 1857(e)(2) of the Act, the Secretary is directed to 
collect ``user fees'' from M+C organizations in order to pay for the 
costs associated with the enrollment and information distribution 
activities required for the M+C program under section 1851 of the Act 
and for the health insurance counseling and assistance programs under 
section 4360 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 
103-66). Before enactment of the BBRA, the aggregate amount to be 
collected from all M+C organizations was the lesser of (1) the 
estimated costs to be incurred by the Secretary in carrying out the 
applicable information dissemination activities or (2) an amount 
contingent upon the enactment of appropriations. An individual M+C 
organization's user fee was equal to its pro rata share of the 
aggregate amount of fees to be collected from all M+C organizations. 
Section 522 of the BBRA amended section 1857(e)(2) of the Act to 
provide that the aggregate amount of user fees to be collected from M+C 
organizations to carry out the required beneficiary education 
activities will be based on the lesser of the estimated costs of 
information dissemination or, for 2001 and thereafter, the ``M+C 
portion'' of $100 million, with the M+C portion representing the 
Secretary's estimate of the ratio of the average number of M+C 
enrollees for a fiscal year to the average total number of Medicare 
beneficiaries for the fiscal year. We are revising Sec. 422.10 to 
reflect the new statutory provisions. Consistent with section 522(b) of 
the BBRA, these changes are effective for user fees charged on or after 
January 1, 2001, and the Secretary may not increase the user fees for 
the 3-month period beginning October 2000, above those in effect during 
the previous 9 months. While we will comply with this latter 
limitation, we are not including it in regulations text, just as 
Congress did not include it in the text of section 1857(e).
13. Clarification Regarding Operation of M+C Plans by Religious 
Fraternal Benefit Societies (Section 523 of the BBRA)
    Section 523 of the BBRA amended section 1859(e)(2) of the Act to 
clarify that a religious fraternal benefit (RFB) society may offer any 
type of M+C plan, not just an M+C coordinated care plan. We are 
revising the definition of an RFB plan in Sec. 422.2 to reflect this 
change.
14. Rules Regarding Physician Referrals for M+C Program (Section 524 of 
the BBRA)
    Section 524 of the BBRA amended section 1877(b)(3) of the Act to 
specify that certain Medicare rules establishing prohibitions on 
physician referrals do not apply for purposes of M+C organizations 
offering M+C coordinated care plans, although they do apply for 
purposes of M+C MSA plans and private fee-for-service plans. As 
discussed in section II.E.10 of this preamble, this policy was 
incorporated into Sec. 411.355(c)(5) of the Medicare regulations 
through our June 26, 1998 interim final rule.

II. Analysis of and Responses to Public Comments

A. Overview

1. Comments on June 26, 1998 Interim Final Rule
    We received 87 items of correspondence containing hundreds of 
specific comments on the June 26, 1998 interim final rule. Commenters 
included managed care organizations and other industry representatives, 
representatives of physicians and other health care professionals, 
beneficiary advocacy groups, representatives of hospitals and other 
providers, insurance companies, States, accrediting and peer review 
organizations, members of the Congress, and others. Consistent with the 
scope of the June 26, 1998 rule, most of the comments addressed 
multiple issues, often in great detail. Listed below are the five areas 
of the regulation that generated the most concern:
    <bullet> Access issues, including requirements concerning 
coordination of care, initial assessments of enrollees' health care 
needs, timely pre-approval of post-stabilization services, and 
notification responsibilities when an organization terminates its 
relationship with a specialist.
    <bullet> Quality improvement standards.
    <bullet> Payment rates and service area policy.
    <bullet> Provider participation rules.
    <bullet> Beneficiary appeals and grievances.
    Among the other issues that generated substantial numbers of 
comments were:
    <bullet> Eligibility, election, and enrollment policies.
    <bullet> Marketing restrictions.
    <bullet> Risk adjustment methodology and encounter data submission.
    <bullet> Contractual requirements.
    <bullet> Preemption of State law by Federal law.
    <bullet> Deadline for ACR submissions and capacity waivers.
2. Issues in February 17, 1999 Final Rule
    In the February 17, 1999 final rule, we attempted to address those 
issues raised by public commenters where we were convinced that changes 
were needed and could quickly develop policies necessary to implement 
the changes. We also included policy clarifications for certain areas 
in which the material in the interim final rule had been 
misinterpreted. Also, to the extent possible, we addressed time-
sensitive issues, such as those that needed to be resolved before 
publication of this comprehensive M+C final rule or those that could 
affect plans or beneficiaries in areas where Medicare risk contractors

[[Page 40176]]

initially chose not to participate in the M+C program. Some of the 
specific issues we addressed related to provider participation 
procedures, beneficiary enrollment options, and several access-related 
issues, including initial care assessment requirements, notification 
requirements when specialists are terminated from an M+C plan, and 
coordination of care requirements.
3. Organization of Final Rule With Comment Period
    In this comprehensive M+C final rule with comment period, we 
address all comments received on the interim final rule that were not 
addressed in the February 17, 1999 final rule. (As noted above, we are 
also incorporating changes necessitated by the BBRA, subject to public 
comment.) For the most part, we will address issues according to the 
numerical order of the related regulation sections. However, many of 
the comments raise interrelated issues that involve multiple sections 
of the regulations. In these cases, we generally address all comments 
on these issues together, whenever the first relevant section of the 
regulations arises. Also, we note that all comments on the definitions 
set forth in Sec. 422.2 are addressed in the context of the 
requirements with which the applicable definitions are associated.
4. General Comments and Subpart A Issues

a. Administrative Procedure Act Issues

    We received two comments on various aspects of the M+C rulemaking 
process, as discussed below.
    Comment: A commenter contended that the June 26, 1998 interim final 
rule did not conform to requirements in the Administrative Procedure 
Act (APA). First, the commenter alleged that HCFA did not engage in 
``reasoned decision making'' because in certain instances cited by the 
commenter, the preamble contained ``no discussion of * * * factual 
predicates, no discussion of alternatives that were evaluated and 
rejected, and no cost-benefit analysis.'' The commenter specifically 
cited requirements for a compliance plan and certifications by 
executives in connection with this contention. Second, the commenter 
contended that the regulations should have been subjected to prior 
notice and comment. The commenter argued that the authority in section 
1856(b)(1) to issue interim final regulations only applied to existing 
standards under section 1876, and that failure to publish the rule by 
June 1 constituted ``a failure to satisfy a condition precedent for 
issuance of an interim final rule without notice and comment.'' 
Finally, the commenter argued that the rule impermissibly provided for 
compliance with our instructions, contending that this was an attempt 
to require compliance with instructions that should themselves be 
subjected to notice and comment.
    Another commenter commended us on our success in issuing 
comprehensive regulations for a complex new program in a short period 
of time.
    Response: The interim final rule includes an extensive preamble 
that explains the basis and purpose of the regulations, and meets the 
cited requirements of the APA. We believe that this preamble more than 
satisfies the requirements in the law for explaining the reasoning 
behind the decisions we made in the interim final rule. In some cases 
when we actively considered alternative approaches and rejected them, 
we included discussion of this in the interim final rule preamble. For 
example, in the discussion of grievance procedures (63 FR 35022-35023), 
we indicated that ``we considered'' including detailed requirements for 
M+C organization grievance procedures in the interim final rule, and 
``we considered requiring certain time frames for addressing 
grievances.'' Our reasons for not doing so in that rule were also set 
out in detail.
    We do not believe that the APA--or certain court decisions cited by 
the commenter--require us to discuss in the preamble every possible 
alternative that might have been considered to the approaches taken in 
the rule, but only to explain our reasons for the choices we made. To 
the extent we have received specific comments advocating alternative 
approaches, we explain in this final rule why we have not adopted these 
suggestions, where this is the case.
    With respect to the specific requirement that M+C organizations 
have a plan in place for ensuring compliance with applicable State and 
Federal laws, we indicated in the preamble that we believe that such a 
plan was part of the administrative and managerial capabilities that 
should be in place to carry out the contract and comply with 
obligations under the contract. Many organizations agree with this 
conclusion, and had compliance plans in place before this requirement 
was adopted. We believe that this is an important component of proper 
management, like an accountable board of directors. We explained in the 
preamble that we were establishing this requirement as an M+C standard 
under our authority in section 1856(b)(1) to establish M+C standards by 
regulation.
    As to the requirement for certifications as to the accuracy of 
data, we clearly explained in the preamble that we believed that since 
payments to M+C organizations are based on such data, the submission of 
the data is part of a ``claim'' for payment in the amount dictated by 
the data in question. We further explained that a certification of the 
accuracy of this information will help ensure accurate data 
submissions, and assist us and the DHHS Office of Inspector General in 
anti-fraud activities. We believe this is a clear and logical 
explanation of reasoned decision making in imposing this requirement.
    We disagree with the commenter's contention that we were required 
to provide prior notice and comment before publishing final 
regulations. Section 1856(a)(1) gives the Secretary the authority to 
promulgate regulations establishing the standards that will apply under 
the M+C program, and that the Secretary is authorized to ``promulgate 
regulations that take effect on an interim basis, after notice and 
pending opportunity for public comment.'' (Emphasis added.) The 
commenter suggests that this authority only applies to requirements 
that are based on existing section 1876 standards. This is incorrect, 
and is contradicted by other BBA provisions citing this rulemaking 
authority. The reference to section 1876 merely provides that, 
``consistent with the requirements of this part'' (meaning only to the 
extent that the BBA does not provide or authorize alternative 
approaches), ``standards established under this subsection shall be 
based on standards established under section 1876 to carry out 
analogous provisions of such section.'' section 1856(b)(2). This 
provision thus only applies to the extent we determine that doing so 
would be ``consistent with'' the new Part C provisions, and only with 
respect to those provisions in Part C that are ``analogous'' to a 
section 1876 standard. Even in this case, the new standards need only 
be ``based on'' the 1876 standards, not necessarily identical to such 
standards.
    The commenter's interpretation that section 1856(b)(1) of the Act 
applies only to the repromulgation of existing 1876 standards is also 
contradicted by other references in the BBA to this rulemaking 
authority. For example, section 1876(k)(2), added by section 4002 of 
the BBA, provides for rules dealing with ``grandfathered'' Part B only 
enrollees. Since Part B only enrollees were permitted under section 
1876, there were no section 1876 standards addressing the treatment of 
``grandfathered'' enrollees. Yet, section

[[Page 40177]]

1876(k)(2) provides that such enrollees may ``continue [grandfathered] 
enrollment in * * * accordance with regulations described in section 
1856(b)(1).'' Section 1876(k)(2). This makes clear that the rulemaking 
authority in section 1856(b)(1) is broader than the commenter contends.
    The commenter's contention that we cannot avail ourselves of the 
interim final rule authority because the rule was not published by June 
1, 1998, is illogical. If the Congress authorized interim final 
regulations because it wanted the rules to be in place by June 1, it 
would not wish regulations that have already missed this deadline to be 
delayed further by notice and comment rulemaking. Indeed, the fact that 
rules were not published by June 1 made the desirability and necessity 
of issuance in interim final form with an opportunity for public 
comment all the more urgent.
    Finally, with respect to our instructions, we intend only to issue 
instructions that implement or interpret substantive provisions 
included in these regulations. To the extent the commenter believes 
that subsequent instructions are issued that should have been subjected 
to notice and comment, it can make this argument at that time. The fact 
that we require compliance with guidance we issue to implement these 
rules is fully consistent with the APA.

b. Types of M+C Plans (Sec. 422.4)

i. M+C Coordinated Care Plans (Sec. 422.4(a)(1))
    A coordinated care plan is a plan that includes a network of 
providers that are under contract or arrangement with the M+C 
organization to deliver the benefit package approved by us. The network 
is approved by us to ensure that all applicable requirements are met, 
including access and availability, service area, and quality. 
Coordinated care plans may include mechanisms to control utilization, 
such as referrals from a gatekeeper for an enrollee to receive services 
within the plan, and financial arrangements that offer incentives to 
providers to furnish high quality and cost-effective care. Coordinated 
care plans include plans offered by HMOs, PSOs, and PPOs, as well as 
other types of network plans (except network MSA plans). We received no 
comments on our definition of coordinated care plan.
ii. Religious and Fraternal Benefit Society Plan
    One specific type of M+C plan authorized by the BBA is a religious 
and fraternal benefit society plan (RFB plan), which is defined in 
section 1859(e) of the Act. An RFB plan is a new plan that may be 
offered under the M+C program. In Sec. 422.2, an RFB society is defined 
as an organization that (1) is described in section 501(c)(8) of the 
Internal Revenue Code of 1986 and is exempt from taxation under section 
501(a) of that Act and (2) is affiliated with, carries out the tenets 
of, and shares a religious bond with, a church or convention or 
association of churches or an affiliated group of churches. As noted 
above, an RFB plan was defined in the BBA as a coordinated care plan 
that is offered by an RFB society. We received two comments regarding 
RFB plans.
    Comment: Two commenters noted that the definition of religious and 
fraternal benefit (RFB) society found in Sec. 422.2 of the regulations 
would be clearer if the word ``benefit'' were added to the beginning of 
this definition.
    Response: We agree that the word ``benefit'' was inadvertently 
omitted and have added the word ``benefit'' after the words ``religious 
and fraternal'' in that section.
    Comment: One commenter asked whether RFB society plans are limited 
to being a coordinated care plan, or whether an RFB society could also 
offer a private fee-for-service plan or an MSA plan. A related question 
asked by the commenter is whether RFB plans can include a point of 
service (POS) option.
    Response: As noted above, under the BBA, a RFB society could only 
offer a coordinated care plan as a RFB plan. Section 523 of the BBRA, 
however, amended section 1859(e)(2) of the Act to provide that an RFB 
society may offer any type of M+C plan. An RFB plan that operates as an 
M+C coordinated care plan may include a POS option, as could any other 
M+C coordinated care plan.
iii. M+C MSA Plans (Sec. 422.4(a)(2))
    The comments received regarding M+C MSA plans are discussed in 
section III of this preamble. iv. Multiple Plans (Sec. 422.4(b))
    In the interim final rule, we specified that under its contract, an 
M+C organization may offer multiple plans, regardless of type, provided 
that the M+C organization is licensed or approved under State law to 
provide those types of plans (or, in the case of a PSO offering a 
coordinated care plan, has received from us a waiver of the State 
licensing requirement).
    Comment: Noting that an M+C organization can offer multiple plans 
under a single contract with us, a commenter asked how multiple plans 
would work, and whether each would be required to have a separate 
health services delivery system. The commenter stated that in order to 
reduce the administrative cost of multiple plans, we should maximize 
assessment of compliance with Medicare requirements at the M+C 
organization level and minimize compliance assessment at the individual 
plan level.
    Response: An M+C organization may offer multiple M+C plans under a 
single contract with us. Each M+C plan must have its own HCFA-approved 
service area, and a separate ACR submission that also must be approved 
by us. For coordinated care and network MSA plans, we will verify that 
each plan has a health care provider network under contract that meets 
M+C standards for access and availability to health care services for 
beneficiaries who enroll in the given plan. Although we will attempt to 
achieve all appropriate monitoring efficiencies when contractual 
elements are identical across plans, we have a responsibility to ensure 
compliance at the plan level when requirements are plan-specific, such 
as those noted above.

c. Application Requirements and Procedures (Secs. 422.6 and 422.8)

    These sections set forth application requirements for entities that 
seek a contract as an M+C organization offering an M+C plan. One of the 
new requirements we set forth in the interim final rule was that 
organizations wishing to contract with us must submit documentation of 
their appropriate State licensure, or submit documentation of State 
certification that the entity is, in fact, able to offer health 
insurance or health benefits coverage meeting State fiscal solvency 
standards and is authorized to accept prepaid capitation for providing, 
arranging, or paying for comprehensive health care services. We further 
specified that entities meeting the definition of a PSO can be exempted 
from this requirement if they meet conditions for a waiver, which can 
be granted by us in accordance with subpart H of part 422. Section 
422.8 of the interim final rule describes the application requirements 
for entities seeking to contract with us to offer M+C plans, as well as 
our application evaluation procedures.
    Comment: One commenter suggested that our use of terms referring to 
entities that qualify for M+C contracts (M+C organization) and 
applicants for such contracts are inconsistent and confusing. For 
instance, at Secs. 422.8(a)(3), 422.8(e), and 422.8(g), we use the term 
``entity'' to refer to an organization applying to become an M+C 
organization, while at Secs. 422.8(d)

[[Page 40178]]

and (f) we use the term ``M+C organization.''
    Response: Clearly, we should not refer to an organization that has 
not obtained approval from us to become a contractor under the M+C 
program as an ``M+C organization.'' Accordingly, we have revised 
Sec. 422.8 to uniformly refer to organizations that apply to become M+C 
organizations as ``contract applicants.'' This is consistent with our 
use of this term elsewhere in this final rule.
    We likewise agree with the comment that organizations that have 
received approval to operate as an M+C organization should uniformly be 
called an ``M+C organization.'' Accordingly, we have revised applicable 
subsections of Sec. 422.8 to uniformly use the term ``M+C 
organization'' to refer to an existing contractor under the 
Medicare+Choice program.

d. User Fees (Sec. 422.10)

    This section implements section 1857(e)(2) of the Act, as revised 
by section 522 of the BBRA. Section 1857(e)(2) requires that M+C 
organizations share in costs associated with beneficiary enrollment in 
M+C plans, including the costs of providing information and counseling 
on plan choices. It sets forth the maximum amount of the aggregate 
``user fees'' that can be collected from M+C organizations as well as 
the procedures that we follow to assess and collect these amounts from 
M+C organizations.
    In the June 26, 1998 interim final rule, we referred to interim 
final regulations published on December 2, 1997, which implemented 
section 1857(e)(2) for risk contractors under section 1876. (Under 
section 1876(k)(4)(D), the obligation under section 1857(e)(2) applied 
to section 1876 contractors in 1998.) These December 1997 interim final 
regulations set forth a methodology for determining an individual 
organization's ``pro rata share'' of the beneficiary costs to be 
assessed (62 FR 63669). We also explained in the June 26, 1998 interim 
final rule that we were simply adopting at Sec. 422.10, for purposes of 
the M+C program, the user fee provisions previously set forth in 
Sec. 417.472(h) of the December 1997 interim final rule. As we 
indicated in the June 26, 1998 interim final rule, we are addressing 
the comments received on the substance of the December 1997 interim 
final rule in this comprehensive M+C final rule. (Since there are no 
remaining section 1876 risk contractors, Sec. 417.472(h) itself no 
longer has any applicability.)
    As described above, section 522 of the BBRA subsequently amended 
the user fee provisions set forth in section 1857(e)(2) of the Act, 
effective for user fees charged on or after January 1, 2001. Revised 
section 1857(e)(2) now establishes that beginning in the year 2001 the 
maximum amount of aggregate user fees that we may collect during a 
fiscal year from M+C organizations will be determined by the percentage 
of Medicare enrollees in M+C plans. Specifically, we will calculate: 
the annual average number of Medicare beneficiaries enrolled in M+C 
plans during a fiscal year divided by the average number of individuals 
entitled to benefits under part A, and enrolled under part B, during 
the fiscal year. This ratio will be multiplied by $100,000,000 to 
determine the maximum aggregate user fees we may collect from all M+C 
organizations in a given fiscal year. (Under section 1857(e)(2), we 
collect the lesser of (1) the actual costs of carrying out the required 
information dissemination activities or (2) the maximum aggregate 
amount permitted under the Act.)
    We received five letters of comment regarding the interim final 
rule of December 2, 1997, which established the assessment method under 
which all M+C organizations are assessed the same fixed percentage of 
their total monthly Medicare payments, in order to collect the M+C user 
fee. Two commenters supported the user fee assessment methodology 
selected by us and considered that it was equitable both to 
organizations and beneficiaries; three commenters opposed the 
methodology. We also received six letters commenting on the same 
methodology in response to the interim final M+C regulation of June 26, 
1998. Again, three commenters argued that the user fee was unfair to 
M+C organizations since it resulted in these organizations funding an 
information campaign for all Medicare beneficiaries, not just those 
enrolled in M+C organizations. These latter concerns are now moot in 
light of the BBRA amendments limiting M+C user fees to the percentage 
of information dissemination costs representing the percentage of total 
Medicare beneficiaries that are M+C enrollees. Comments that remain 
relevant are discussed below.
    Comment: A commenter expressed concern about the costs of the 
education campaign implemented by us and how the funds collected from 
M+C organizations would be spent. The commenter asked that we make 
available detailed information on the budget, resource allocation, and 
past and projected expenditures for the beneficiary information 
campaign, in order to justify the user fee funding levels. The 
commenter also expressed concern that we should not collect more in 
user fees than entitled by law. Specifically, the commenter noted that 
at Sec. 422.10(d), we are only entitled to collect the lesser of the 
estimated costs necessary to implement educational activities in that 
fiscal year or the appropriated amount. The commenter also stated that 
the reduction in M+C payments due to the assessment of the user fee 
will deter new organizations from entering the M+C program.
    Response: Although not required under the statute or the BBA, we 
provide an annual report to the Congress that includes an assessment of 
the implementation of the M+C program. This report also provides 
budgetary information on the expenditures of the fees we have collected 
to fund the M+C information campaign. As stated in revised 
Sec. 422.10(d)(2), beginning in fiscal year 2001, we will collect in a 
fiscal year the lesser of either the amount needed to implement the 
required information dissemination and other activities, or the amount 
equal to the M+C portion of $100 million. The fees collected from any 
one organization would represent a very small percentage of the total 
annual Medicare payments to that organization, and we do not believe 
that they would deter an organization from entering the M+C program.
    Comment: A commenter argued that the assessment method adopted by 
us, under which a percentage of the monthly payment to an M+C 
organization is assessed, is unfair because it results in organizations 
in high capitation payment areas paying more (in total dollars) than 
organizations in lower payment areas. The commenter expressed the view 
that it is unfair to charge an organization in New York more than an 
organization in Nebraska.
    Response: In selecting an assessment methodology, we sought an 
approach that is as financially equitable as possible regardless of an 
M+C organization's size or geographical location. We also wanted a 
methodology that would not present a barrier to participation for 
smaller and new M+C organizations. We adopted the percentage of payment 
approach because it bases each organization's assessment on the total 
Medicare dollars flowing to that particular organization. Thus, the fee 
each organization pays is directly proportional to the total dollars 
the organization receives from the Medicare program. M+C organizations 
that receive larger payments (based on monthly enrollment and payment 
levels) will pay more in total dollars

[[Page 40179]]

than M+C organizations with less Medicare money coming in.
    Comment: A commenter stated that the assessment of a user fee 
should be directly related to the costs of providing services. Since no 
evidence has been presented that the costs of a national mail campaign 
are higher in one county than another, the user fee should be even 
across all counties.
    Response: While the fees collected from M+C organizations will be 
used primarily to fund a national information campaign designed to 
reach all Medicare beneficiaries, some funds will go to local efforts, 
where, as noted above, costs do vary. In any event, this assessment is 
not an organization-specific ``user fee'' such as those imposed under 
the user fee statute. The assessments are not based on specific costs 
associated with an individual M+C organization, but on a share of 
aggregate costs. Specifically, the statute provides for each M+C 
organization to pay its pro rata share ``as determined by the 
Secretary'' of the ``aggregate amount'' spent on the specified costs. 
Thus, data on actual costs associated with an individual organization 
are not relevant. Rather, we consider the fee as an assessment to be 
levied in a manner that, to the extent possible, equitably balances the 
financial impact on all organizations.
    Comment: A commenter stated that we should not use the user fee 
assessment as a way to equalize Medicare managed care payments in 
different areas of the country. Noting that the Congress has provided 
for a minimum update in high payment areas, the commenter contended 
that we will be violating the spirit of the law by taking more from 
organizations offering M+C plans in these areas.
    Response: No consideration was given to using the user fee 
assessment methodology as a tool to adjust the level of Medicare 
payment to M+C organizations in different parts of the country. In 
fact, since the percentage impact on all M+C Medicare payments is equal 
(a fixed percentage of total payment), this is the one approach that 
maintains the relative payment levels of all organizations.
    Comment: Another commenter asserted that the user fee assessment 
method we selected--with fees based on percentage of an organization's 
M+C payment--has the effect of penalizing those M+C plan enrollees who 
reside in counties with higher payment rates. The commenter wrote that 
enrollees in high payment rate areas will pay much more for their 
existing benefits.
    Response: In terms of total dollars, it is true that M+C 
organizations in high payment areas will pay more on a per member basis 
than organizations in lower payment areas. However, as previously 
noted, the assessment percentage is the same for all organizations. A 
method that does not take into account the total dollars flowing to 
each plan would be regressive and unfair, because it would have a 
disproportionately high financial impact on organizations (and their 
members) located in mid to lower payment areas and those with low 
enrollment.
    Comment: One commenter recommended that all M+C organizations pay a 
minimum user fee amount and then, on top of that minimum amount, 
organizations should also pay a flat monthly amount for each member. 
The commenter stated that this approach would ensure that the user fee 
is reasonably related to the benefit that the organization will receive 
from the M+C program.
    Response: We considered the approach suggested by the commenter but 
rejected it because, unless the flat fee were set at a very low level, 
it would present an entry barrier for organizations with relatively low 
enrollment levels. We also rejected a flat per member monthly 
assessment because it does not adjust for the geographic variation in 
our monthly capitation payments to M+C organizations.

B. Eligibility, Election, and Enrollment

1. Eligibility to Elect an M+C Plan (Sec. 422.50)
    Section 1851(a) of the Act sets forth the criteria for an 
individual to be eligible to elect an M+C plan. Consistent with the 
statute, Sec. 422.50 specifies that an individual is eligible to elect 
an M+C plan if he or she:
    <bullet> Is entitled to Medicare under Part A and enrolled in Part 
B (except that an individual entitled only to Part B and who was 
enrolled in an HMO or Competitive Medical Plan (CMP) with a risk 
contract under part 417 on December 31, 1998 may continue to be 
enrolled in the M+C organization as an M+C plan enrollee);
    <bullet> Has not been medically determined to have end-stage renal 
disease, except that an individual who develops end-stage renal disease 
while enrolled in an M+C plan or other health plan offered by an M+C 
organization may continue to be enrolled in the M+C plan, or if 
enrolled in another health plan, may enroll in an M+C plan offered by 
the organization, if the individual is otherwise eligible to enroll in 
the M+C plan;
    <bullet> Resides in the service area of the plan, except that an 
individual who resides in a continuation area of an M+C plan while 
enrolled in a health plan offered by the M+C organization may continue 
to be enrolled with the M+C organization as an M+C plan enrollee under 
the terms that apply to enrollees in the continuation area;
    <bullet> Completes and signs an election form and gives information 
required for enrollment; and
    <bullet> Agrees to abide by the rules of the M+C organization after 
they are disclosed to him or her in connection with the election 
process.
    We specified in the interim final rule that an M+C-eligible 
individual may not be enrolled in more than one M+C plan at any given 
time. Comments on the M+C eligibility rules are discussed below.
    Comment: Several commenters objected to the omission from the 
regulations of any provision permitting individuals to remain enrolled 
with an organization upon becoming Medicare eligible if they were 
enrolled with the organization as a commercial enrollee, but live 
outside the Medicare service area. In particular, commenters 
recommended that beneficiaries residing outside of an M+C plan's 
service area be allowed to remain enrolled with the M+C organization 
offering the M+C plan as an M+C plan enrollee upon becoming eligible 
for Medicare, even if they live outside the M+C service area. 
Commenters noted that the previous regulations in Part 417 that applied 
to section 1876 risk contracts allowed an individual enrolled with an 
organization as a commercial enrollee to remain enrolled with the 
organization as a Medicare enrollee upon becoming eligible for Medicare 
even if the individual did not live in the Medicare service area. 
Several commenters asserted that the continuation area option provided 
for in the BBA (discussed in further detail below) was not an adequate 
replacement for the previous option; they believe that prohibiting out-
of-area members from voluntarily remaining enrolled in M+C plans unduly 
restricts the options available to beneficiaries and causes unnecessary 
disruptions in care. One commenter noted that section 1851(b)(1)(A) of 
the Act gives us the discretion to make an exception to the requirement 
that the individual reside in the M+C plan's geographic area.
    Response: The last commenter is correct that section 1851(b)(1)(A) 
states that, ``Except as the Secretary may otherwise provide (emphasis 
added), an individual is eligible to elect an M+C plan offered by the 
M+C organization

[[Page 40180]]

only if the plan serves the geographic area in which the individual 
resides.'' In accordance with the statute, existing Sec. 422.250(a) 
generally limits eligibility to elect an M+C plan to individuals living 
in the plan's service area. The only discretion exercised by the 
Secretary in the M+C regulations was to permit individuals the option 
of continuing enrollment in the plan if they move out of the service 
area and into a plan's ``continuation area'' (which can be established 
pursuant to section 1851(b)(1)(B) of the statute and Sec. 422.254 of 
the M+C regulations, as discussed in detail below.)
    Based on the comments we received on the interim final rule, 
however, as well as the reluctance of M+C organizations to establish 
formal continuation areas, we have become convinced that the 
regulations should be amended to provide for additional choices for 
beneficiaries. Thus, we are amending Sec. 422.50 (with conforming 
changes to Secs. 422.66(d)(1) and 422.74(b)(2) and (b)(4)) to permit 
M+C organizations to offer a ``seamless conversion'' option to 
individuals who, upon becoming entitled to Medicare, live outside of an 
M+C plan's service area but are already enrolled in a commercial health 
plan offered by the same organization. If an M+C organization chooses 
to offer this option, it must offer the option to all individuals who 
were enrolled in a commercial health plan offered by the organization 
at the time they become Medicare-eligible. We do not believe it is 
appropriate to limit the availability of this option only to 
beneficiaries who had previously been enrolled in employer group health 
care plans, but instead are providing that both individual and employer 
group members of commercial health plans may elect to remain enrolled 
with their organization under an M+C plan under an expanded ``seamless 
conversion'' option. Similarly, we note that this expanded eligibility 
requirement is not limited to situations in which an enrollee becomes 
eligible for Medicare by virtue of age (referred to in the past as 
``age in'' enrollees), but will apply to all newly eligible Medicare 
beneficiaries, including the ESRD and disabled population. (As noted 
above, we previously determined, in the interim final rule, that people 
with ESRD who are enrolled with an organization before becoming 
Medicare eligible may remain enrolled with the organization as an M+C 
plan enrollee.) We note that organizations that wish to offer this 
option must meet the M+C access standards under Sec. 422.112, and must 
furnish the same benefits to these enrollees as to enrollees who reside 
in the plan service area. Such enrollees should be made aware by the 
M+C organization of the extent to which they will need to travel into 
the plan service area to obtain service.
    Comment: One commenter pointed out that State-authorized managed 
long term care plans may identify a chronically ill target population 
to be served, while the M+C regulations at Sec. 422.50 do not allow an 
M+C plan to discriminate within an approved service area among those 
who are eligible to enroll in M+C plans. The regulations also do not 
provide for plans to enroll special populations. The commenter asked 
whether these provisions are waivable to permit plans authorized as 
managed long-term care plans under State law to participate in the M+C 
program.
    Response: There is no authority in the statute to ``waive'' the 
requirement that M+C organizations accept all M+C-eligible individuals 
in the service area who wish to enroll. However, we have approved 
demonstration projects under independent demonstration authority that 
involve managed care entities that restrict Medicare enrollment to 
long-term care populations. Long-term care plans may be able to 
participate in Medicare under such a demonstration.
    Comment: One commenter asked for clarification regarding whether 
individuals who are enrolled only in Medicare Part B or who have ESRD, 
and were grandfathered into M+C plans as of January 1, 1999, can move 
from plan to plan in the same M+C organization or to another 
organization. The commenter supported allowing the individual to move 
between plans and organizations. Another commenter suggested that we 
allow an individual enrolled only in Medicare Part B who retained his 
or her enrollment in an M+C plan as of January 1, 1999, to enroll in 
another M+C organization for a period of time after disenrolling from 
an M+C plan. In addition, the commenter suggested that individuals 
enrolled only in Medicare Part B should be able to enroll in an M+C 
plan at any time until 2002.
    Response: We agree that grandfathered Part B-only individuals and 
individuals with ESRD should be allowed to move between plans within an 
M+C organization, and have specified that this is permissible in OPL 
99.084, issued on February 26, 1999. With respect to beneficiaries with 
ESRD, this policy is based on section 1851(a)(3)(B) of the Act, which 
we interpret as permitting an existing enrollee who develops ESRD while 
enrolled with an organization to remain enrolled with that 
organization. This is an exception to the general rule that an 
individual medically determined to have ESRD is not eligible to enroll 
in an M+C plan. However, we do not have statutory authority to permit a 
beneficiary with ESRD to enroll in a plan offered by a different M+C 
organization. Similarly, under section 1851(a)(3) of the Act, Part B-
only enrollees generally are ineligible to enroll in an M+C plan. 
Section 1876(k)(2) of the Act, however, permitted a Part B-only 
beneficiary enrolled with an organization under a section 1876 risk 
contract on December 31, 1998, to continue enrollment in that 
organization if the organization has entered into an M+C contract 
effective January 1, 1999. Again, we have no statutory authority to 
expand upon this exception by permitting that individual to enroll with 
a different M+C organization from the one in which he or she was 
enrolled on December 31, 1998, under a section 1876 risk contract.
    Comment: One commenter stated that individuals enrolled only in 
Medicare Part B who disenroll from M+C should be permitted to 
immediately enroll in Medicare Part A, and the surcharge for late 
enrollment should be eliminated.
    Response: Provisions affording such beneficiaries these protections 
have been in place for some time. The Omnibus Reconciliation Act of 
1990 established the Transfer Enrollment Period (TEP) during which 
individuals who have Part B only and whose coverage in a Medicare 
managed care plan is terminated for any reason may immediately enroll 
in Premium Part A. This provision is found at section 1818(c)(7) of the 
Social Security Act, and Sec. 406.21(f) of our regulations, which also 
provide for relief from the premium surcharge for late enrollment. 
Under the TEP provisions, individuals may enroll in Premium Part A 
during any month in which they are still enrolled in the managed care 
plan or during the 8-month period following the last month of coverage 
under the plan. Under certain circumstances enrollment may occur up to 
3 months in advance. If the individual enrolls in Premium Part A while 
still enrolled in the managed care plan or during the first full month 
when not so enrolled, Part A coverage is effective with the month of 
enrollment or, at the individual's option, the first day of any of the 
following 3 months. If enrollment occurs during the 7 remaining months 
of the TEP, Part A coverage is effective the month after the month of 
enrollment.
    Comment: One commenter suggested that the regulation be revised to 
permit individuals with ESRD who have been

[[Page 40181]]

enrolled in a commercial plan or a Medicare Cost HMO offered by the M+C 
organization to enroll in an M+C plan of that organization.
    Response: Existing Sec. 422.50(a)(2) provides this protection, 
stating that an individual who develops ESRD while enrolled in an M+C 
plan, or in a health plan offered by the M+C organization offering an 
M+C plan in the area in which the individual resides, may continue to 
be enrolled in an M+C organization as an M+C plan enrollee. Also, 
consistent with section 1851(a)(3)(B) of the Act, we have specified in 
OPL99.084 that individuals with ESRD may move among plans within an M+C 
organization. (We note that under this final rule, the individual may 
remain enrolled even if he or she does not live in the service area if 
new Sec. 422.50(a)(3)(ii) applies.) For purposes of Sec. 422.50(a)(2), 
``a health plan offered by the M+C organization'' includes any 
commercial health plan and any cost contract held by that organization. 
In the case of an individual who develops ESRD while enrolled in a 
commercial plan offered by a cost contractor, the section 1876 rules 
similarly allow such an individual to remain enrolled with that 
organization under its cost contract after becoming eligible for 
Medicare.
    Comment: One commenter believes that we are interpreting the phrase 
``entitled to benefits under Part A and enrolled in Part B'' 
incorrectly.
    Response: Our interpretation of this phrase is explained in detail 
in the interim final rule (63 FR 34979), and we would refer the 
commenter to that detailed explanation. To briefly reiterate our 
reasoning, we believe that the Congress intended that a newly eligible 
individual be given the opportunity to be enrolled in an M+C plan only 
after he or she is actually entitled to receive benefits under Part A 
and Part B. This view is supported by language in section 1851(e)(1) of 
the Act, which refers to ``the time an individual first becomes 
entitled to benefits under Part A and enrolled under Part B,'' and 
provides for the Secretary to specify an initial coverage election 
period under which such an individual may elect coverage under an M+C 
plan ``effective as of the first date on which the individual may 
receive such [Part A and Part B] coverage'' (emphasis added). While an 
individual technically may have ``enrolled'' in Part B once an 
application has been completed, such an individual's right actually to 
``receive'' coverage of services under Part B may not occur for a 
period of months. (See 63 FR 34979.) Since M+C organizations are paid 
in part from Part B trust funds, we do not believe it would be 
appropriate for an individual to be enrolled in an M+C plan before he 
or she is entitled to ``receive'' Part B trust fund payments. We 
therefore have interpreted ``enrolled in Part B'' to mean entitled to 
receive Part B coverage. Consistent with section 1856(b)(2) of the Act 
(which provides for use of section 1876 standards to carry out 
analogous M+C provisions), this interpretation follows our longstanding 
interpretation of identical language in section 1876(d) of the Act.
2. Continuation of Enrollment (Sec. 422.54)
    Section 1851(b)(1)(B) of the Act permits M+C organizations to offer 
enrollees the option of continued enrollment in an M+C plan when 
enrollees leave the plan's service area to reside elsewhere (that is, 
in the ``continuation'' area) on a permanent basis. M+C organizations 
that choose to offer a continuation of enrollment option must explain 
the option in marketing materials, and make it available to all 
enrollees in the service area of the plan. Enrollees may choose to 
exercise the option of continued enrollment when they move out of the 
plan's service area, or they may choose to disenroll.
    An M+C organization must obtain our approval of the continuation 
area and related marketing materials, and meet the access requirements 
under section 1851(b)(1)(B) of the Act, before it may offer a 
continuation of enrollment option to Medicare beneficiaries.
    The payment rate for the M+C organization is based on the rate and 
adjustment factors that correspond to the beneficiary's permanent 
residence. Under section 1851(b)(1)(B) of the Act, the M+C organization 
must, at a minimum, provide or arrange for the provision of Medicare-
covered benefits under section 1852(a)(1)(A) of the Act in the 
continuation area. This does not include any additional benefits the 
organization is required to provide to noncontinuation area members 
under section 1852(a)(1)(B) of the Act.
    Section 1851(b)(1)(B) of the Act requires that ``reasonable 
access'' be provided in the continuation area, and that enrollees be 
subject to ``reasonable cost sharing.'' In the interim final rule, we 
required that M+C organizations satisfy the access requirements in 
Sec. 422.112, and provide services either through written agreements 
with providers or by making payments that satisfy the requirements in 
Sec. 422.100(b)(2).
    We are defining ``reasonable cost sharing'' in the continuation 
area as limited to the cost-sharing amounts required in the M+C plan's 
service area (in which the enrollee no longer resides).
    The interim final rule also provides that appeals and grievances of 
enrollees in the continuation area must be handled in the same timely 
fashion as for other enrollees. The ultimate responsibility for the 
handling of appeals and grievances is with the organization that is 
receiving payment from us.
    We received 11 comments requesting further guidance regarding the 
continuation of enrollment option. Generally, commenters endorsed the 
continuation of enrollment concept and urged us to define continuation 
areas broadly in order to enhance coverage options for enrollees.
    Comment: One commenter asked whether the beneficiary may choose the 
continuation area option verbally or in writing.
    Response: Our current policy, as outlined in OPL 99.100 (which was 
published August 9, 1999), requires that the beneficiary choose the 
continuation area in writing, so that there is documentation of this 
choice. We further believe that in the absence of an affirmative choice 
to remain enrolled in an M+C plan under the different terms that apply 
to continuation enrollees, a move out of an M+C service area should be 
treated as a decision to disenroll from the M+C plan. We accordingly 
have amended Sec. 422.54(c)(2) to provide that a beneficiary's choice 
to continue enrollment in a continuation area must be made in a manner 
specified by us, and that in the absence of such a choice, the 
beneficiary will be considered to have chosen to disenroll from the M+C 
plan if he or she moves out of its service area.
    Comment: Commenters recommended that the benefits in the 
continuation area should reflect the level of reimbursement the M+C 
organization receives, and thus should include any additional benefits.
    Response: As the commenters point out, the existing continuation of 
enrollment regulations at Sec. 422.54(d) require, at a minimum, that 
M+C plans provide Medicare-covered services in the continuation area. 
We recognize that this permits M+C plans to offer less generous 
benefits in the continuation area while still receiving the full 
Medicare payment. Section 1851(b)(1)(B) of the Act provides that 
individuals exercising the continuation of enrollment option have 
access to the ``full range of basic benefits'' described in section 
1852(a)(1)(A) of the Act. However, section 1852(a)(1)(A) of the Act 
refers only to those benefits available under Parts A and B, and not

[[Page 40182]]

to additional benefits, which are described in section 1852(a)(1)(B) of 
the Act. Thus, although we agree that it would be preferable that M+C 
organizations be required to provide additional benefits to 
continuation area enrollees, the statute does not support this 
requirement. Therefore, we are considering a legislative proposal that 
would correct this inequity.
    Comment: Several commenters inquired about the process for applying 
to us for a continuation area.
    Response: We are adding a continuation area chapter to the M+C 
application for new M+C organization applicants. A separate application 
form will be available for current M+C contractors who wish to apply 
for a continuation area. Further guidance regarding the application 
process will be available in a forthcoming OPL.
    Comment: One commenter asked whether a member must use only 
Medicare-certified facilities in the continuation area.
    Response: The pertinent requirements in Sec. 422.204(a)(3) apply 
equally to services furnished in a continuation area. Under 
Sec. 422.204(a)(3), benefits must be provided through, or payments must 
be made to, providers that meet applicable title XVIII requirements. 
Further, a hospital, nursing home, home health agency, or other 
``provider of services'' as defined in section 1861(u) of the Act, must 
have a provider agreement with us in place. (See section II.E of this 
preamble for further details on this requirement.) We believe these 
requirements help to assure the quality of care that is provided to 
beneficiaries.
    Comment: Another commenter suggested that we allow M+C 
organizations a 1-year transition period to establish continuation 
areas and implement any continuation area requirements.
    Response: We believe the regulations provide organizations with 
sufficient opportunity to implement continuation area requirements. M+C 
organizations are not required to establish a continuation area for 
their enrollees. Thus, an M+C organization may choose not to offer a 
continuation area until it is ready to implement the requirements 
outlined in Sec. 422.54.
    Comment: One commenter questioned whether State licensing 
regulations may supersede the potential advantages or enrollment 
flexibility of the continuation area.
    Response: We believe the commenter is questioning how State 
licensing requirements will affect an M+C organization's ability to 
establish or offer the continuation of enrollment option. Section 
422.400(a) states that an M+C organization must be licensed under State 
law, or otherwise authorized to operate under State law, as a risk-
bearing entity eligible to offer health insurance or health benefits 
coverage. Therefore, an M+C organization may establish a continuation 
area only in a State in which it is licensed under State law or 
otherwise authorized to operate. The individual States have the 
authority to determine whether they are going to require licensure or, 
for example, permit the M+C organization to use the licensure of an 
affiliate if it wishes to establish an out-of-State continuation area. 
Although we are not aware of State laws that unduly restrict the 
establishment of continuation areas, we would refer the reader to 
section II.I of this preamble for a detailed discussion of situations 
in which State laws are preempted by M+C laws and regulations.
    Comment: Some commenters contended that we interpreted section 
1851(b)(1)(B) of the Act too restrictively. For example, commenters 
objected to the requirement in Sec. 422.54 that an M+C plan's service 
area must be geographically distinct from its continuation area. 
Commenters also questioned whether enrollees who move to continuation 
areas in counties adjacent to the M+C plan's service area may continue 
to receive services in the M+C plan's service area.
    Response: A continuation area, as defined at Sec. 422.54(a), is an 
additional area outside the service area in which the M+C organization 
furnishes or arranges for furnishing services to its enrollees. The 
regulation does not prohibit continuation areas adjacent to the M+C 
plan's service area, as the commenter appears to believe. Further, we 
agree that enrollees residing in a continuation area adjacent to the 
M+C plan's service area may receive services in the M+C plan's service 
area, as long as the access and service requirements of Sec. 422.112 
are met.
    Comment: One commenter suggested that we allow enrollees to obtain 
services in the continuation area, even if they are not living in the 
continuation area permanently.
    Response: The continuation area is intended for those enrollees who 
reside permanently outside of the service area (and permanently inside 
the continuation area) and want to remain enrolled in the plan. We do 
not have the authority to direct M+C plans to offer enrollees, 
temporarily residing in the continuation area, benefits in excess of 
the urgent/emergent care required by the statute and those benefits 
voluntarily offered by an M+C plan in its traveler/visitor policy.
    Comment: One commenter requested clarification regarding whether 
the continuation of enrollment option is intended to replace current 
travel programs. The commenter also inquired whether an enrollee would 
remain enrolled for the first 12 months with coverage only for 
emergency and urgently needed care, and then convert to a continuation 
of enrollment option.
    Response: The continuation of enrollment option is not designed to 
replace current travel programs. In general, the purpose of traveler/
visitor programs is to allow enrollees the opportunity to continue 
obtaining health care services while traveling outside the service area 
of the M+C plan in which they are enrolled. In contrast, the 
continuation of enrollment option is intended to permit enrollees to 
remain enrolled with an M+C plan if they move permanently outside of 
the plan's service area. If the enrollee moves permanently into an area 
other than a continuation area, the member must be disenrolled as soon 
as the M+C organization is aware of the move and the enrollee has been 
notified. If an enrollee moves permanently into a geographic area 
designated as a continuation area, and chooses to remain a member of 
the M+C plan as a continuation of enrollment member, the enrollee must 
receive, at a minimum, Medicare-covered services. If an enrollee moves 
temporarily into the continuation area, or any area outside the service 
area, the M+C plan must provide coverage for emergency and urgently 
needed care. With respect to the question of whether an enrollee would 
remain enrolled for the ``first 12 months'' after a move, before 
converting to a continuation enrollment option, an individual can be a 
continuation enrollee as soon as he or she moves permanently to the 
continuation area. There is no waiting period.
3. Election Process (Sec. 422.60)
    The general rule for acceptance of enrollees is that, except for 
the limitations on enrollment in an M+C MSA plan (Sec. 422.62(d)(1)), 
and for cases in which a plan has reached its enrollment capacity, each 
M+C organization must accept without restriction eligible individuals 
who elect an M+C plan during initial coverage election periods, annual 
election periods, and special election periods specified in 
Secs. 422.62(a)(1), (a)(2), and (b).
    Additionally, M+C organizations must accept elections during the 
open enrollment periods specified in

[[Page 40183]]

Sec. Sec. 422.62(a)(3), (a)(4), (a)(5), and new (a)(6) if their M+C 
plans are open to new enrollees.
    We stated in the interim final rule that the election form must 
comply with our instructions regarding content and format and have been 
approved by us as described in Sec. 422.80. The form must be completed 
and signed by the M+C eligible individual (or the individual who will 
soon become entitled to Medicare benefits) and include authorization 
for disclosure and exchange of necessary information between the DHHS 
and its designees and the M+C organization. Persons who assist 
beneficiaries in completing forms must sign the form and indicate their 
relationship to the beneficiary.
    We further stated that the M+C organization must file and retain 
election forms for the period specified in our instructions. An 
election in an M+C plan is considered to have been made on the date the 
election form is received by the M+C organization. Also, the M+C 
organization must have an effective system for receiving, controlling, 
and processing election forms that requires that each election form is 
dated as of the day it is received and election forms are processed in 
chronological order, by date of receipt. Additionally, the M+C 
organization must give the beneficiary prompt written notice of 
acceptance or denial in a format specified by us. We also provided that 
a notice of acceptance, in a format specified by us, informs the 
beneficiary of the date on which enrollment will be effective under 
Sec. 422.68; and if the M+C plan is enrolled to capacity, explains the 
procedures that will be followed when vacancies occur. Also, a notice 
of denial explains the reasons for denial in a format specified by us. 
Within 30 days from receipt of the election form (or from the date a 
vacancy occurs for an individual who was accepted for future 
enrollment), the M+C organization transmits the information necessary 
for us to add the beneficiary to our records as an enrollee of the M+C 
organization.
    Comment: Several commenters had concerns with allowing M+C 
organization representatives to assist individuals in completing any 
part of the election forms. One commenter believes that the common 
practice should be the beneficiary completing and signing his or her 
own form. Another commenter believes M+C organizations should be 
allowed to assist beneficiaries in completing the election forms only 
in limited circumstances, such as if the enrollee is disabled and needs 
assistance, and that organizations abusing this process should be 
subjected to meaningful penalties. One commenter suggested that when 
assistance is provided to a beneficiary in completing the election 
form, a reason for the assistance also be documented on the form, 
especially if an M+C organization agent completes the form. In 
contrast, two commenters supported a provision that permits individuals 
to assist a Medicare beneficiary in completing an election form.
    Response: As discussed in the preamble of the interim final rule 
(63 FR 34984), section 1851(h)(4)(B) of the Act indicates that the 
``fair marketing standards'' may include a prohibition against an M+C 
organization (or agent of such an organization) completing any portion 
of any election form used to carry out elections on behalf of any 
individual. However, we have decided at this time not to prohibit an 
M+C organization (or agent of such an organization) from assisting 
beneficiaries in completing the election form. We recognize that we 
must provide accommodations for persons with disabilities and for 
situations in which such a prohibition could represent a potential 
physical burden to beneficiaries. We believe requiring the signature of 
the individual who assisted the beneficiary in completing the form and 
an indication of his or her relationship to the beneficiary is a fair 
compromise.
    We agree that the M+C organization should be allowed to assist 
beneficiaries in completing the election form only under limited 
circumstances. For this reason, representatives should be assisting the 
beneficiary in completing the election forms only when assistance is 
needed, such as for a person who is disabled, illiterate, or otherwise 
impaired by age or health. In fact, in some circumstances assistance 
may be required to comply with civil rights requirements, for example, 
to ensure that individuals with disabilities or limited English 
proficiency have an equal opportunity to participate. Any M+C 
organization that unduly influences beneficiaries through this 
assistance should be identified by our monitoring procedures and 
subject to sanctions as specified in Sec. 422.750.
    We believe requiring the signature and identifying their 
relationship to the individual who is enrolling in the M+C plan is a 
sufficient beneficiary protection. It provides adequate information to 
monitor a beneficiary's understanding that the form is for enrollment. 
The reason why an individual needs assistance should not be included on 
the enrollment form because it could undermine a Medicare beneficiary's 
right to privacy by disclosing health related information without his 
or her consent.
    Comment: One commenter asked how enrollment and disenrollment 
requirements under Medicare compare to Medicaid rules, which the 
commenter erroneously believes allow the enrollee to enroll and 
disenroll at any time.
    Response: Dually eligible individuals, that is, those individuals 
who are entitled to Medicare as well as Medicaid, have the same freedom 
of choice under Medicare as those who are entitled to Medicare only. 
M+C election provisions under section 1851(e) of the Act and 
Sec. 422.62 of our regulations apply to all M+C-eligible individuals, 
and prior to 2002, permit Medicare enrollees to disenroll at any time. 
Under Medicaid rules, in contrast, managed care organizations (MCOs) 
are permitted to preclude Medicaid enrollees from disenrolling without 
cause for up to a year. MCOs are required only to permit disenrollment 
without cause in the first 90 days of enrollment, and annually 
thereafter. See section 1932(a)(4) of the Act.
    Comment: One commenter requested clarification on when M+C 
organizations are required to be open for enrollment. In particular, 
the commenter expressed confusion over the meaning of the term ``open 
enrollment period.''
    Response: We recognize the potential for confusion associated with 
the use of the term ``open enrollment period.'' In accordance with 
section 1851(e)(6)(A) of the statute, Sec. 422.60(a)(1) specifies that 
M+C organizations must be ``open for enrollment'' (that is, must accept 
enrollments) during annual, initial coverage, or special election 
periods unless they have reached enrollment capacity. However, under 
section 1851(e)(6)(B) of the Act, an M+C organization may accept 
elections at such other times as the organization provides. These 
latter time periods, during which an M+C organization has the 
discretion to decide whether to be ``open'' for enrollment are 
frequently referred to as ``open enrollment'' periods. We note that, if 
an M+C organization chooses to be open to new enrollees during all or a 
portion of these discretionary ``open enrollment'' periods, it must be 
open for all M+C-eligible individuals.
    Comment: One commenter found Sec. 422.60(a)(2), which states that 
M+C organizations must accept elections during open enrollment periods 
if their plans are open to new enrollees, to be confusing and 
detrimental to newly eligible individuals. The commenter believes that 
new Medicare eligibles

[[Page 40184]]

should not be limited to these time frames.
    Response: The new enrollees being referred to in Sec. 422.60(a)(2) 
are individuals newly electing the M+C plan and not individuals newly 
eligible for Medicare. Individuals newly eligible to Medicare are given 
a different ``open enrollment'' period under which they may elect or 
change M+C plans. In particular, Secs. 422.62(a)(4)(ii) and 
422.62(a)(5)(ii) allow newly eligible individuals to make an election 
beginning the month the individual is entitled to Medicare Parts A and 
B and ending on the last day of the sixth month of entitlement (in 
2002) or the third month of entitlement (in 2003 and thereafter) or on 
December 31, whichever is earlier. Therefore, we do not believe a 
regulatory change is necessary.
    Comment: One commenter asked if we would be modifying our 
enrollment transmission schedule to account for the 30-day period in 
which the M+C organization must transmit the enrollment information as 
stated in Sec. 422.60(e)(6).
    Response: Based on this comment, we are amending Sec. 422.60(e)(6) 
to state that ``upon receipt of the election form (or from the date a 
vacancy occurs for an individual who has been accepted for enrollment), 
the M+C organization transmits the information, within time frames 
specified by us, necessary for us to add the beneficiary to our records 
as an enrollee of the M+C organization.'' We are also revising 
Sec. 422.60(f)(3) to state that ``upon receipt of the election form 
from the employer, the M+C organization must submit the enrollment 
within time frames specified by HCFA.'' These changes will allow us the 
flexibility to vary the time frames in the future, should technological 
or policy changes warrant it.
    Comment: One commenter asked that we clarify and provide guidance 
as to when an election is considered to have been made.
    Response: Section 1851(f)(2) of the Act, as revised by section 502 
of the BBRA, states that the effective date of coverage during 
continuous open enrollment periods is the first day of the first 
calendar month following the date on which the ``election is made,'' 
except that if the election or change of election is made after the 
10th day of a calendar month, the election or change of election takes 
effect on the first day of the second calendar month following the date 
on which the election or change is made. As noted in the preamble of 
the interim rule, it was necessary to define when an election is made 
in order to establish the effective date of coverage and to establish 
the date of our liability for payment. Therefore, the regulations at 
Sec. 422.60(d) state that an election is considered to have been made 
on the date it is received by the M+C organization.
4. Enrollment Capacity (Sec. 422.60(b))
    Sections 422.60(b) and 422.306(a) of the original M+C regulations 
required M+C organizations to submit information on the enrollment 
capacity of plans they offer by May 1 of each year. As noted in section 
I.C.8 of this preamble, section 516 of the BBRA amended section 
1854(a)(1) of the Act to move the annual deadline for submission of ACR 
proposals and enrollment capacity data (if any) from May 1 to July 1, 
effective in 1999. If a plan reaches its HCFA-approved capacity limit, 
the M+C organization offering the plan generally is not obligated to 
accept new enrollees.
    Comment: One commenter requested that we change the date that M+C 
organizations must notify us of the need for a capacity limit from May 
1 to a date later in the year in order to allow the M+C organizations 
more time to analyze the previous year's capacity and better determine 
the need for a capacity waiver.
    Response: While we had no discretion under the BBA to make the 
change in question, as just noted, Congress has done so. We have 
revised Secs. 422.60(b)(1) and 422.306(a)(1) to reflect this BBRA 
change.
    Comment: A commenter asked that we clarify our language on capacity 
limits within a service area. The commenter also asked what would 
happen if there are too many patients and too few providers.
    Response: Section 422.60(b) allows an M+C organization to limit 
enrollment in the M+C plans it offers during any enrollment period, 
subject to our approval. If an M+C organization elects to establish a 
capacity limit for an M+C plan, the request normally must be submitted 
to us at the time the Adjusted Community Rate Proposal (ACRP) is 
submitted (except as provided in new Sec. 422.60(b)(3)), as discussed 
below. This submission should take into account the number of 
providers, and how many patients they can serve. The situation 
described by the commenter, in which ``there are too many patients and 
too few providers'' generally should not occur if capacity is limited 
to the number submitted by the M+C organization on July 1.
    As the commenter suggested, however, we recognize that under 
certain circumstances, there may be a legitimate need for an M+C 
organization to request a capacity limit or a revision of a capacity 
limit for an M+C plan during the contract year. The circumstances under 
which a capacity limit will be approved after the ACRP date would 
likely occur when a portion of a provider network that furnishes 
services under an M+C plan becomes unavailable during the course of a 
contract year. We have provided for HCFA to consider enrollment 
capacity requests outside of the ACR process under new 
Sec. 422.60(b)(3), which permits consideration of such requests only if 
the health and safety of beneficiaries is at risk, such as if the 
provider network is no longer available to serve enrollees in all or a 
portion of the service area. The requirements for a midyear capacity 
limit request are also described in OPL99.095.
5. Election of Coverage Under an M+C Plan (Sec. 422.62)
    All M+C plans must be open to M+C-eligible enrollees residing in 
the service area served by the plan during initial coverage election 
periods, annual election periods, and special election periods, unless 
such enrollment in the plan is limited based upon a limit on enrollment 
capacity.
    The initial coverage election period is the period during which a 
newly M+C-eligible individual may make an initial election. This period 
begins 3 months prior to the month the individual is first entitled to 
both Part A and Part B and ends the last day of the month preceding the 
month of entitlement. An election made during this period is effective 
when entitlement to Part A and Part B coverage begins.
    The month of November is the annual election period for the 
following calendar year. During the annual election period, an 
individual eligible to enroll in an M+C plan may change his or her 
election from an M+C plan to original Medicare or to a different M+C 
plan, or from original Medicare to an M+C plan. This election is 
effective on January 1.
    Special election periods are periods during which enrollment must 
be made open to certain beneficiaries, for various reasons specified in 
the statute, or by us. We specify the effective date of elections made 
during special election periods.
    M+C plans may be open to new enrollees at other times of the year 
(that is, during open enrollment periods) at the discretion of the M+C 
organization offering the plan.
    From 1998 through 2001, the number of elections or changes that an 
M+C-eligible individual may make is not limited (except for M+C MSA 
plans).

[[Page 40185]]

Subject to the M+C plan being open to enrollees as provided under 
Sec. 422.60(a)(2), an individual eligible to elect an M+C plan may 
change his or her election from an M+C plan to original Medicare or to 
a different M+C plan, or from original Medicare to an M+C plan any 
number of times. In 2002, an individual who is eligible to elect an M+C 
plan in 2002 generally may elect an M+C plan or change his or her 
election from an M+C plan to original Medicare or to a different M+C 
plan only once during the first 6 months of that year. For 2003 and 
subsequent years, an individual who is eligible to elect an M+C plan 
generally may elect or change his or her election from an M+C plan to 
original Medicare or to a different M+C plan, or from original Medicare 
to an M+C plan only once during the first 3 months of the year. (Note 
that consistent with section 501(b) of the BBRA, the restrictions that 
begin in 2002 do not apply to institutionalized individuals.) Even 
after the above limitations on changes in elections are in place, if 
certain circumstances exist, an individual may discontinue the election 
of an M+C plan offered by an M+C organization and change his or her 
election to original Medicare or to a different M+C plan. These 
circumstances include:
    <bullet> When the individual is no longer eligible to be enrolled 
in a certain plan due to a change of residence,
    <bullet> When HCFA terminates the organization's contract for the 
plan, or the organization terminates the plan or discontinues offering 
the plan in the service or continuation area in which the individual 
resides,
    <bullet> When the M+C organization has violated a material 
provision of its contract or materially misrepresented the plan's 
provisions in marketing the plan to the individual, or
    <bullet> When the individual meets such other exceptional 
conditions as we may provide.
    Comment: Several commenters expressed concern because the new M+C 
election periods do not coincide with the time frames under which M+C 
eligible individuals elect health benefit options through their 
employer group health plans. The commenters believe these individuals 
should not be subject to the M+C election periods. One commenter 
pointed out that employer groups will experience considerable 
disruption in their yearly enrollment process, and, as a result, may 
have to stop offering their retirees wrap-around coverage to M+C plans, 
or they will have to modify their entire enrollment process.
    Response: Section 422.62(b) states that we may grant special 
election periods for individuals who meet exceptional conditions. We 
have determined that the dilemma addressed by the commenters presents 
an ``exceptional condition'' that justifies the establishment of a 
special election period for M+C-eligible individuals who are members of 
an employer group plan that has open enrollment at a time other than 
the month of November. This is because such an individual could only 
change one part of his or her coverage at a time, which effectively 
would lock the beneficiary into his or her existing plan. As set forth 
in OPL 99.100, such M+C-eligible individuals may choose to elect an M+C 
plan offered by their employer during their employer group's open 
season, which constitutes a special election period for these 
individuals, as well as during the other election periods established 
under section 1851(e) of the Act.
    Comment: Several commenters were opposed to the establishment of 
``lock-in'' requirements beginning in 2002. They believe it will 
eliminate competition created in an environment where managed care 
plans compete continuously for enrollments. Several commenters also 
wanted to know who will be responsible for keeping track of the number 
of elections made by an individual once lock-in takes effect in 2002. 
They noted that beneficiaries and M+C organizations may not be aware of 
the number of elections an individual has made during a particular 
election period. One commenter recommended that we develop a mechanism 
that will allow exceptions to the limit of one change under 
Secs. 422.62(a)(4) and (5).
    Response: Sections 1851(e)(2)(B) and (C) of the Act limit an 
individual's election to one change during the open enrollment periods 
in the first 6 months of 2002 and the first 3 months of subsequent 
years. This ``lock-in'' requirement represents a gradual transition 
from the current system, under which a beneficiary may make any number 
of elections during the continuous open enrollment periods outlined in 
section 1851(e)(2)(A) of the Act to a restrictive system of annual 
``lock-in.'' We do not have the authority to modify this requirement, 
or to provide for any exceptions to this limit. We are aware of the 
need for us to maintain a history of the number of times an individual 
has made an election during a specific election period. Such 
information will be necessary in order to determine whether an 
individual is eligible to elect an M+C plan at a given time.
    Comment: One commenter believes that limiting the open enrollment 
and disenrollment opportunities defined in Secs. 422.62(a)(4) and (5) 
to one election per period should not apply to plan changes within the 
same M+C organization.
    Response: Section 1851(a)(1) of the Act requires that an M+C-
eligible individual ``elect'' to receive benefits through the original 
Medicare fee-for-service program or through enrollment in an M+C 
``plan.'' That is, enrollment in an M+C ``plan'' constitutes an 
election under Part C. Section 1851(e) of the Act further limits the 
``election'' of an M+C ``plan'' or of original Medicare to one change 
during open enrollment periods in the first 6 months of 2002 and the 
first 3 months of subsequent years. Therefore the law does not permit 
us to allow M+C-eligible individuals to move from plan to plan without 
considering it an election, even if the change in plans occurs among 
plans offered by the same M+C organization.
    Comment: One commenter requested further clarification of 
enrollment and disenrollment periods, while another asked whether a 
beneficiary who defaults to original Medicare has the option to elect 
an M+C plan.
    Response: An individual who defaults to original Medicare may elect 
another M+C plan during any election period during which the plan is 
accepting new enrollments. As discussed in detail above, section 
1851(e) of the Act and Sec. 422.62 of the M+C regulations describe the 
election periods in which individuals can enroll in and disenroll from 
an M+C plan. M+C-eligible individuals may make or change an election 
during an initial coverage election period, an annual election period, 
a special election period, or an ``open enrollment'' period. The 
initial coverage election period is the 3-month period prior to the 
month an individual becomes entitled to Medicare Part A and Part B. The 
annual election period is November of every year. Special election 
periods are also allowed when M+C-eligible individuals experience 
certain circumstances that warrant the need to make a change in 
election. These include our termination of the M+C plan contract or M+C 
organization termination or discontinuance of the M+C plan in the 
service or continuation area in which the individual resides, a change 
in place of residence to a place outside of the M+C plan's service or 
continuation area, demonstration by the individual that the M+C 
organization substantially violated a material provision of its 
contract or materially misrepresented the M+C plan's provisions in 
marketing materials, or

[[Page 40186]]

other exceptional conditions as provided by us. In addition, 
Sec. 422.62(c) also provides for a special election period for 
individuals age 65. Beginning in 2002 individuals age 65 who elect an 
M+C plan during the initial enrollment period may disenroll from the 
M+C plan and elect coverage under original Medicare within 12 months of 
their enrollment in an M+C plan.
    Through 2001, open enrollment periods are continuous, that is, 
every month through 2001. Beginning in 2002, the open enrollment 
periods are the first 6 months of the year, or the first 6 months of 
Medicare Part A and Part B entitlement (or December 31, 2002, whichever 
is earlier). In 2003 and in subsequent years, the open enrollment 
periods are the first 3 months of the year, or the first 3 months of 
Medicare Part A and Part B entitlement (or December 31, 2003, whichever 
is earlier). Again, open enrollment periods remain continuous for 
institutionalized individuals during and after 2002.
    The election rules for M+C MSA plans (see Sec. 422.62(d)) include 
some exceptions to the election periods described above. M+C-eligible 
individuals may only enroll in an MSA plan during an initial coverage 
election period or an annual election period. They may not make an 
election of an MSA plan during open enrollment periods or special 
election periods. M+C-eligible individuals may only disenroll from an 
MSA plan during annual election periods and special election periods, 
excluding special election periods for individuals age 65. In addition, 
if an individual elects an M+C MSA plan for the first time during the 
annual November election period, he/she may revoke that election by 
December 15 of that same year.
    Comment: One commenter supported the special election period for 
individuals age 65 as outlined at Sec. 422.62(c), and requested that 
the provision also apply to newly eligible individuals with 
disabilities.
    Response: Section 422.62(c) implements the last sentence in section 
1851(e)(4) of the Act, which applies only to individuals who enroll in 
an M+C plan upon turning 65. Congress chose to provide this opportunity 
to individuals who become eligible based on age, but did not provide 
for such a benefit in the case of individuals who become eligible based 
on disability or ESRD status. We thus cannot apply section 1851(e)(4) 
of the Act to individuals who are not 65, since they do not meet an 
explicit condition set forth in the statute.
    Comment: One commenter noted that Sec. 422.62(b)(3) allows an 
individual a special election period if the M+C organization violates a 
material provision of its contract with the individual. However, it 
does not allow the M+C organization an opportunity to comment on the 
enrollee's assertion that the contract was violated. The commenter 
stated that we should be sensitive to the severity of this issue and 
should establish a timely and fair review process. Two other commenters 
stated that we should develop reasonable, consistent guidelines for 
establishing special election periods for exceptional conditions, as 
provided at Sec. 422.62(b)(4).
    Response: Section 1851(e)(4) of the Act gives us the authority to 
develop guidelines to establish special election periods for 
exceptional conditions and to establish the procedures for granting a 
special election period for contract violations that specify when 
individuals are entitled to disenroll from an M+C plan after 
disenrollment rights become limited in 2002. This authority provides us 
with the discretion and the time to develop beneficiary protection 
requirements that will be sensitive to the issues identified by the 
commenters. As we gradually transition from the current system of 
totally free movement to a restrictive system of annual ``lock-in,'' we 
have every intention of developing reasonable and consistent guidelines 
as the need for these guidelines in the year 2002 approaches.
    Comment: One commenter requested that we clarify at 
Sec. 422.62(a)(2)(ii) that eligible beneficiaries may elect to enroll 
in managed care demonstrations, section 1876 cost plans, and health 
care prepayment plans during the annual election period.
    Response: The annual election period is an election period for M+C 
organizations operating under section 1851 of the Act. Health care 
prepayment plans, section 1876 cost plans, and some managed care 
demonstrations do not fall under section 1851 of the Act. Therefore, we 
do not have the authority to require these plans and demonstrations to 
be open for enrollment during an annual election period. Although such 
plans and demonstrations have the option of being open for enrollment 
to eligible individuals during that same time frame, this regulation 
only addresses requirements under section 1851 of the Act.
6. Information About the M+C Program (Sec. 422.64)

a. Overview

    Section 422.64 contains requirements related to information about 
M+C plans. Paragraph (a) applies to M+C organizations, and requires 
that organizations annually provide to us, using a prescribed format 
and terminology, the information we need to carry out our annual 
information campaign for all Medicare beneficiaries. However, the 
remaining paragraphs of existing Sec. 422.64 essentially reflect 
statutory provisions governing our information distribution activities.
    Comment: Several commenters expressed confusion about whether we or 
M+C organizations were responsible for various information distribution 
requirements specified under Sec. 422.64.
    Response: We recognize the commenter's concerns and believe that 
the best means to avoid introducing confusion in this regard is to 
eliminate from the regulations the portions of Sec. 422.64 that serve 
solely to delineate our responsibilities. Deleting these provisions 
from the Code of Federal Regulations in no way affects our information 
distribution responsibilities that had been reflected in these 
provisions, since these are set forth in the statute in sections 
1851(d)(1) through (d)(4) of the Act. Also, we note that Sec. 422.111 
continues to list the information that M+C organizations are 
responsible for disseminating to their plan enrollees.
    Comment: Two commenters were concerned that the many changes 
introduced by the M+C program to the plan enrollment and disenrollment 
process (for example, changes to the effective date, annual open 
enrollment, lock-in requirements) would lead to beneficiary confusion 
and disruption of the program, and stressed the need for improved 
communication with beneficiaries.
    Response: We agree that the many changes necessary for the 
implementation of the M+C program will require that we carry out 
substantial educational efforts for beneficiaries and the health 
industry. We are strongly committed to keeping beneficiaries informed 
and educated about their choices, and have undertaken many efforts to 
accomplish this task. For example, we have created a toll-free line for 
M+C information (1-800-MEDICARE), developed the Medicare & You 
handbook, and have carried out special educational and publicity 
campaigns to inform M+C-eligible individuals about the availability of 
plans offered in different areas and about the election process. In 
1999, we began conducting a nationally coordinated educational and 
publicity campaign about M+C plans and the election process that occurs 
every November. We also provide information

[[Page 40187]]

via our Internet website (www.Medicare.gov), which is a Medicare 
beneficiary-centered consumer website designed to provide a broad array 
of information on program benefits and health promotion. These are just 
a few of the many efforts we have begun to disseminate information to 
beneficiaries and prospective beneficiaries on their coverage options 
under the M+C program, and we believe that they should alleviate the 
potential confusion associated with the M+C program.

b. Access

    Comment: A commenter recommended that Sec. 422.64 specifically 
require notification and disclosure of Medicare's screening Pap smear 
benefit and of the ability of beneficiaries to directly access 
specialists to obtain this preventive service.
    Response: The 2000 Medicare & You handbook includes a description 
of the new preventive benefits. With respect to direct access to a 
specialist who would perform a pap smear, Sec. 422.112(a)(3) guarantees 
female M+C enrollees ``direct access to a women's health specialist 
within the network for women's routine and preventive health care 
services,'' which would include Pap smears (see section II.C of this 
preamble for further details on this issue.)

c. Performance Measures

    Comment: Several commenters expressed concerns about the validity, 
reliability, and comparability of information to be provided by us to 
Medicare beneficiaries, particularly through Medicare Compare, our 
Internet-based database of comparative information on M+C plans. The 
commenters want us to ensure that the information presented to 
beneficiaries is objective, accurate, and complete. They also emphasize 
the importance of recognizing the audience for particular types of 
information.
    Response: Medicare Compare is our electronic database of health 
plan comparison information. The database is designed to educate 
beneficiaries and others about their health care options so they can 
make informed health care choices. The information for this database is 
compiled by us with cooperation from M+C organizations. The Medicare 
Compare database is also updated regularly to reflect changes in cost 
and benefits. We are continuing to implement enhancements to ensure 
that the data submitted by M+C organizations are valid and reliable. 
Medicare also collects quality-of-care information known as Health Plan 
Employer Data and Information Set (HEDIS) from M+C organizations and we 
carefully check it for accuracy. This information should help 
beneficiaries compare the quality of health care that an M+C 
organization delivers by explaining how well the organization keeps 
enrollees healthy or treats them when they are sick. Medicare's 
Consumer Assessment of Health Plans Study (CAHPS), developed in 
collaboration with the Agency for Healthcare Research and Quality, is 
an initiative to collect and report information on beneficiaries' 
experience in receiving care through M+C organizations. We have also 
worked closely with the industry and researchers in order to provide 
the most accurate information for the Medicare & You 2000 handbook.

d. Continuation and Improvements

    Comment: Commenters were concerned about the amount of information 
provided to Medicare beneficiaries by us. They recommend that the 
information specified in Sec. 422.64 be included in the general 
information brochures and contain the customer service telephone 
numbers for each M+C organization. They also suggested that we need to 
differentiate between information provided to beneficiaries in written 
form, and that available to interested persons via the Internet. 
Written comparative information, which is to be available to all 
beneficiaries at specified intervals, should be easy to understand and 
focused in content.
    Response: We provide access to information from a variety of 
sources. Beneficiaries, M+C organizations, providers, family members, 
and others can receive up-to-date information about the Medicare health 
plans available in their area, Medicare health benefits, fraud and 
abuse, nursing homes, appeals and grievances, patient rights, etc., at 
the following locations:
    <bullet> Internet at www.Medicare.gov. Local libraries or senior 
centers may be able to help the person find the information on their 
computers.
    <bullet> Medicare Choices Help line at 1-800-MEDICAR(E) and TTY for 
the speech and hearing impaired at 1-877-486-2048.
    <bullet> State Health Insurance Assistance Program (SHIP) in the 
beneficiary's area.
    <bullet> Local outreach events.
    Comment: Several commenters encouraged us to evaluate all aspects 
of the information campaign in order to determine the most effective 
approach for reaching beneficiaries.
    Response: We aim for timely distribution of all of our materials. 
We are legislatively mandated to mail specified information on the M+C 
program and individual M+C plans to beneficiaries at least 15 days 
prior to the annual election period. We are evaluating the impact of 
this timing on beneficiary decision making. Our ongoing evaluation of 
National Medicare Education Program (NMEP) includes assessment of 
telephone referrals, including toll-free line and State Health 
Insurance Assistance Programs (SHIPs), which are entities jointly 
funded by us and by the States to provide information and counseling to 
Medicare beneficiaries. The toll-free line has been operational 
nationally since March 15, 1999.

e. Beneficiary Input

    Comment: Several commenters noted that in developing any 
educational materials or activities, it is important to ensure that the 
information is meaningful to beneficiaries. These commenters believe 
that we need to convey information to beneficiaries in an organized, 
straightforward manner to assure as complete an understanding as 
possible. For example, the commenters suggest that materials should be 
reviewed to determine whether they will provide needed information or 
simply raise more questions among beneficiaries, or whether 
beneficiaries will understand that they do not need to make any 
changes. The commenters specifically recommended that we conduct focus 
groups to gauge beneficiary responses to the Medicare & You handbook, 
and would like us to revisit our future plans and communications.
    Response: We have performed extensive evaluation of the Medicare & 
You handbook, including focus-testing the Medicare & You 1999, and 
customer-testing of the Medicare & You 2000. We also used the results 
of the NMEP evaluation, survey of beneficiaries, expert review, plain 
language review, and comments submitted to us by mail and the Internet. 
The results received from all of these sources were used in the 
development of the Medicare & You 2000 handbook. We will continue 
evaluating our efforts to improve beneficiary communication.
    Comment: Two commenters offered suggestions on the public input 
approach outlined in the preamble of our June 26, 1998 interim final 
rule. (In that preamble, we discussed in detail the process of 
obtaining public input about data collection and dissemination of 
selected data. We addressed only those data elements that would be 
disseminated as part of Medicare Compare or as part of any beneficiary

[[Page 40188]]

information campaign efforts.) One commenter suggested ensuring that 
physicians are involved in determining data specifications for M+C 
organizations, and the other looked forward to seeing our strategy for 
public input.
    Response: As discussed in the interim final rule, we recognize the 
importance of obtaining public input on data needed by beneficiaries to 
make health plan choices. We also agree that we need to ensure 
physician input, particularly in areas such as quality of care. Our 
strategy for obtaining public input into the process, which is well 
under way and wide ranging, includes the following:
    <bullet> Obtaining public input through currently established 
communication activities (for example, committees, consultation 
avenues, public meetings, training seminars). Limited resources and 
time demands do not permit the establishment of separate or overlapping 
processes with those already established and working (such as industry 
council meetings). It may not always be possible to hold public 
meetings to invite interested individuals to comment and provide input 
on the process of determining data specifications.
    <bullet> Obtaining public input through normal data collection 
clearance channels when we are the lead for the data collection 
activity. The OMB clearance process is a very effective and efficient 
way to obtain broad public comment on the content and format 
specifications for data collection (for example, the Plan Benefit 
Package). However, it may not always be possible to publish a notice or 
a summary of public processes regarding data elements to be collected.
    <bullet> Obtaining public input through collaborative efforts with 
private industry, health care providers, researchers, and other 
interested parties. This approach allows the Federal government to be a 
partner with other experts (private and public) in the field of managed 
care and thereby not duplicate already successful and useful 
collaborative efforts (such as HEDIS).
    Thus, our strategy strongly supports the use of efficient and 
effective methods of public input into the determination of information 
and specifications for beneficiary information campaign material. We 
also recognize the need to collaborate with organizations and 
individuals involved in the development of quality and performance 
measurements that support beneficiaries' increased understanding of 
managed care.
7. Coordination of Enrollment and Disenrollment Through M+C 
Organizations (Sec. 422.66)
    An individual who wishes to elect an M+C plan offered by an M+C 
organization may make or change his or her election during the election 
periods specified in Sec. 422.62 by filing the appropriate election 
form with the organization or through other mechanisms as determined by 
us.
    Additionally, an individual who wishes to disenroll from an M+C 
plan may change his or her election during the election periods 
specified in Sec. 422.62 by either electing a different M+C plan by 
filing the appropriate election form with the M+C organization or 
through other mechanisms as determined by us. Individuals may also 
disenroll by submitting a signed and dated request for disenrollment to 
the M+C organization in the form and manner prescribed by us or by 
filing the appropriate disenrollment form through other mechanisms as 
determined by us.
    Under existing Sec. 422.66(d)(1), an M+C plan offered by an M+C 
organization must accept any individual (residing in the service area 
or continuation area of the M+C plan) who is enrolled in a health plan 
offered by the M+C organization (regardless of whether the individual 
has end-stage renal disease--see Secs. 422.50(a)(2) and (a)(3)) during 
the month immediately preceding the month in which he or she is 
entitled to both Part A and Part B. This is generally known as a 
``conversion'' of enrollment for the enrollee (from commercial status 
to M+C enrollee status).
    Subject to our approval, under Sec. 422.66(d)(2), an M+C 
organization may set aside a reasonable number of vacancies in order to 
accommodate conversions. Any set aside vacancies that are not filled 
within a reasonable time must be made available to other M+C-eligible 
individuals.
    If the individual enrolled in a health plan offered by an M+C 
organization chooses to remain enrolled with the organization as an M+C 
enrollee, the individual must complete and sign an election form as 
described in Sec. 422.60(c)(1). In that case, the individual's 
conversion to an M+C enrollee is effective the month in which he or she 
is entitled to both Part A and Part B. The M+C organization may 
disenroll an individual who is converting from its commercial plan to 
M+C status only under the conditions specified in Sec. 422.74. The M+C 
organization must transmit the information necessary for us to add the 
individual to our records as specified in Sec. 422.60(e)(6).
    An individual who has made an election under this section is 
considered to have continued to have made that election until the 
individual changes the election under this section or the elected M+C 
plan is discontinued or no longer serves the service area in which the 
individual resides, and the organization does not offer, or the 
individual does not elect, the option of continuing enrollment, as 
provided in Sec. 422.54, whichever occurs first.
    Comment: Several commenters stated that they support procedures 
that would permit seamless continuation of coverage, under which an 
individual would be deemed to have elected an M+C plan at the time of 
the individual's initial coverage election period if they are enrolled 
in a commercial health plan that is offered by the same M+C 
organization. Several specific recommendations were made. One commenter 
recommended that we require M+C organizations to prospectively provide 
the necessary information that would allow us to default individuals 
into the M+C plan. One commenter recommended that M+C organizations 
notify individuals in their commercial plans who are about to become 
Medicare eligible that they are being enrolled in the M+C plan, and to 
transmit the necessary information to us. Another commenter suggested 
that we alert individuals through the mailing of the initial enrollment 
package. Two commenters were concerned about deeming an individual to 
have elected an M+C plan if the M+C organization offers more than one 
M+C plan from which he/she could receive benefits. One commenter 
suggested that if we decide to deem an individual to have elected an 
M+C plan, the organization should be required to provide the individual 
with a description of Medigap guaranteed issues and age rating 
policies. One commenter supported procedures that would permit seamless 
continuation of coverage, but expressed concerns about deeming an 
individual enrolled in an M+C plan if Medicare is a secondary payer.
    Response: Although we have addressed an individual's right to 
choose to remain enrolled with an organization as an M+C enrollee upon 
becoming Medicare eligible (as discussed above), a default process 
through which an individual would be deemed by us to have elected a 
specific M+C plan would require that we identify M+C-eligible 
individuals, as well as their relevant health plan information before 
the individual's initial coverage election period. At

[[Page 40189]]

present we do not have access to information on the health plans in 
which specific individuals are enrolled, because such plans are private 
health plans, and do not have established linkages with our systems, 
nor is there a mechanism in our Medicare managed care data system to 
capture such information. While some M+C organizations may want to 
share this information with us, others may not. It should also be noted 
that enrollment in an M+C plan is contingent upon the individual's 
entitlement to Medicare Part A and Part B. Individuals that have not 
previously filed for Social Security and/or Medicare benefits will not 
have an entitlement record, nor will they receive an initial enrollment 
package from Medicare. Frequently, individuals in commercial plans who 
are about to ``age in'' to Medicare are still employed, and have not 
yet filed for Social Security or Medicare benefits. Individuals who 
have filed for benefits will receive general information on Medicare 
and comparative information on M+C plans available in their service 
area. They will have the opportunity to enroll in the M+C plan 3 months 
prior to their entitlement to Medicare Part A and Part B.
    The expansion of the managed care provisions under the BBA has 
presented an extraordinary challenge to us and to the Medicare managed 
care data system that supports our information system business 
requirements. We anticipate that in the future, we will develop 
strategies to incorporate information collection activities in our 
managed care systems that will allow this kind of mechanism to be put 
in place. As we develop strategies that will incorporate additional 
information collection activities under our authority under section 
1851(c)(2) of the Act, we will consider procedures necessary to 
identify in which plan a beneficiary wants to enroll if the M+C 
organization offers more than one M+C plan and also whether Medicare 
Secondary Payer rules apply. Until that time, and in accordance with 
Sec. 422.66(d), an M+C plan offered by an M+C organization must accept 
enrollments from any eligible individual residing in the service area 
or continuation area of the M+C plan, who is enrolled in a commercial 
health plan offered by that same M+C organization during the month 
immediately preceding the month in which he/she is entitled to Medicare 
Part A and Part B.
    Comment: Two commenters were opposed to the requirement in 
Sec. 422.66(b)(3)(i) that disenrollment transactions be submitted 
within 15 days of receipt. Commenters pointed out that we do not 
process disenrollments every 15 days and suggested the requirement be 
modified to coincide with the 30-day requirement for enrollment 
transactions outlined at Sec. 422.60(d)(6).
    Response: Our intent when establishing this requirement was to 
ensure that a beneficiary's choice to disenroll would be handled as 
expeditiously as possible. We are in the process of implementing a 
system that will be capable of processing these transactions more than 
once a month. However, we recognize that until the systems are 
modified, the requirement may not allow a sufficient amount of time to 
process a disenrollment action. Therefore, we have modified the 
regulations at Sec. 422.66(b)(3)(i) to state that the time frame to 
submit disenrollment transactions will be ``specified by HCFA,'' and 
have made a conforming change at Sec. 422.66(f)(2). This will give us 
the flexibility to make changes as system enhancements are developed in 
the future. For the time being, we are specifying that disenrollment 
transactions be submitted within the same time frame as enrollment 
transactions.
    Comment: Several commenters asked that we provide additional 
clarification in Sec. 422.66(b)(5)(i) with respect to when an 
enrollment is not legally valid. Two of the commenters stated that we 
should clarify whether a lack of understanding would be included in the 
definition of a ``legally valid enrollment,'' and whether it would 
result in a retroactive disenrollment. One commenter stated that we 
should clarify that an enrollment is not legally valid if it is 
determined at a later date that the individual did not meet eligibility 
requirements at the time of enrollment.
    Response: There are a number of circumstances that would result in 
an enrollment not being considered ``legally valid,'' and we agree that 
the lack of understanding of plan rules (such as the ``lock-in'') and 
ineligibility would be among these circumstances. However, a 
determination that an individual did not understand the terms of 
enrollment must be made on an individual basis. The criteria used in 
establishing evidence that an individual did not understand the terms 
of enrollment could include the following: continuing Medigap insurance 
coverage after receipt of the confirmation of enrollment letter from 
the M+C organization; an enrollment form signed by the member in 
situations where a legal representative should be signing for the 
member; enrolling in a supplemental insurance program immediately after 
enrolling in the M+C plan; or receiving nonemergency or nonurgent 
services out-of-plan immediately after the effective date of coverage 
under the plan. OPL 99.100 sets forth specific guidelines to assist M+C 
organizations when making determinations about lack of understanding 
and incorrect eligibility determinations.
    Comment: One commenter asked for clarification of our process for 
approving retroactive disenrollments (either voluntary or involuntary) 
and the subsequent effective dates.
    Response: Section 422.66(b)(5) describes retroactive 
disenrollments, which are disenrollments with a retroactive effective 
date in cases in which we determine that there was never a legally 
valid enrollment, or in which a valid request for disenrollment was 
properly made but not processed or acted upon. In cases of involuntary 
disenrollments, such as disenrollment for disruptive behavior or 
failure to pay premiums, the disenrollment actions are prospective and 
would not be retroactive. In cases in which we find that an enrollment 
was not legally valid, the disenrollment results in cancellation of the 
enrollment as of the effective date of the enrollment. Therefore, the 
effective dates for these retroactive disenrollments are based upon the 
effective dates for elections, as provided under Sec. 422.68. If the 
election subsequently found to be invalid was made during the annual 
election period in November, the effective date would be the first day 
of the following calendar year. If the election was made during an open 
enrollment period, the election would be effective the first day of the 
first calendar month following the month in which the election is made 
(or for elections made after the 10th day of a month, the first day of 
the 2nd calendar month following the date of the election). Effective 
dates for elections made during a special election period vary, 
dependent on the situation, and guidelines concerning these effective 
dates are provided in instructions to the M+C organizations. Elections 
made during special election periods for individuals age 65 would be 
effective the first day of the first calendar month following the month 
in which the election is made.
    Comment: Section 422.66(d) states that an M+C organization must 
accept any eligible individual who is enrolled in a health plan offered 
by ``an'' M+C organization. One commenter stated that this section 
needs to clearly state that the M+C organization must accept any 
individual who is enrolled in a health plan offered by ``the'' M+C 
organization

[[Page 40190]]

offering the other plan in which the individual is enrolled.
    Response: We agree that the use of the term ``an'' could imply that 
the requirement applies to any organization, such that all M+C 
organizations must accept all eligible individuals enrolled in any 
commercial health plan offered by any M+C organization. In fact, our 
intent is for the requirement to apply to a specific M+C organization, 
namely the organization that offers both the commercial health plan in 
which the individual is enrolled and the M+C plan in which the 
individual will be enrolling. Therefore, we are revising 
Sec. 422.66(d)(1) to specify that a plan offered by an M+C organization 
must accept any eligible individual who is enrolled in a health plan 
offered by ``the M+C organization.''
    Comment: One commenter believes there is a conflict between 
paragraphs (3) and (5) in Sec. 422.66(d). The commenter reads 
Sec. 422.66(d)(3) to provide that the individual will convert to the 
M+C plan unless he disenrolls, while Sec. 422.66(d)(5) provides that 
the individual must fill out an election form in order to convert.
    Response: We do not agree that there is a conflict between the two 
sections of the regulation, but recognize that some clarification is 
desirable to prevent confusion. We are revising Sec. 422.66(d)(3) of 
the regulation to refer to the individual affirmatively choosing to 
remain enrolled with the organization as an M+C enrollee, and to state 
that conversion is effective the month of entitlement to both Medicare 
Part A and Part B ``in accordance with the requirements in section 
Sec. 422.66(d)(5).'' We also have deleted a reference in 
Sec. 422.66(e)(2) to an individual being ``deemed'' to have made an 
election, since this reference is inconsistent with the requirement in 
Sec. 422.66(d)(5) that an election form be completed and signed. These 
revisions will clarify that while we have established the effective 
date of coverage under Sec. 422.66(d)(3), the coverage may begin only 
if the individual completes and signs an election form, as required at 
Sec. 422.66(d)(5).
    Comment: One commenter believes that Sec. 422.66(e)(2) (which 
states that an individual is considered to have continued an election 
in an M+C plan until the M+C plan is discontinued or no longer services 
the area in which the individual resides, and the organization does not 
offer or the individual does not elect the option of continuing 
enrollment) may be interpreted to absolve the M+C organization of any 
obligations when the person leaves the service area and has not 
selected a new health plan or original Medicare. The commenter 
suggested that the regulations should make clear that an individual who 
leaves his or her M+C plan service area is entitled to a special 
election period, as is the case when the M+C plan ceases to serve the 
service area.
    Response: If an M+C plan enrollee leaves the plan's service area, 
but has not informed the M+C organization offering the plan of a 
permanent move, the M+C organization does have continued obligations to 
cover emergency and urgent services that must be covered out of area. 
Once the M+C organization is made aware of such a permanent move, the 
organization is obligated under Sec. 422.74(b)(2)(i) to disenroll the 
individual unless he or she has moved to a continuation area and 
requests to continue enrollment as a continuation area enrollee. With 
respect to the commenter's concern about a special election period 
being provided under these circumstances, Sec. 422.62(b)(2) clearly 
provides an M+C plan enrollee who moves out of his or her M+C plan 
service area with the same right to a special election period that the 
enrollee gets under Sec. 422.62(b)(1), cited by the commenter, in the 
case of an M+C plan termination.
    Comment: One commenter was concerned about ensuring that all 
enrollees under a section 1876 risk contract--without regard to 
residence--be deemed to be enrollees of an M+C plan offered by the 
section 1876 contractor on January 1, 1999.
    Response: We agree, and note that the interim final rule preamble 
states that we have interpreted the statute to allow an individual to 
transition from the section 1876 plan to an M+C plan ``without regard 
to location of residence'' (63 FR 34977). Our intent was to ensure that 
no individual enrolled in a section 1876 plan on December 31, 1998, 
would be adversely affected by the BBA changes, but instead would be 
able to maintain an established relationship with a Medicare 
contracting organization. Therefore, we clarified in the interim final 
rule that all individuals enrolled in a section 1876 plan on December 
31, 1998 could convert to the corresponding M+C plan on January 1, 
1999. We further clarified this ``grandfathering policy'' in OPL 
99.084, dated February 26, 1999, which states that an individual who 
was enrolled in a section 1876 risk plan effective December 1, 1998 or 
earlier and remained with the risk plan on December 31, 1998, 
automatically continued to be enrolled in the M+C organization on 
January 1, 1999.
    Comment: One commenter suggested that we include in the regulations 
text our operational policy recognizing State laws that govern who may 
sign election forms for beneficiaries. The commenter also believes we 
should clearly incorporate recognition of the State law, including 
health care consent laws.
    Response: In general, and as previously discussed in the preamble 
of the June 26, 1998 interim final rule, we believe that the M+C-
eligible individuals should personally complete and sign any election 
form or disenrollment request (referenced at Sec. 422.66(b)) whenever 
possible. We also recognize that there may be times that an individual 
is unable to sign for himself or herself. Laws governing who may sign a 
health insurance application vary from State to State. Therefore, while 
the regulations provide for the beneficiary to sign an election form, 
we defer to State laws (for example, laws governing the exercise of a 
power of attorney) on who may sign on behalf of a beneficiary where a 
beneficiary signature is required. We do not believe it is necessary to 
make provision for this in the regulations text, because where State 
law permits another individual to sign for a beneficiary with respect 
to health care decisions, this authority would extend to cases in which 
the beneficiary's signature is required under Medicare regulations.
    Comment: Section 422.66(d)(1) states that an M+C plan offered by an 
M+C organization must accept any eligible individual who is enrolled in 
a health plan offered by an M+C organization during the month 
immediately preceding the month in which the individual is entitled to 
Medicare Part A and Part B. One commenter asked us to clarify whether 
the use of the term ``health plan'' refers only to fully insured 
products, or whether the term would include self-funded members.
    Response: The term ``health plan'' in Sec. 422.66(d)(1) refers to 
any commercial health plan that the M+C organization offers. This may 
include fully insured products, self-funded products, and indemnity 
products.
8. Effective Dates of Coverage and Change of Coverage (Sec. 422.68)
    An election made during an initial coverage election period as 
described in Sec. 422.62(a)(1) is effective as of the first day of the 
month of entitlement to both Part A and Part B. Also, for an election 
or change of election made during an annual election period as 
described in Sec. 422.62(a)(2), coverage is effective as of the first 
day of the following calendar year. For an election or change of 
election made during the open

[[Page 40191]]

enrollment periods described in Sec. 422.62(a)(3) through (a)(6), 
coverage is effective as of the first day of the first calendar month 
following the month in which the election is made (except that if the 
election or change of election is made after the 10th day of a calendar 
month, the election takes effect on the first day of the second 
calendar month after the date of the election.)
    For an election or change of election made during a special 
election period as described in Sec. 422.62(b), we determine the 
effective date of coverage, to the extent practicable, in a manner 
consistent with protecting the continuity of health benefits coverage. 
For an election of coverage under original Medicare made during a 
special election period for an individual age 65 as described in 
Sec. 422.62(c), coverage is effective as of the first day of the first 
calendar month following the month in which the election is made.
    Comment: Several commenters objected to the effective date in the 
interim final rule for elections made during open enrollment periods, 
which was the first day of the month after the month the election is 
received. The commenters believe this effective date did not allow 
enough time to process the enrollment. They believed that this deadline 
would result in increased retroactive transactions and would be 
burdensome on M+C organizations. Commenters also expressed significant 
concerns over liability and access to services if Medicare entitlement 
is not verified expeditiously. Commenters also noted the need for us to 
make system changes to accommodate the new effective date requirements, 
and to clarify how we intend to implement the requirements with respect 
to M+C organization submission of data. The commenters recommended the 
effective dates be as they were under section 1876 of the Act which, 
under Sec. 417.450(a)(2), may not be earlier than the first month 
after, nor later than the third month after, the month in which we 
receive the information necessary to include the beneficiary as a 
Medicare enrollee of the HMO or CMP in our records.
    Response: Section 1851(f) of the Act supersedes all prior section 
1876 requirements and specifically delineates the effective dates for 
elections made in the M+C program. Consistent with the changes to 
section 1851(f) of the Act made by section 502 of the BBRA, we are 
revising Sec. 422.68(c) to provide that coverage is effective either on 
the first day of the calendar month after the date of an election or 
change of election or, for elections or changes of election made after 
the 10th day of a calendar month, on the first day of the second 
calendar month after the date of the election or change of election. In 
addition, based on our authority to establish requirements that can 
reduce the potential for retroactive transactions, we have developed 
guidelines for M+C organizations that include requirements for M+C 
organization verification of Medicare entitlement before submission of 
enrollment data (see OPL 99.100). The verification policy should 
minimize the potential for retroactive enrollment situations. 
Additionally, the new effective dates outlined in section 1851(f) of 
the Act have resulted in the need to clarify a number of operational 
issues. While the expansion of managed care provisions under the BBA 
has presented an extraordinary challenge to us, we have successfully 
implemented the necessary systems requirements to support this change 
in effective dates. Additionally, we have issued other guidelines to 
M+C organizations (OPL 98.074, our November 17, 1999 Systems 
Informational Letter, and OPL 2000.113) that outline how to identify 
the correct effective date and process the enrollments through our 
systems.
    Comment: Several commenters were concerned that the new effective 
date requirements will not allow the M+C organization to receive our 
confirmation of the enrollment before the effective date, which could 
in turn increase beneficiary confusion.
    Response: Section 1851(f) of the Act clearly outlines the effective 
dates of enrollment in M+C plans. If an eligible individual has elected 
an M+C plan, the M+C organization must cover the individual beginning 
on the effective date of coverage, even if the organization has not yet 
received final confirmation from us. An M+C organization can take 
several actions to reduce the chance of beneficiary confusion, 
including verifying Medicare entitlement before submission of 
enrollment data to us. This should increase the likelihood that we will 
confirm the individual's enrollment.
    Comment: One commenter stated that original Medicare should pay M+C 
organizations for services furnished to individuals for whom 
retroactive disenrollments were processed.
    Response: If a retroactive disenrollment is processed for a 
beneficiary, the M+C organization in which the beneficiary was enrolled 
can always bill for Medicare covered services rendered to the 
beneficiary.
    Comment: One commenter stated that the effective date of coverage 
for individuals who enroll during an open enrollment period (the first 
day of the first calendar month following the month the election is 
made) is too rigid, and that delayed effective dates should be 
permitted.
    Response: Again, section 501(b) of the BBRA provided for some 
relief in this regard by changing the effective dates for elections or 
changes in election made after the 10th day of a month. We also note 
that we have the authority under section 1851(f)(4) of the Act to 
establish effective dates for individuals who meet the condition for 
special election periods. We have provided for prospective effective 
dates for individuals electing benefits through their employer group 
health plans, and published this guidance on April 20, 1999 in OPL 
99.087. We provided additional guidance on the effective dates of 
coverage for other special election periods authorized under 
Sec. 422.62(b) in OPLs 99.098 and 99.100.
    Comment: Two commenters questioned how M+C organizations will be 
expected to handle multiple transactions, given the new effective date 
requirements.
    Response: As stated at Sec. 422.50(b), an individual may not be 
enrolled in more than one M+C plan at any given time. Nevertheless, 
there are times when an individual will try to elect more than one plan 
for the same effective date, and it is not always clear with which plan 
the individual truly intends to be enrolled. On August 9, 1999, we 
issued OPL 99.100, which includes guidelines on what actions an M+C 
organization must take in the event of a multiple transaction in order 
to determine with which M+C plan the beneficiary should be enrolled.
    Comment: One commenter stated that we should establish performance 
standards that take into account difficulties that we and M+C 
organizations will have in meeting effective date requirements.
    Response: We recognize that section 1851 of the Act has resulted in 
significant changes to the Medicare program and that M+C organizations 
need time to prepare for the changes. We have provided additional 
guidance on implementation of M+C entitlement, eligibility, and 
elections to M+C organizations through various OPLs (98.072, 98.073, 
99.083, 99.084, 99.087, 99.098, 99.100, 99.104, 99.105, 99.109, and 
2000.113) and a November 17, 1998 Systems Informational Letter. These 
letters outline how to identify the correct effective date, how to 
process enrollments with the new effective dates, how to transition 
from section 1876 to M+C enrollment and disenrollment rules, and when 
grandfathered members must be disenrolled from M+C plans. As a result,

[[Page 40192]]

we believe we have given adequate time to modify operations and systems 
to implement the new M+C program. In addition, we continue to develop 
guidelines for M+C organizations on M+C entitlement, eligibility, and 
elections to M+C organizations. Any monitoring of performance will take 
into account the time M+C organizations have needed to implement the 
new program.
9. Disenrollment by the M+C Organization (Sec. 422.74)
    The general rule for disenrollment by the M+C organization is that 
an M+C organization may not disenroll an individual from any M+C plan 
it offers; or request or encourage (orally or in writing, or by any 
action or inaction) an individual to disenroll. However, Sec. 422.74(b) 
describes the conditions under which the M+C organization may either be 
permitted or required to disenroll an individual. Under 
Sec. 422.74(b)(1), the M+C organization may choose to disenroll an 
individual based on that individual's (1) failure to pay premiums, (2) 
disruptive behavior, (3) provision of fraudulent information on his or 
her election form, or (4) having permitted his or her enrollment card 
to be abused. Section 422.74(b)(2) requires the M+C organization to 
disenroll the individual if the individual no longer resides in the M+C 
plan's service area, the individual loses entitlement to Medicare Part 
A or Part B benefits, or the individual dies. The M+C organization must 
follow the procedures specified at Sec. 422.74(c) and (d) when 
disenrolling an individual. The procedures to be followed and the 
consequences of the disenrollment vary depending upon the cause of the 
disenrollment.
    Comment: One commenter believes that the 90-day grace period that 
must be afforded to an enrollee before a disenrollment for nonpayment 
of premium could be financially burdensome in 1999 since ACRs that did 
not necessarily reflect these costs were filed before the M+C 
regulations were published.
    Response: We recognize that 1999 was a transition year with many 
new requirements. With respect to 2000, however, M+C organizations were 
fully aware of all regulatory requirements before filing their ACRs.
    Comment: Several commenters believed that the 90-day grace period 
for nonpayment of premiums is too long. Two commenters recommended a 
30-day grace period rather than the 90-day grace period. They noted 
that if an organization has to wait 90 days before disenrolling an 
individual, this potentially results in 4 months without the 
organization receiving payment, since organizations do not send notice 
to beneficiaries until the beginning of the month after payment is due. 
One commenter recommended that grace period extend until the last day 
of the third month following the date payment is due.
    Response: Section 1851(g)(3)(B)(i) of the Act requires us to 
provide for a ``grace period'' before enrollment can be terminated for 
nonpayment of premiums. In determining the grace period, we adopted the 
grace period that Congress provided for in section 1836(b)(2) of the 
Act with respect to a termination for nonpayment of premiums for 
Supplementary Medical Insurance Benefits for the Aged and Disabled 
(that is, Part B). This results in consistent standards between the M+C 
program and the original Medicare program.
    Comment: Several commenters believe that M+C organizations should 
be permitted to allow an enrollee to remain enrolled and eliminate only 
optional benefits if a member fails to pay premiums charged for such 
optional benefits. Some commenters believe that the option to disenroll 
for nonpayment of premiums implied that an organization could only 
disenroll the beneficiary from the plan, and could not simply eliminate 
the optional benefits. One commenter questioned whether under our 
rules, it might be necessary to disenroll the individual and re-enroll 
them as a ``standard option'' enrollee to accomplish this.
    Response: We agree that providing the M+C organizations the option 
to retain an enrollee while eliminating an optional benefit for which 
premiums are not paid is a desirable and appropriate means of promoting 
continuity of care for beneficiaries. We are adding a provision to 
Sec. 422.74(d)(1)(iv) that expressly provides an M+C organization the 
option to discontinue an optional supplemental benefit for which 
premiums are not paid, while retaining the beneficiary as an M+C 
enrollee.
    Such an action would not affect the beneficiary's status as a 
member of the M+C plan, and would not constitute a new election. 
Therefore, the M+C organization does not have to formally disenroll and 
re-enroll the individual when downgrading the member's enrollment to 
the standard benefit package because the beneficiary fails to pay the 
plan premiums.
    Comment: One commenter recommended that the M+C organization should 
be required to send notice to enrollees that premium payment is overdue 
within 10 days, rather than 20 days. Another commenter supported the 
20-day time frame.
    Response: Section 1856(b)(2) of the Act provides for the use of 
standards established under section 1876 to implement analogous 
provisions of the M+C statute when those standards are consistent with 
standards established in the BBA for the M+C program. Section 
417.460(c)(1)(iii) requires section 1876 contractors to send notices of 
disenrollment for nonpayment of premiums to the enrollee before it 
notifies us. In addition, Sec. 417.460(c)(1)(i) requires that the 
contractor demonstrate to us that it made reasonable efforts to collect 
the unpaid amount. Section 422.74(d)(1) of the M+C regulations carries 
over both of these requirements and clarifies that ``reasonable 
efforts'' include sending a notice of nonpayment to the beneficiary 
within 20 days after the date the payment was due. The notice advises 
the beneficiary that he or she has 90 days from the date of the notice 
to provide payment. We continue to support this policy and believe that 
20 days is a reasonable maximum time frame within which to make an 
effort to collect unpaid premiums. We note that an M+C organization may 
notify the individual as soon as the premium payments are past due 
(that is, send a notice before 20 days have passed), in which case the 
90-day grace period would begin on the day the M+C organization sends 
the notice.
    Comment: One commenter requested clarification of the effective 
date of disenrollments for nonpayment of premiums following the 90-day 
grace period. The commenter asked that we clarify for how long the 
organization is obligated to provide benefits and we will continue to 
pay capitation.
    Response: The effective date of disenrollment for nonpayment of 
premiums is the first day of the month after the 90-day grace period 
ends.
    The M+C organization must continue to provide benefits and we will 
continue to pay capitation until the disenrollment is effective. We 
clarified this policy in OPL 99.100, issued on August 9, 1999. We note 
that Sec. 422.74(d)(1) erroneously refers to the possibility of 
disenrollment for an individual who fails to pay any ``basic or 
supplementary premiums.'' Section 1851(g)(3)(B)(i) of the Act refers to 
``basic and supplementary premiums'' and we are revising the 
regulations accordingly.
    Comment: Two commenters requested clarification regarding the 
standards for disenrollment for disruptive behavior under the Health 
Insurance Portability and Accountability Act (HIPAA) and

[[Page 40193]]

BBA, unsure if the two statutes were in conflict in this area.
    Response: For any issues for which there is a perceived conflict in 
the disenrollment standards established under the BBA (or the BBRA) and 
those established under HIPAA, the BBA standards (that is, the 
standards in Sec. 422.74 pursuant to section 1851(e) of the Act) would 
control for M+C purposes.
    Comment: One commenter recommended that disenrollments for fraud 
and abuse should include other fraudulent activities related to the 
delivery of health services, such as visiting multiple doctors for the 
purpose of obtaining specific drugs and/or using another enrollee's 
membership card when benefits have been exhausted.
    Response: As noted above, section 1856(b)(2) of the Act provides 
for the use of section 1876 standards to implement analogous provisions 
of the M+C statute when those standards are consistent with standards 
established in the BBA for the M+C program. The regulations in section 
1876 of the Act addressing disenrollments for fraud and abuse at 
Sec. 417.460(d) have been largely adopted in Sec. 422.74(d)(3), which 
permits disenrollment of a beneficiary for providing fraudulent 
information that affects eligibility to enroll or for permitting others 
to use his or her enrollment card to obtain services. Manual 
instructions implementing Sec. 417.460(d) further clarified that any 
abuse relating to a membership card was included as a ground for 
disenrollment. Thus, using another member's card would constitute 
grounds for disenrollment, just as would loaning someone else a card. 
With respect to the commenter's other example about multiple visits to 
physicians to obtain drugs, an M+C organization's utilization review 
system should be able to identify these abuses.
    Comment: One commenter requested that we add clarification 
regarding when a disenrollment is effective in cases of fraudulent 
behavior.
    Response: Disenrollment of an individual who has committed fraud or 
who permits the abuse of his/her enrollment card is effective the first 
day of the calendar month after the month in which the M+C organization 
gives the member the written notice of his/her termination.
    Comment: One commenter is concerned that our process for making 
disenrollment decisions related to disruptive behavior would result in 
numerous retroactive disenrollment situations. The commenter suggested 
that we clarify or revise the regulation to assure that any effective 
dates for disenrollment be prospective in situations where an 
individual is being disenrolled for disruptive behavior.
    Response: Section 422.74(d)(2)(v) establishes procedures for our 
review of an M+C organization's proposed disenrollment of an individual 
for disruptive behavior. Under these procedures, we review 
documentation submitted by the M+C organization within 20 working days, 
and notify the organization within 5 working days of whether it may 
disenroll the individual. Section 422.74(d)(2)(vi) then states that if 
we permit the disenrollment for disruptive behavior, the termination is 
effective the first day of the calendar month after the month in which 
the M+C organization gives the individual written notice of the 
disenrollment. Since these procedures do not allow an M+C organization 
to disenroll an individual for disruptive behavior until after we have 
approved the disenrollment, we believe the process provides only for 
prospective disenrollments.
    Comment: Several commenters believe that 12 months is too long to 
wait before disenrolling an individual for being permanently out of the 
service area. Many commenters are concerned that the beneficiary will 
be able to receive only urgent and emergency care during this time, and 
that 12 months is too long without routine and coordinated care. They 
made several recommendations. One commenter recommended that 6 months 
would be reasonable to cover those individuals who live in different 
parts of the country during the year, while still maintaining contact 
with the primary care physician for preventive care. Two commenters 
recommended maintaining past policy of disenrollment of members that 
move outside of service area for more than 90 days, unless the plan has 
an affiliate. Another commenter also supported a return to a 3-month 
time frame. One commenter requested clarification regarding the 
requirements for disenrolling members from M+C organizations if they 
move permanently before the 12 months have expired. The commenter 
believes that if the request to disenroll was written or other 
acceptable evidence was presented, the M+C organization may disenroll 
the individual from the plan.
    Response: We must first clarify that if an M+C organization 
determines that an individual has permanently left the service area of 
the M+C plan, it must disenroll the individual from that plan 
regardless of whether 12 months have passed, unless the individual 
chooses a continuation of enrollment option. This is outlined at 
Secs. 422.74(b)(2)(i) and 422.74(d)(4). However, we believe that this 
point may not be entirely clear in the existing regulations and thus we 
are revising Sec. 422.74(d) to specify that an individual who has 
``permanently'' moved out of a plan's service area must be disenrolled. 
Note that this disenrollment requirement also applies to individuals 
who are enrolled in a plan under the expanded seamless conversion 
option for former commercial plan enrollees that is now set forth at 
Secs. 422.50(a)(3)(ii) and (a)(4). That is, should the individual 
change his or her residence, he or she would be treated the same as any 
other enrollee who moves to a residence outside of the service area.
    The 12-month rule set forth under existing Sec. 422.74(d)(4) 
establishes the time limit for how long an individual who has left the 
service area on a temporary basis may remain a member of the M+C plan. 
That is, an M+C organization must disenroll an individual who has not 
permanently changed his or her address but has been out of the service 
area for over 12 months.
    After considering the comments on this provision, we agree that 12 
months is too long for a beneficiary to have access only to emergency 
and urgently needed care (based on our operational policy that when a 
member is out of the service area, the M+C organization is required to 
cover only emergency and urgently needed care). Therefore, we are 
further revising Sec. 422.74(d)(4) to state that the M+C organization 
must disenroll an individual, unless he or she chooses the continuation 
option, if the individual leaves the plan's service area on a 
nonpermanent basis for over 6 months. This change is within the 
parameters of the previous requirement under section 1876 of the Act 
which, as provided in Sec. 417.460(f)(2), allowed an uninterrupted 
absence from the geographic area for more than 90 days but less than 1 
year. However, we believe it is appropriate to extend the time frame 
from 90 days to 6 months to accommodate the many beneficiaries who 
leave the service area for seasonal periods each year, which often last 
more than 90 days, but rarely more than 6 months.
    We note that on August 9, 1999, we issued OPL 99.100, specifying 
that: (1) If an M+C organization receives notice of a permanent change 
of address from the member (or member's legal representative) at any 
time, then it must disenroll that individual from the plan if that 
change of address is outside the M+C plan's service area unless the 
member chooses the continuation of enrollment option; and (2) if a 
member

[[Page 40194]]

leaves the service area of the plan, then the M+C organization must 
disenroll the member if the absence extends beyond 12 months (now, 6 
months).
    Comment: One commenter asked whether an M+C plan can provide out-
of-area coverage in excess of that required by Medicare for only part 
of the 12-month period when a member is out of the M+C plan's service 
area.
    Response: We allow M+C organizations the flexibility to develop 
programs to continue benefits for those members who temporarily leave 
the service area. We have developed operational policies regarding 
visitor programs. Again, note that revised Sec. 422.74(d)(4) requires 
an M+C organization to disenroll an individual, unless he or she 
chooses the continuation option, if the individual moves out of the 
plan's service area, for over 6 months.
    Comment: One commenter asked for clarification of the effective 
date when an individual is disenrolled for being out of the area for 
over 12 months.
    Response: Consistent with the change in Sec. 422.74(d)(4), the 
effective date of disenrollment if a member is out of the area and has 
not informed the M+C organization that the move is permanent will be 
the first day of the calendar month after the 6 months has passed, and 
after appropriate written notice has been provided to the member. If 
the M+C organization is made aware of a permanent move out of the 
service area, disenrollment is effective the first day of the calendar 
month after the date the member begins residing outside of the M+C 
plan's service area, and after written notice has been provided to the 
member.
    Comment: One commenter recommended that Sec. 422.74(d)(7), which 
provides for disenrollment when a plan terminates services in the area 
in which the enrollee resides, explicitly states that disenrollment is 
automatic in this case.
    Response: The effective date of a disenrollment based on an M+C 
plan termination or reduction in service area is the date that the M+C 
plan termination is effective, and disenrollment is automatic. 
Beneficiaries would have already received advance notice of such a 
termination as part of the nonrenewal requirements in 
Sec. 422.506(a)(2). Accordingly, we have revised Sec. 422.74(d)(7)(ii) 
to reference the time frames in Sec. 422.506(a)(2).
    Comment: One commenter recommended that notices for involuntary 
disenrollments should be mailed to individuals authorized to make 
elections on behalf of an enrollee as well as the enrollee.
    Response: In general, and as indicated by our requirement that the 
beneficiary complete and sign the M+C enrollment form, we believe that 
an M+C-eligible individual should personally complete and sign any 
election form or disenrollment request whenever possible. If for some 
reason a beneficiary is unable to sign the election form and needs a 
surrogate, we defer to State law on who may sign for other persons. 
Legal representatives of such individuals who authorize the election of 
an individual must also sign the election form and specify their 
relationship with the enrollee. In instances of involuntary 
disenrollment, notifications of disenrollment occur before any action 
is taken, to ensure that the individual has adequate time to review his 
or her health care options. Since the legal representative has 
identified him/herself to the M+C organization, the M+C organization 
should ensure that both the legal representative and the enrollee 
subsequently receive, in a timely manner, any important information 
provided by the M+C organization related to the health care decisions 
of the beneficiary.
    Comment: One commenter is concerned that the time frames for our 
review of an M+C organization's proposed disenrollment for disruptive 
behavior (20 working days for a determination and the subsequent 5 days 
to notify the M+C organization) are too long. The commenter believes 
that 5 days is reasonable for us to make our determination.
    Response: Again, section 1856(b)(2) of the Act provides for the use 
of section 1876 standards to implement analogous provisions of the M+C 
statute when those standards are consistent with standards established 
in the BBA for the M+C program. Regulations at Sec. 417.460(e)(5), 
which set forth the requirements for our review of an HMO's or CMP's 
proposed disenrollment for cause, addressed this issue. Under 
Sec. 417.460(e)(5)(ii), we make this decision within 20 working days 
after receipt of the documentation material and notify the HMO or CMP 
within 5 working days after making our decision. We see no reason not 
to retain this standard under the M+C program, and have done so in 
Sec. 422.74(d)(2)(v)(B). We believe that this period of time ensures 
that we can conduct a thorough review of all documentation submitted by 
the M+C organization and the beneficiary.
    Comment: With respect to an M+C organization termination of an 
enrollee for disruptive behavior, one commenter asked for clarification 
of the process. For example, the commenter wanted to know who makes the 
determination, what appeal rights the beneficiary has, the time frame 
for a determination, and whether the beneficiary stays in the plan 
during the review of a determination. The commenter also asked if there 
is a possibility of coverage days lost while we are making the 
decision, and whether premiums would be refunded if the beneficiary is 
disenrolled.
    Response: The M+C organization must make a serious effort to 
resolve the problems presented by the beneficiary, which includes the 
use of the M+C organization's grievance procedures. The M+C 
organization must notify the beneficiary of its intent to request such 
a disenrollment, as well as the beneficiary's rights under the M+C 
organization's grievance procedures. As described above, the final 
decision regarding the determination of disruptive behavior is made by 
us, as provided by Sec. 422.74(d)(2)(v), which outlines our review 
authority of the M+C organization's proposed disenrollment. After 
reviewing the documentation submitted by the M+C organization and any 
information submitted by the beneficiary, we decide whether the M+C 
organization has met the disenrollment requirements. Until the 
disenrollment is effective, the beneficiary will continue to receive 
services from the M+C organization. Any premiums or other charges paid 
for coverage after the effective date would be refunded to the 
beneficiary; however, the beneficiary would be liable for the original 
Medicare cost-sharing and permitted balance billing in the case of any 
Medicare covered services provided by the M+C organization after the 
effective date of the disenrollment.
    Comment: One commenter requested clarification regarding when to 
send out notices for disenrollments for cause.
    Response: The basic requirement for notices is provided at 
Sec. 422.74(c), which states that for any optional or required 
disenrollment (other than death or loss of entitlement), the 
organization must give the individual written notice of the 
disenrollment with an explanation of why the M+C organization is 
planning to disenroll. The notice must be mailed to the individual 
before submission of the disenrollment notice to us. Please note that 
we have amended Secs. 422.74(c)(1) and (c)(2) to clarify that these 
notice provisions do not apply for disenrollments resulting from plan 
terminations or reduction of service or continuation areas, since there 
are no grievance rights provided in these

[[Page 40195]]

situations. The notice requirements for plan termination are outlined 
in Secs. 422.74(d)(7) and 422.506(a)(2).
    Comment: One commenter noted that Sec. 422.74 only provides the 
opportunity for an individual to express a grievance to the M+C 
organization for an enrollment or disenrollment decision. The commenter 
believes that we should allow these decisions to be appealed because 
such decisions should not be left to the M+C organization.
    Response: We agree with the commenter that decisions to disenroll 
for fraud or disruptive behavior should not be left solely to the M+C 
organization, which is why the regulations, at Secs. 422.74(d)(2)(iv) 
and (3)(iii) provide for our role in these cases. However, in other 
cases, we believe that beneficiaries will be well-protected from a 
potentially wrongful disenrollment by the internal grievance procedures 
of the M+C organization. An M+C organization's decision to disenroll an 
individual does not meet the regulatory definition of an organization 
determination and thus, by definition, is not an issue that is eligible 
for the M+C reconsideration process.
10. Approval of Marketing Materials and Election Forms (Sec. 422.80)
    Section 1851(h) of the Act outlines the requirements related to 
marketing by M+C organizations. These provisions are implemented in 
Sec. 422.80 of the interim final rule. Section 422.80(a) implements the 
requirements in section 1851(h)(1) that all marketing material and 
application forms be submitted to us for approval 45 days before 
distribution, and that such materials may be used only if we do not 
disapprove such use by the end of the 45-day period. Section 422.80(b) 
defines the ``marketing materials'' that must be submitted for 
approval. We note that we have made a minor revision to this regulation 
to reflect the fact that HCFA does not review newsletters as marketing 
material. The reference to newsletters was included in the interim 
final rule because it appeared in the part 417 regulations governing 
marketing by section 1876 contractors. In fact, HCFA did not treat 
newsletters as marketing materials in the case of section 1876 
contractors, and there was no intent in the interim final rule to 
change HCFA's practice on this point. The interim final rule thus 
should not have included the reference to newsletters, and we are 
correcting our error in doing so.
    Section 1851(h)(2) of the Act requires that the M+C standards 
include guidelines for review of marketing materials and requires that 
the guidelines provide that the Secretary will not approve materials 
that are inaccurate or misleading. Section 422.80(c) establishes the 
guidelines for our review of marketing materials. Consistent with the 
provision in section 1856(b)(2) of the Act for use of existing section 
1876 standards, the guidelines in Sec. 422.80(c) include existing 
marketing guidelines for HMOs and CMPs (from Sec. 417.428), which have 
been in effect since the inception of the Medicare risk contract 
program.
    Section 1851(h)(3) of the Act provides that if we have not 
disapproved the dissemination of marketing materials or forms with 
respect to an M+C plan in an area, we are deemed not to have 
disapproved the distribution in all other areas covered by the M+C plan 
and M+C organization except with regard to any portion of the material 
or form that is specific to the particular area. This ``deemed 
approval'' or ``one-stop shopping'' provision is implemented in 
Sec. 422.80(d).
    Section 1851(h)(4) of the Act provides that M+C organizations shall 
conform to ``fair marketing standards'' and requires that the fair 
marketing standards prohibit organizations from providing cash or other 
monetary inducements for enrollment. Section 422.80(e) outlines the 
fair marketing standards provided for under section 1851(h)(4) of the 
Act, and includes existing section 1876 standards as provided for in 
section 1856(b)(2) of the Act.
    Finally, Sec. 422.80(f) specifies that we may permit M+C 
organizations to develop and distribute marketing materials 
specifically designed for members of an employer group who are eligible 
for employer-sponsored benefits through the M+C organization. Although 
these materials must be submitted for approval under Sec. 422.80(a), we 
do not review portions of these materials that relate only to employer 
group benefits, rather than to M+C plan benefits.
    The public comments that addressed marketing issues governed by 
Sec. 422.80 are discussed below.
    Comment: Two commenters suggested that we consider lengthening the 
review and approval processing time for marketing material from 45 days 
to either 60 or 90 days. The commenters believe that we need additional 
time to perform adequate review of marketing material submitted by M+C 
organizations. Another commenter suggested that the processing time be 
reduced to 14 days and the deemed approval time period be 30 days. The 
commenter asserted that M+C contractors must complete obligations 
within 14-30 days; therefore, we should be held to the same standard. 
The commenter also stated that 45 days for approval of marketing 
material is too long for effective marketing or to correct 
misinformation in the press.
    Response: As noted above, section 1851(h)(1) of the Act establishes 
a 45-day limit for our review and approval of marketing materials. That 
is, absent our disapproval of such materials, the statute permits an 
M+C organization to distribute marketing materials 45 days after 
submitting the materials for review. Since any materials that are not 
affirmatively ``disapproved'' are effectively ``approved'' for 
distribution, we recognize the importance of completing our review of 
all marketing materials within 45 days. Accordingly, we are evaluating 
our marketing review procedures to identify ways we can promote greater 
efficiency in the marketing review process. We do not believe that 
reducing the marketing review and deemed approval periods would allow 
our staff adequate time to ensure that marketing material is accurate 
and not misleading to potential enrollees and beneficiaries.
    Comment: Many commenters expressed concern regarding inconsistent 
review and treatment of marketing material by our different regional 
offices. A few commenters recommended that we consider centralized 
review of marketing material to promote greater consistency across the 
regions and central office. Several commenters also suggested that we 
require standard language and at a minimum, 12-point print, in all M+C 
marketing materials.
    Response: We understand the concerns of M+C organizations regarding 
uniform application of marketing review and guidelines. To address 
these concerns, we have convened a team of representatives from our 10 
regional offices and our central office that is responsible for 
addressing marketing issues which arise in policy and operationally. We 
recognize that centralized review may promote more consistent 
application of marketing review policy, and we are currently evaluating 
the feasibility of such review. Although we want to provide M+C 
organizations with the flexibility to develop marketing material that 
will distinguish their products and services from other organizations, 
we also believe that standardizing M+C marketing materials will 
facilitate beneficiary use and choice. Thus, we have taken steps to 
standardize beneficiary materials. Pursuant to our authority under 
Sec. 422.80(c)(1) to require the use of ``a format * * * and * * * 
standard terminology * * * specified by HCFA,'' we required M+C

[[Page 40196]]

organizations to use a standardized Summary of Benefits format in 
describing their 2000 benefits, beginning in the fall of 1999. This 
Summary of Benefits provides beneficiaries with information on M+C 
plans that is standardized in terms of format, language, and content. 
We also plan to identify other beneficiary notification materials for 
which standardization will be required. The current marketing guide 
already directs M+C organizations to use 12-point print. M+C 
organizations can obtain the marketing guide from our website 
(www.hcfa.gov).
    Comment: One commenter suggested that we clarify that documents 
developed by pharmacies to conduct pharmacy compliance programs are not 
marketing and promotional materials. Another commenter recommended that 
we clarify that marketing materials intended to promote the M+C 
organization (distinct from its Medicare contracting function) should 
not be subject to the marketing review process.
    Response: To the extent that ``pharmacy compliance'' documents are 
directly related to health care or quality, we do not review them as 
marketing materials. On the other hand, if the ``pharmacy compliance'' 
materials are used to market the program in pre-enrollment marketing 
materials and advertisements, we treat them as marketing materials 
subject to our review and verification.
    We do not review materials that are directed solely at an HMO's 
commercial population. However, we believe that any materials targeted 
at the Medicare population, and designed to inform beneficiaries about 
benefits, or encourage beneficiaries to enroll or remain enrolled, 
should be subject to our review on their behalf. Thus, we are retaining 
the provision under Sec. 422.80(b)(1) that calls for review of 
materials that ``promote the M+C organization.''
    Comment: A few commenters, particularly those providing services in 
rural areas, urged that we require M+C organizations to include a list 
of subcontracted providers in their pre-enrollment marketing material. 
Others suggested that we require organizations to include a list of 
participating providers in their marketing materials.
    Response: We understand that provider directories are generally 
available at sales presentations or when a beneficiary visits the M+C 
organization. Thus, we do not think it is necessary or appropriate to 
mandate that an M+C organization identify subcontractors or furnish 
provider directories in general marketing materials or sales kits. We 
note that Sec. 422.80(c)(1) directs M+C organizations to provide 
Medicare beneficiaries interested in enrolling in an M+C plan with a 
written description of plan rules (including any limitations on the 
providers from whom services can be obtained), procedures, basic 
benefits and services, and fees and other charges. M+C organizations 
also must meet the detailed disclosure requirements outlined in 
Sec. 422.111, which include informing enrollees of the ``number, mix, 
and distribution (addresses)'' of available providers. We believe that 
these requirements adequately address beneficiary information needs.
    Comment: Several commenters requested that we define ``significant 
non-English speaking population.'' One commenter recommended that 5 
percent of the Medicare-eligible population be the standard, while 
another recommended a standard of 25 percent.
    Response: Section 422.80(c)(5) of the interim final regulation 
requires, for markets with a significant non-English speaking 
population, that M+C organizations provide marketing materials in the 
language of these individuals. The term ``significant'' can refer to 
either the number or percentage of the affected population. We note 
that the Office for Civil Rights within the Department of Health and 
Human Services is responsible for implementing standards and providing 
guidance concerning the obligations of Federal fund recipients (such as 
M+C organizations) to provide language assistance to individuals who 
have limited English proficiency. As more information becomes available 
to HCFA, we will provide further guidance on M+C organizations' 
responsibility in this regard.
    Comment: Some commenters asked that we clarify the role of 
physicians in the marketing of M+C products to their patients. The 
commenters also requested further guidance regarding whether physicians 
are allowed to counsel patients about their health insurance choices. 
Commenters both supported and opposed allowing physicians to advise 
potential enrollees and beneficiaries about M+C plan options.
    Response: We agree that the role of physicians should be clarified. 
Accordingly, we are amending the standards for marketing to add a new 
Sec. 422.80(e)(1)(vi) that permits provider groups and individual 
providers to distribute health plan brochures (exclusive of 
applications) at a health fair or in their own offices. Physicians may 
discuss, in response to an individual patient's inquiry, the various 
benefits in different health plans. While this discussion is entirely 
appropriate within the doctor-patient relationship, M+C organizations 
may not use providers/provider groups to distribute printed information 
comparing the benefits of different health plans, unless the materials 
have the concurrence of all organizations involved and have received 
prior approval from us. Physicians and other providers may not accept 
plan applications. We also are adding a new Sec. 422.80(e)(1)(vii) that 
prohibits M+C organization representatives from accepting applications 
in provider offices or other places where health care is delivered.
    Comment: One commenter recommended that we revise Sec. 422.80(c)(4) 
to reflect a statutory reference in section 1851(h)(2) of the Act to 
marketing material that is ``materially inaccurate or misleading or * * 
* makes a material misrepresentation.'' The commenter believed that the 
omission of the term ``material'' creates a more stringent standard of 
review than that intended by Congress.
    Response: We concur with this recommendation. As noted, section 
1851(h)(2) states that ``the Secretary shall disapprove * * * such 
material or form if the material or form is materially inaccurate or 
misleading or otherwise makes a material misrepresentation.'' 
Therefore, we are modifying Sec. 422.80(c)(4) to read as follows: ``In 
reviewing marketing material or election forms under paragraph (a) of 
this section, HCFA determines that the marketing materials: * * *. (4) 
are not materially inaccurate or misleading or otherwise make material 
misrepresentations.'' This language is more consistent with the 
standard outlined in the statute, and we believe it can help avoid 
delays in the review and approval of marketing materials for immaterial 
or irrelevant errors.
    Comment: Commenters also requested further guidance regarding the 
permissibility of offering ``value-added services'' to beneficiaries.
    Response: In general, ``value-added items and services'' (VAIS) are 
items or services offered to beneficiaries by an M+C organization that 
do not meet the definition of a benefit as stated in Sec. 422.2; that 
is, benefits are health care services for which the M+C organization 
incurs a cost under the M+C plan that are submitted and approved 
through the ACR process. Examples of VAIS may include but are not 
limited to discounts in restaurants, stores, entertainment, or travel; 
they could also include discounts on health club memberships and on 
insurance policy premiums.

[[Page 40197]]

    Because VAIS do not constitute a benefit under the M+C program, 
neither the actual costs of the VAIS nor associated administrative 
costs may appear in the ACR, nor are they subject to the Medicare 
appeals process. Nonetheless, VAIS may be of value to some enrollees, 
and we do not wish to deprive M+C enrollees of access to items and 
services commonly available to commercial enrollees. Therefore, M+C 
organizations may offer VAIS to Medicare enrollees, but materials 
describing VAIS must clearly distinguish between VAIS and M+C benefits, 
including clarifying that VAIS are not subject to the M+C appeal 
procedures. VAIS may not appear in the Beneficiary Information Form or 
the Plan Benefit Package. Further, VAIS may not be described in 
Medicare Compare, the Medicare and You handbook, or the Standardized 
Summary of Benefits. We will provide further guidance regarding VAIS in 
a forthcoming OPL.
    Comment: One commenter inquired if the prohibition of monetary 
rebates to induce enrollment applies to the distribution of coupons.
    Response: Cash or monetary rebates, including coupons that have 
more than a nominal cash value (if converted to cash) are prohibited 
under Sec. 422.80(e)(1)(i). This prohibition does not apply to items of 
nominal value ($10 or less). The coupons, or the combined value of the 
coupons, must not exceed the nominal value standard. Coupons that offer 
discounts on premiums or copayments are not permitted, because they 
would violate the ``uniform premium'' provisions of the statute, as 
outlined in Sec. 422.304. If coupons are for VAIS in excess of nominal 
value, they cannot be distributed or advertised pre-enrollment. 
However, these coupons may be used after enrollment.
    Comment: Commenters objected to the fact that the regulations are 
silent regarding the consequences if an M+C organization violates the 
marketing standards. Two commenters recommended that we begin 
retrospective review of marketing materials, and pull the advertising 
campaign for those found to be egregiously inaccurate. Similarly, 
another commenter suggested that we nonrenew or terminate contracts 
with organizations that are substantially out of compliance with the 
marketing regulations.
    Response: We recognize that marketing material distributed by M+C 
organizations must be accurate and not misleading to potential 
enrollees, and that M+C organizations should be subject to sanction for 
a substantial failure to comply with marketing rules. We accordingly 
are adding a new Sec. 422.510(a)(12) to specify that a substantial 
failure to comply with marketing guidelines is a ground for 
termination, and thus also a ground for nonrenewal or intermediate 
sanction (consistent with Secs. 422.506(b)(1)(iii) and 422.572(b)).
    Comment: Several commenters requested that we provide additional 
guidance regarding the documentation necessary to demonstrate that 
marketing resources are allocated for marketing to both the disabled 
and beneficiaries age 65 and over.
    Response: Section 422.80(e)(2)(i) requires M+C organizations to 
demonstrate to our satisfaction that marketing resources are allocated 
to marketing to the disabled Medicare population as well as 
beneficiaries age 65 and over. We plan to issue further guidance on 
this issue but, until then, we expect organizations to adopt their own 
procedures to implement these provisions. As a starting point, 
organizations may consider developing a formal marketing strategy that 
considers the needs of persons with disabilities and consulting with 
disability advocacy groups and outreach programs. We expect M+C 
organizations to avoid developing plans that could discourage the 
enrollment of persons with disabilities through the imposition of 
unusually large cost-sharing requirements for items and services 
frequently used by the disabled. M+C organizations are also expected to 
make their marketing materials accessible to persons with disabilities 
(including, for example, through use of alternative formats), and to 
establish mechanisms for making their marketing sessions accessible to 
the disabled Medicare population. Also, as discussed further in section 
II.C of this preamble, M+C organizations must comply with other 
applicable Federal statutes, including the Americans with Disabilities 
Act.
    Comment: One commenter recommended that we revise or delete the 
heading ``Employer Group Retiree Marketing'' in Sec. 422.80(f) to 
reflect marketing to Medicare-eligible employees of the employer.
    Response: We believe that ``Employer Group Retiree Marketing'' is 
an appropriate heading. This provision addresses only marketing 
materials geared toward retirees of an employer group that reflect non-
Medicare benefits offered to group members by that employer. These 
retirees generally would include individuals who have retired based on 
a disability rather than age. Thus, a reference to ``retirees'' is not 
necessarily limited to the over-65 Medicare market. Moreover, this 
provision in no way limits an M+C's obligation to market to both 
disabled and over-65 beneficiaries, both in a retiree group and 
otherwise.
    Comment: Some commenters requested further clarification regarding 
the review of marketing material developed by employers for purposes of 
employer group marketing. One commenter inquired whether we will 
definitely permit M+C organizations to develop marketing materials for 
employer groups. Presently, Sec. 422.80(f) states that we ``may'' 
permit M+C organizations to develop marketing materials for employer 
groups.
    Response: Although we will not review all the specific benefits 
offered by the employer group, we will review those items that fall 
within the disclosure requirements of Sec. 422.111. Further, we agree 
that the wording of Sec. 422.80(f) may be unclear; thus we are revising 
the regulation to: (1) Specify that M+C organizations are permitted to 
develop marketing materials for employer groups; and (2) clarify that 
we will not review those portions of such marketing materials that 
relate solely to employer group benefits.
    Comment: One commenter questioned whether it is appropriate to 
allow the term ``senior'' or the number ``65'' to appear in the name of 
an M+C plan. The commenter stated that including these terms could 
discourage some beneficiaries from enrolling in a particular M+C plan.
    Response: We recognize that certain plan names may discourage 
enrollment by disabled beneficiaries. Accordingly, pursuant to our 
authority under section 1851(h)(4) of the Act to establish marketing 
standards, we have added a new Sec. 422.80(e)(1)(viii) that will 
prohibit M+C plan names that suggest that a plan is available only to 
Medicare beneficiaries age 65 or over, rather than to all 
beneficiaries. This prohibition generally bars plan names involving 
terms such as ``seniors,'' ``65+,'' etc. In fairness to M+C 
organizations with an existing investment in a plan name, we are 
``grandfathering'' existing M+C plan names, that is, plan names 
established before this final rule takes effect.
    Comment: One commenter believes that tax dollars should not be 
spent on insurance counseling and assistance programs, such as State 
Health Insurance Assistance (SHIP) or Information Counseling and 
Assistance (ICA) programs. In the commenter's view, there are less 
expensive and better alternatives, such as licensed insurance agents. 
The commenter asserted that the licensure of these individuals assures 
public accountability, and that the

[[Page 40198]]

insurance professional is the best alternative for providing consumer 
information and expertise about the new M+C options. On the other hand, 
several commenters recommended that we not permit independent marketing 
agents to sell M+C products to potential enrollees.
    Response: We believe that SHIPs and ICA programs are valuable, 
objective, and necessary resources for Medicare beneficiaries. These 
programs provide one-on-one counseling to beneficiaries on many 
complicated insurance issues and provide essential links to other 
important services and programs available to beneficiaries. SHIPs 
provide a service through a network of 10,000 trained volunteers. In 
addition, these programs effectively network with other key partners 
such as insurance carriers, departments of social services, and legal 
service agencies. SHIPs are able to provide assistance related to a 
broad spectrum of Medicare issues, and are required to conduct their 
programs with impartiality and confidentiality. While we strongly 
support these programs, which have been extremely valuable in educating 
beneficiaries on the new M+C provisions, we will continue to explore 
additional information mechanisms to ensure that beneficiaries receive 
information in the most efficient and effective manner.
    We recognize that independent insurance agents may be able to 
provide a necessary service to Medicare beneficiaries who are 
considering enrolling in the M+C program. In the past, our position has 
been to strongly discourage, but not prohibit, Medicare managed care 
organizations from employing independent insurance agents to sell their 
products. Recently, we have engaged in extensive consultations on this 
issue with the DHHS Office of the Inspector General, and we intend to 
issue guidance to M+C organizations in the near future regarding the 
parameters for the participation of independent agents in marketing M+C 
plans.

C. Benefits and Beneficiary Protections

1. Introduction
    Subpart C of these regulations details the scope of benefits a 
Medicare beneficiary is entitled to receive when electing coverage 
through an M+C plan, as well as establishing a number of beneficiary 
protections in areas related to access rules, enrollee notification 
requirements, confidentiality and others. The statutory authority for 
most of the provisions of subpart C is found in section 1852 of the 
Act, which outlines benefit requirements and provides authority for 
beneficiary protections under Medicare Part C. Many of the statutory 
provisions are the same as, or similar to, benefit provisions of 
section 1876 of the Act. Therefore, much of the regulatory language of 
part 417 is retained for purposes of establishing M+C standards, as 
provided for in section 1856(b)(2) of the Act (which provides for 
basing M+C standards on section 1876 standards implementing analogous 
provisions, where consistent with Part C).
    All M+C organizations are required to cover the full range of 
Medicare benefits that are available under original Medicare to 
beneficiaries in the area who are not enrolled in an M+C plan, subject 
to certain rules regarding an accessible network of providers. M+C 
organizations are further required to cover Medicare preventive 
benefits with the same frequency that they are covered under original 
Medicare (for example, annual screening mammography examinations). 
Beneficiaries may be required to contribute to the cost of covered 
services in the form of cost sharing provided for under the M+C plan. 
Beneficiaries may have to cover all costs until a deductible is met 
(including the high deductible provided for under an MSA plan--see 
section III of this preamble), a percentage of costs in the form of 
coinsurance, or a fixed amount for services, in the form of a 
copayment. As discussed in section II.G below, there are limits that 
apply to the cost sharing that can be imposed on beneficiaries under 
M+C plans. For benefits that are covered under original Medicare, the 
benefits must be obtained through providers meeting the conditions of 
participation of the Medicare program.
    This section of the preamble mainly discusses the requirements for 
network plans. Sections III and IV of the preamble provide more 
extensive information about benefit requirements applicable to non-
network M+C MSA plans and to private fee-for-service plans, 
respectively. Organizations with network plans, which include 
coordinated care plans and network M+C MSA plans, are permitted to 
restrict enrollees to a specified network of providers in the case of 
non-emergency/urgent services if they have a network in place to 
provide these services directly or through arrangements (that is, 
written agreements with providers) that meet the availability and 
accessibility requirements of section 1852(d)(1) of the Act and 
Sec. 422.112, discussed below.
2. Emergency, Urgently Needed, and Post-Stabilization Care Services 
(Secs. 422.2, 422.100, 422.112, and new Sec. 422.113)
    In some situations, an M+C organization is required to assume 
liability for services provided to Medicare enrollees through 
noncontracting providers. In particular, under Sec. 422.100(b), the 
organization is required to assume financial responsibility for the 
following items and services obtained from a provider that does not 
contract with the M+C organization:
    <bullet> Emergency services;
    <bullet> Urgently needed services;
    <bullet> Renal dialysis services provided while the enrollee was 
temporarily outside the M+C plan's service area;
    <bullet> Post-stabilization care services; and
    <bullet> For both network and non-network plans, services denied by 
the M+C organization and found upon appeal (under subpart M of this 
part) to be services the enrollee was entitled to have furnished or 
paid for by the M+C organization.
    The requirements that the M+C organization assume financial 
liability for renal dialysis services and post-stabilization care are 
new requirements introduced by the BBA that were not included in the 
requirements of section 1876 of the Act. The definitions of emergency 
services and urgently needed services in the M+C regulations are based 
on section 1852(d) of the Act, and thus differ from those used under 
the previous Medicare managed care program (see Sec. 417.401). In 
accordance with section 1852(d)(3) of the statute, an ``emergency 
medical condition'' exists if a ``prudent layperson'' could reasonably 
expect the absence of immediate medical attention to result in serious 
jeopardy or harm to the individual. In addition, the new definition of 
``emergency services'' includes emergency services provided both within 
and outside of the plan, while the definition of ``urgently needed 
services'' continues to encompass only services provided outside of the 
plan's service area (or continuation area, if applicable), except in 
extraordinary circumstances (as discussed below). Under section 
1852(d)(1)(C)(i) of the Act, M+C organizations are required to pay for 
nonemergency services provided other than through the organization 
where the services are immediately required because of unforeseen 
illness, injury or condition, and it is not reasonable given the 
circumstances to obtain the services through the organization.
    In the June 26, 1998 interim final rule, definitions of emergency 
services and

[[Page 40199]]

urgently needed services were provided at Sec. 422.2; financial 
responsibility of the M+C organization for emergency, urgently needed, 
and post-stabilization care services provided outside of the 
organization was addressed at Sec. 422.100; and special coverage rules 
for emergency services and urgently needed services were provided at 
Sec. 422.112. In this final rule, general requirements for financial 
responsibility for services provided outside the M+C organization 
remain at Sec. 422.100, while definitions and policies relating to all 
types of emergency episodes of care, including ambulance services, 
emergency services, urgently needed services, and post-stabilization 
care services, have been consolidated at Sec. 422.113. Comments on 
these aspects of the subpart C regulations are discussed below.

a. Definitions (Sec. 422.2 and new Sec. 422.113)

    Comment: Two commenters requested that we specify in the definition 
of ``urgently needed services'' that these are not ``emergency 
services.''
    Response: Section 1852(d)(1)(C)(i) of the Act specifies that 
urgently needed services are not emergency services. Thus, as the 
commenters suggested, we are revising the definition of urgently needed 
services to include the requested clarification.
    Comment: One commenter expressed support for, while another 
commenter opposed, the inclusion of in-area unusual events in the 
definition of urgently needed services. The commenter opposing the 
inclusion of in-area urgently needed services suggested that if this 
provision is retained, M+C organizations should not be required to 
disclose it in member materials or that we give examples of 
circumstances in which this exception would apply. One commenter asked 
if this meant that beneficiaries could unilaterally obtain care out-of-
plan if their M+C organization did not provide the care they requested. 
The commenter supporting our position provided the example of equipment 
failure as a case in which in-area services might not be available.
    Response: As discussed in the preamble to the June 26, 1998 interim 
final rule (63 FR 34973), the inclusion of in-area unusual events in 
the definition of urgently needed services is based on the statutory 
language at section 1852(d)(1)(C)(i) of the Act, which does not specify 
that these services are covered only when the beneficiary is out-of-
area. Rather, the statute provides for coverage of urgently needed 
services when ``it was not reasonable given the circumstances to obtain 
the services through the organization.'' As stated in the regulations, 
in-area coverage of urgently needed services applies only under unusual 
and extraordinary circumstances, for services provided when the 
enrollee is in the service or continuation area, but the organization's 
provider network is temporarily unavailable or inaccessible, and such 
services are medically necessary and immediately required. We believe 
that examples of when this could arise would include unusual events 
such as an earthquake or strike, if such events impede enrollee access 
to care through M+C plan providers. This regulatory definition of 
urgently needed services should be used in any materials that include a 
description of urgently needed services.
    With regard to the request that the in-area exception in the 
definition of urgently needed services be interpreted to mean that 
beneficiaries could seek care out-of-plan if the particular services 
are not provided by an M+C organization, we believe that the commenter 
is asking about situations where an M+C organization has made a 
judgment that services are not necessary or not covered, rather than 
one in which the network is unavailable. There are other mechanisms in 
place to handle such situations. We may require a plan to take 
corrective action, where necessary, if a plan fails to provide 
services. In addition, services that the beneficiary believes he or she 
was entitled to receive from the M+C organization, but that the 
organization denied or otherwise did not provide, may be appealed under 
the regulations in subpart M of part 422. Whether situations involving 
equipment failures would be considered urgently needed services depends 
upon the clinical condition of the patient, and the M+C organization's 
ability to make services available notwithstanding the equipment 
failure.
    We note that, inherent to the various requirements under 
Sec. 422.112 relating to an M+C organization's responsibility to 
provide adequate access to covered services, is the obligation of an 
M+C organization to provide access to necessary care through out-of-
network specialists when its network is inadequate or unavailable. That 
is, if in an individual case a plan's provider network is not adequate 
to meet an enrollee's health care needs (for example, the plan includes 
no specialist qualified to treat an enrollee's rare condition), the 
organization shall authorize the individual to go out of network to 
obtain the necessary care. We are revising Sec. 422.112(a)(3) to make 
this requirement explicit. As discussed in detail in section II.M.9 of 
this preamble, failure to authorize such care constitutes an adverse 
organization determination, with concomitant appeal rights.
    Comment: One commenter requested further elaboration on what is 
meant by ``prudent layperson'' within the definition of emergency 
services.
    Response: Section 1852(d)(3) of the Act provides the definition of 
emergency services that includes the prudent layperson standard. 
Specifically, section 1852(d)(3)(B) of the Act states that an emergency 
medical condition is a medical condition manifesting itself by acute 
symptoms of sufficient severity (including severe pain) such that a 
prudent layperson, who possesses an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in (i) placing the health of the individual (or, 
with respect to a pregnant woman, the health of the woman or her unborn 
child) in serious jeopardy, (ii) serious impairment to bodily 
functions, or (iii) serious dysfunction of any bodily organ or part. 
This entire definition should be considered when making a determination 
of whether a beneficiary acted appropriately in seeking emergency care. 
This definition is what the independent review entity under contract 
with us will consider when making determinations on beneficiary appeals 
of emergency services that an M+C organization has denied. With respect 
to the term ``prudent layperson,'' we believe that the term ``prudent'' 
has a commonly understood meaning, and would refer the reader to the 
general dictionary definition of this term. A layperson refers to an 
individual with an average knowledge of health and medicine, as the 
definition of ``emergency medical condition'' states. We do not believe 
that further elaboration of the term prudent layperson is necessary.

b. Enforcement of Emergency Requirements (Secs. 422.80, 422.100, 
422.113) 

    Comment: Commenters requested clarification of what steps we were 
taking to ensure that M+C organizations provide access to emergency 
services intended by law.
    Response: One mechanism we use to ensure appropriate provision of 
covered services by M+C organizations is a review process of all 
organization materials provided to beneficiaries, including both pre-
enrollment marketing materials provided to prospective enrollees and 
post-

[[Page 40200]]

enrollment member materials for enrollees. For example, 
Sec. 422.80(b)(5)(v) lists examples of membership communication 
materials we review, including membership rules, subscriber agreements 
(evidence of coverage), and member handbooks. In considering our 
response to this comment, we have determined that ``wallet-sized'' 
instruction cards that might be used in the case of an emergency should 
also be expressly included as materials to be reviewed, because these 
cards may contain instructions to enrollees on how to access care, 
including instructions on what to do in an emergency. We, therefore, 
are adding wallet card instructions to the list of examples of 
marketing materials to be reviewed under Sec. 422.80(b)(5)(v) to ensure 
that wallet card instructions to enrollees are consistent with the 
statute and regulations, particularly requirements that apply to 
emergency and urgently needed services. We note that, as part of our 
monitoring of the ``prudent layperson'' standard, we have asked our 
independent review entity to report, on a quarterly basis, each 
instance in which it overturns a denial of a claim for emergency 
services.
    Also in response to this comment, we have decided to specify at 
Sec. 422.100(b)(1)(i) that M+C organizations are required to cover 
ambulance services provided other than through the organization that 
are dispatched through 911 or its local equivalent. Section 422.113 
specifies that the M+C organization bears financial responsibility for 
ambulance services where other means of transportation would endanger 
the beneficiary's health. This policy is consistent with original 
Medicare's coverage of ambulance services where other means of 
transportation would endanger the health of the beneficiary as provided 
by section 1861(s)(7) of the Act, as well as with the emergency 
coverage provisions of section 1852(c)(1)(E) of part C of the Act. In 
particular, we believe that the law's reference to use of the 911 
telephone system indicates statutory intent for coverage of ambulance 
services whether provided through the organization or other than 
through the organization. Ambulance services provided through the 
organization would also be considered part of basic benefits under 
Secs. 422.100(a) and 422.101. We note that nonemergency ambulance 
services generally would be covered only when provided through the 
organization, to the same extent the services are covered under the 
general Medicare principles set forth in section 1861(s)(7) of the Act 
(that is, when use of other forms of transportation would endanger the 
health of the beneficiary.) Regulations on original Medicare coverage 
of ambulance services may be found at Sec. 410.40.

c. Access to Emergency and Urgently Needed Services (Secs. 422.112(c) 
and 422.113)

    Comment: Commenters generally supported emergency services 
policies, such as the prudent layperson definition, the prohibition of 
prior authorizations, the requirement for out-of-plan coverage, and the 
requirement that the treating physician determine when the patient is 
stable. Commenters requested clarification of the prohibition on prior 
authorization.
    Response: In considering our policy prohibiting prior authorization 
for emergency services as required under section 1852(d)(1)(E) of the 
Act, we have determined that the regulations should expressly reflect 
the fact that two parties are protected from prior authorization 
requirements, that is, the beneficiary and the emergency provider 
treating the beneficiary. We are clarifying at 
Sec. 422.113(b)(2)(ii)(A) that prior authorization may not be required 
from the beneficiary in any materials furnished to enrollees (including 
wallet card instructions) and that, consistent with section 
1852(c)(1)(E) of the Act, disclosure of an enrollee's right to coverage 
of services must include disclosure of the enrollee's right to use the 
911 telephone system. Also, Sec. 422.113(b)(2)(ii)(B) specifies that 
materials furnished to providers (including contracts with providers) 
may not include instructions to seek prior authorization before an 
enrollee has been stabilized.
    We believe that these clarifications will promote compliance with 
the prohibition in section 1852(d)(1)(E) of the Act on prior 
authorization requirements for emergency services.
    Comment: A commenter requested that we specify that retroactive 
denials should not be allowed based solely on a final diagnosis, and 
that the presenting condition from the perspective of the prudent 
layperson should determine coverage.
    Response: As noted in our preamble discussion of the provisions of 
Sec. 422.112 in the June 26, 1998 interim final rule, long-standing 
Medicare managed care manual policy (Sec. 2104) prohibited 
retrospective denial for services that appeared to be emergencies, but 
turned out not to be emergency in nature. This policy is consistent 
with the ``prudent layperson'' element of the definition of an 
emergency medical condition, in that the perspective of the enrollee is 
a significant factor in determining whether an enrollee acted 
appropriately in seeking emergency care. As explained in the preamble 
to the interim final rule, we believe that the current regulations 
already require such coverage. However, in light of the commenter's 
concern, we are including in new Sec. 422.113(b)(2)(iii) the explicit 
requirement that M+C organizations assume financial responsibility for 
services meeting the prudent layperson standard in the definition of 
emergency medical condition, regardless of final diagnosis.
    Comment: We received a number of comments regarding the limit in 
Sec. 422.112(c) on copayments for emergency services obtained outside 
the M+C plan's provider network (the lower of $50 or whatever the plan 
would charge for in-plan emergency care). Some commenters argued that 
significant copayments were necessary to deter unnecessary visits to 
the emergency room, and noted that commercial fee-for-service insurance 
plans have copayments for emergency care that may be higher than the 
$50 limit. Other commenters thought the $50 limit was a reasonable 
standard. Some commenters suggested that the copayment for an emergency 
room visit should be higher than that for a physician office visit. One 
commenter requested that a requirement for advance disclosure of the 
emergency room copayment amount be substituted for a dollar limit. One 
commenter requested clarification that the $50 limit be for the ``sum 
total'' for all care received for the emergency episode. Another 
commenter argued for a rule prohibiting copayments altogether, or at 
least for a reduced limit for low-income beneficiaries.
    Response: We appreciate the commenters' responses to our request 
for public comment on the policy of limiting the amount that can be 
imposed as a copayment for emergency services. As we stated in the 
preamble to the June 26, 1998 interim final rule, our data showed that 
only 7 percent of Medicare managed care plans were charging more than 
$50 for emergency services. We believe that all of the above comments 
have some merit, but that, on balance, retaining the current policy 
(the lower of $50 or whatever the plan would charge for in-plan 
emergency care) is the best course of action. Although we agree that 
copayments can effectively deter unnecessary use of services, we 
believe that a $50 copayment accomplishes this objective, since 93 
percent of M+C organizations do not exceed this amount. We also 
believe, however, that a copayment higher than this amount

[[Page 40201]]

could potentially deter an enrollee from receiving necessary emergency 
services. M+C organizations retain flexibility to set copayment amounts 
up to $50, including possible consideration for low-income 
beneficiaries, and organizations may provide for a substantial 
differential between copayments for physician office visits and 
emergency room visits. We believe that the difference between a $50 
copayment for an emergency room visit and the typical $5 to $10 
copayment for a physician's office visit is sufficient incentive to 
receive nonemergency services at a physician's office. With respect to 
the commenter who advocated disclosure of emergency room copayments, 
such copayments are already disclosed in the MedicareCompare database 
on the Internet at HCFA's website, www.hcfa.gov, and M+C organizations 
are required to disclose these amounts in membership materials provided 
to beneficiaries. Finally, we believe that the current language already 
conveys that $50 is the sum total limit for copayment for services 
defined as emergency services, and that further clarification beyond 
this response is not necessary.
    Comment: One commenter suggested that beneficiaries be issued a 
single Medicare identification card that could be presented to their 
treating physicians and staffs, rather than one card issued by the M+C 
organization and one issued by Medicare. The commenter stated that 
beneficiaries frequently do not present the correct card denoting M+C 
plan coverage to their treating physicians. The commenters believe that 
the use of a single card would allow physicians and staffs to easily 
identify exact Medicare coverage and the appropriate administrative and 
billing procedures to be applied.
    Response: The purpose of the Medicare card issued to the 
beneficiary is to serve as proof of entitlement to the Medicare 
program. We believe that the Medicare card and the M+C plan membership 
card serve two different purposes--to identify the individual as 
entitled to Medicare and to subsequently identify how the individual 
receives the services. Combining these elements into a single 
identification card would require the issuance of a new card each time 
the beneficiary chose a new plan or returned to original Medicare. 
Thus, although we welcome suggestions to improve the efficiency of our 
operations, we do not believe that a single card should be issued to 
the beneficiary.

d. Post-Stabilization Care Services (Secs. 422.100 and 422.113)

    Section 1852 (d)(2) of the Act gives the Secretary express 
authority to establish requirements needed to promote the ``efficient 
and timely coordination of appropriate maintenance and post-
stabilization care'' (hereafter together referred to as ``post-
stabilization care''). Section 1852(d)(1)(C)(iii) of the Act 
establishes an M+C organization's responsibility to provide 
reimbursement for these services. Implementing regulations at 
Secs. 422.100(b)(1)(iii) and 422.113(c) specify that an M+C 
organization is financially responsible for post-stabilization care 
services obtained within or outside of the M+C organization. This 
requirement applies both to services pre-approved by the organization 
and services that were not pre-approved, under certain circumstances, 
including situations where an M+C organization fails to respond within 
1 hour to a request for pre-approval from a provider of post-
stabilization care services (as discussed in detail below). We received 
a number of comments regarding this section.
    In this final rule, the special rules for post-stabilization care 
services are included under new Sec. 422.113. The requirement for 
financial responsibility for post-stabilization care services provided 
outside the organization remains at Sec. 422.100.
    Comment: One commenter stated that after stabilization of the 
emergent medical condition, no immediate health risks should exist. 
This commenter asked why there is a need to change the time frame for 
obtaining approval of post-stabilization care, which the commenter 
apparently believed was 48 hours. Several commenters responded 
favorably to the 1-hour window for responding to a request for 
authorization of post-stabilization services, with one commenter 
suggesting that 30 minutes would be a better time frame.
    Response: If no immediate health risks exist following an emergency 
episode, the patient would most likely be discharged. Post-
stabilization care services are administered to ensure that the patient 
remains stabilized following an emergency episode. We agree with the 
majority of commenters who supported the 1-hour time frame. We believe 
that an untimely response to a request for post-stabilization care 
services would delay the delivery of these services, thereby 
compromising their effectiveness. We are not aware of the 48-hour time 
frame referenced by one commenter, as no such time frame exists under 
Medicare law.
    Comment: Several commenters recommended that we require that the 
request for approval not be made until after the enrollee is 
stabilized, so that the organization will have the necessary 
information at its disposal. Commenters requested clarification as to 
what constitutes a response by the M+C organization to a call from the 
hospital. For instance, one commenter asked if an organization would be 
in compliance with the 1-hour rule if it calls back within the hour and 
states it needs more time to make a decision on post-stabilization care 
services. One of these commenters also stated that we should require 
that the emergency department treating the member contact the M+C 
organization within an hour of the point at which the member is 
stabilized. Another asked how the emergency provider would be held 
accountable for notification to the M+C organization once the patient 
is stable.
    Response: Section 1852(d)(1)(E) of the Act states that the M+C 
organization must provide coverage for emergency services without 
regard to prior authorization or the emergency care provider's 
contractual relationship with the organization. Implicit in this 
requirement is the fact that the organization may not require the 
provider to call for approval of services prior to the point of 
stabilization. If the hospital chooses to notify the organization while 
the patient is still being stabilized, the organization will still need 
an update on the status of the patient at the point of stabilization, 
in order to make an informed decision. If the provider calls when the 
enrollee is stabilized, an organization which calls back within the 
hour should not need more time to make a decision. Therefore, we 
consider a response by the M+C organization to be when the M+C 
organization submits a decision to the provider about its request for 
post-stabilization care. While we believe it is reasonable to expect 
the emergency provider to contact the M+C organization within an hour 
of the point at which the member is stabilized, we do not believe that 
this final rule, which establishes and clarifies the requirements that 
M+C organizations must meet, is an appropriate vehicle to impose such a 
requirement on hospitals. (We are considering including such a 
requirement in future hospital provider agreements with Medicare, 
however.) It is clearly in the hospital's best interest to contact the 
organization as soon as a patient is stabilized in order to ensure plan 
coverage of post-stabilization services furnished by the hospital. In

[[Page 40202]]

addition, in order to be able to bill the beneficiary in circumstances 
where the plan is not liable for payment, the treating provider is 
expected to provide the stabilized patient with a notice of non-
coverage, such as an Advance Beneficiary Notice.
    Comment: A number of commenters asked for clarification of the 
definition of post-stabilization care services. The majority of these 
commenters requested that post-stabilization care services be linked to 
the emergency episode. Two commenters inquired if the term post-
stabilization care replaces the pre-BBA term ``follow-up'' care, which 
includes only routine care following an out-of-area emergency medical 
episode.
    Response: We agree that the concept of post-stabilization care 
services could be clarified further, and we have expanded on the 
definition, including the addition of language addressing services 
furnished while waiting for a response to a request for authorization 
from an M+C organization. We also agree with the commenter that post-
stabilization services should be limited to services related to the 
emergency medical condition.
    By post-stabilization care services, we generally mean covered 
services, related to an emergency episode, provided after the enrollee 
is considered to be stable (see new Sec. 422.113(c)). Under the post-
stabilization provisions set forth in the interim final rule, ``post-
stabilization'' services were limited to services authorized by the M+C 
organization or services furnished when the organization cannot be 
reached, or fails to respond to a request for authorization within an 
hour. This definition did not address services that may be required 
during that hour to keep the patient stabilized. We believe that it is 
necessary to ensure that the patient continues to receive necessary 
treatment during the 1-hour time frame when the provider waits for the 
organization to respond. These services consist of those necessary to 
maintain the stable condition achieved through previously administered 
emergency services. Any period of instability that rises to the level 
of an emergency medical condition that occurs during this time would be 
covered under Sec. 422.113(b).
    Section 422.113(c) also establishes that if the M+C organization 
does not respond within the 1-hour time frame, the M+C organization 
cannot be reached, the treating physician can proceed with post-
stabilization services that are administered not only to ensure 
stability, but also to improve or resolve the patient's condition. When 
an M+C organization representative who is a non-physician and the 
treating physician cannot reach agreement on a course of treatment, the 
M+C organization must allow the treating physician to speak with a plan 
physician. By allowing the treating physician to proceed with care of 
the patient in these cases, we are ensuring that M+C enrollees receive 
the same standard of timely care as beneficiaries under original 
Medicare.
    Accordingly, the revised definition of post-stabilization care 
services at Sec. 422.113(c)(1) reads as follows:
    ``(c) Post-stabilization care services means covered services, 
related to an emergency medical condition, that are provided after the 
enrollee is stabilized in order to maintain the stabilized condition, 
or, under the circumstances described in paragraph (2)(iii) below, to 
improve or resolve the enrollee's condition.''
    Section 422.113(c)(2) then describes the M+C organization's 
financial responsibility for post-stabilization care services. 
Specifically, ``the M+C organization is financially responsible 
(consistent with Sec. 422.214) for post-stabilization care services 
obtained within or outside of the M+C organization that are-- (i) Pre-
approved by a plan provider or other M+C organization representative; 
(ii) Not pre-approved by a plan provider or other M+C organization 
representative, but administered to maintain the stabilized condition, 
within 1 hour of a request to the M+C organization for pre-approval of 
further post-stabilization services; or (iii) Not pre-approved by a 
plan provider or other M+C organization representative, but 
administered to maintain, improve, or resolve the enrollee's stabilized 
condition if--
    (A) The M+C organization does not respond to a request for pre-
approval within 1 hour;
    (B) The M+C organization cannot be contacted; or
    (C) The M+C organization representative and the treating physician 
cannot reach an agreement concerning the enrollee's care and a plan 
physician is not available for consultation. In this situation, the 
treating physician may continue with the care of the patient until a 
M+C organization physician is reached or one of the criteria in 
Sec. 422.113 (c)(3) is met.''
    To further clarify the above requirements, consider the following 
example: A patient is brought to the emergency department with the 
preliminary diagnosis of a seizure. The patient is screened and 
receives services to stabilize his condition. Thus far, the services 
that the patient has received are emergency services under 
Sec. 422.113(b). Once the emergency room physician considers the 
patient stabilized, the M+C organization is notified of the need to 
consult a neurologist in order to proceed with relevant diagnostic 
tests to determine the cause of the seizure, and to treat the cause of 
the seizure definitively. While the emergency provider waits 1 hour for 
a response from the organization, post-stabilization services necessary 
to maintain the stable condition achieved through previously 
administered emergency services are administered.
    If the M+C organization responds within 1 hour, it can approve the 
request for additional post-stabilization services under 
Sec. 422.113(c)(2)(i) or make other arrangements for additional 
services. If the organization did not respond within the 1-hour time 
frame, if the organization could not be contacted, or if the 
organization representative and the treating physician could not reach 
an agreement and a plan physician was not available for consultation 
during the hour, the treating physician can proceed with post-
stabilization services administered not only to maintain the stabilized 
condition, but to improve or resolve the patient's condition. Again, if 
the organization representative and the treating physician cannot reach 
an agreement, the M+C organization must give the treating physician the 
opportunity to speak with a plan physician concerning the care of the 
patient. If a plan physician responds to a request for consultation 
outside the one hour time frame, the plan physician and the treating 
physician are expected to execute a plan for safe transfer of 
responsibility of the patient.
    Comment: One commenter sought clarification as to when the M+C 
organization's liability to pay ends. This commenter does not believe 
that the M+C organization physician should have to ``arrive,'' as 
stated in the preamble of the June 26, 1998 interim final rule, in 
order to terminate the organization's responsibility to pay. This 
commenter also recommended that we explicitly state that even if the 
M+C organization does not respond within the hour, once it does 
respond, it should have the absolute right to control the care that is 
given to the member.
    Response: We agree that the issue of when the M+C organization's 
financial responsibility ends needs further clarification. We also 
agree that the physician should not have to arrive in person at the 
hospital in order to assume responsibility for his or her patient. 
Therefore, we are incorporating the following language into 
Sec. 422.113(c)(3): ``The M+C organization's financial responsibility

[[Page 40203]]

for post-stabilization care services it has not pre-approved ends 
when--(i) A plan physician with privileges at the treating hospital 
assumes responsibility for the enrollee's care; (ii) A plan physician 
assumes responsibility for the enrollee through transfer; (iii) An M+C 
organization representative and the treating physician reach an 
agreement concerning the enrollee's care; or,(iv) The enrollee is 
discharged.''
    We do not agree that the M+C organization should have the absolute 
right to control the care that is given to the member when it does 
eventually respond and the one hour time period has elapsed. For 
example, a late response could result in a scenario where post-
stabilization care services may have already started, and in such a 
situation, we believe that interruption of a procedure in progress in 
order to transfer the enrollee to another facility could be harmful to 
the member. The M+C organization is financially responsible for post-
stabilization services until the M+C organization and the treating 
physician execute a plan for safe transfer of responsibility. Safe 
transfer of responsibility should occur with the needs and the 
condition of the patient as the primary concern, so that the quality of 
care the patient receives is not compromised.
    Comment: Several commenters asked that HCFA clarify that only an 
M+C plan physician with privileges at the treating hospital may assume 
responsibility for the M+C plan enrollee's care.
    Response: Generally, only an M+C plan physician may assume long-
term responsibility for care furnished to an enrollee of that M+C plan. 
However, if there are no M+C plan physicians with privileges at the 
treating hospital, we would expect the treating physician and the M+C 
organization to make arrangements for appropriate care to be provided. 
Thus, we do not agree that an M+C plan physician with privileges at the 
treating hospital must necessarily assume responsibility for a plan 
enrollee's care.
    Comment: Several commenters asked that we address how disputes 
between M+C organizations and providers would be resolved. One 
commenter asked that we develop guidelines for notification of 
organizations. Another commenter wanted to know how we will determine 
if a call was made, or responded to within 1 hour, if the provider's 
and M+C organization's records do not agree. Still another commenter 
suggested a provision holding the patient harmless for disputes between 
M+C organizations and the emergency provider regarding post-
stabilization benefits and coverage.
    Response: We believe that providers and M+C organizations will 
develop methods of documentation to ensure that calls are made and 
received in a timely manner, so that the 1-hour response requirement 
can be met and the possibility of disputes can be minimized. We do not 
believe the development of guidelines by HCFA to be necessary or 
appropriate. Complaints and disputes are addressed in the HCFA 
monitoring process, and resolution would depend on the circumstances 
encountered. Ultimately, if agreement cannot be reached, a dispute over 
whether the conditions for M+C coverage for post-stabilization care 
services under Sec. 422.100 and Sec. 422.113 have been met could be 
resolved in an enrollee's appeal of the M+C organization's denial of 
payment for post-stabilization services, or an appeal by a provider if 
the provider agrees not to charge the enrollee. (We note that the rules 
governing payment for services furnished by noncontracting providers 
would apply in post-stabilization cases, as set forth in Sec. 422.214 
and discussed in detail in section II.E of this preamble. We have made 
this explicit at Sec. 422.113(c)(2).) Based on this comment, we agree 
that M+C enrollees should be protected from excessive charges for post-
stabilization care services. Therefore, new Sec. 422.113(c)(2)(iv) 
provides that cost-sharing for post-stabilization care services must 
not exceed cost-sharing amounts for services obtained through the 
organization.
    Comment: One commenter stated that if an enrollee is admitted to a 
hospital for services that are later determined not to be emergency 
services, the M+C organization has no obligation to pay for services 
that a provider asserts are for post-stabilization care. In addition, a 
commenter asked whether, if there is a denial of post-stabilization 
care services, the treating physician can be given the right to speak 
with an M+C plan physician regarding the patient. Another commenter 
recommended we add protections against denials of post-stabilization 
care services.
    Response: Section 1852(d)(3) of the statute states that the M+C 
organization is responsible for services required to treat an emergency 
medical condition under the prudent layperson standard. Organizations 
are not responsible for care sought by the enrollee when this standard 
is not met. Post-stabilization services are similarly covered only 
following treatment for an emergency (as noted above, we have revised 
the definition, at Sec. 422.113(c)(1), to make this explicit.) If the 
patient did meet the prudent layperson standard, but the condition did 
not turn out to be an actual threat to the health of the patient, the 
M+C organization would not be responsible for any services beyond those 
services provided as part of the medical screening to determine whether 
an emergency medical condition existed. In such a nonemergency 
situation, the treating physician is expected to provide the patient 
with an Advanced Beneficiary Notice (ABN) to inform the patient that 
further services will not be covered.
    With respect to the comment concerning denials, if the organization 
representative and the treating physician cannot reach an agreement 
concerning the enrollee's care, the M+C organization must give the 
emergency physician an opportunity to consult with an M+C organization 
physician.
    With respect to the request for further patient protections, as 
noted above, the enrollee (or, the provider, if the provider agrees not 
to charge the enrollee) has the right to appeal any decision by an M+C 
organization to deny payment for post-stabilization services.
    Comment: One commenter asked that post-stabilization care services 
be limited to services that can be furnished at the facility at which 
the emergency treatment was provided. Another commenter recommended 
that we require M+C organization staff, including plan providers, to 
defer to an emergency provider's preference to keep an enrollee in an 
emergency facility after stabilization to prevent any needless 
disruption in the patient's care.
    Response: We disagree that treatment decisions should be limited by 
what services a facility can provide. If a treating physician or 
facility is prepared to provide additional needed treatment to a 
patient, and the M+C organization cannot be reached, or has not 
responded within an hour, we do not believe that the patient should 
have to wait for this treatment until the organization responds, simply 
because it would not be provided in the same physical location as the 
emergency services. Section 422.113(b)(3) specifies that the physician 
treating the enrollee must decide when the enrollee may be considered 
stabilized for transfer or discharge and that decision is binding on 
the M+C organization. We would expect the M+C organization to allow the 
treating physician to speak with a plan physician if he or she is 
concerned about the care (for example, a transfer) planned for the 
patient.
    Comment: One commenter asked which provider, the emergency provider

[[Page 40204]]

or the M+C plan provider, has the authority to establish a plan of 
care.
    Response: In providing emergency services, the emergency provider 
has the authority to establish the plan of care. Once the enrollee has 
been stabilized, post-stabilization care services are provided in 
accordance with Sec. 422.113(c). Thus, once the M+C provider assumes 
responsibility, then he or she has the authority to revise the plan of 
care or establish a new plan of care as long as the new plan of care is 
consistent with a safe transfer of responsibility.
    Comment: One commenter recommended that the language in 
Sec. 422.100(b)(iv)(A) be changed from ``Pre-approved by the 
organization'' to ``Pre-approved by a plan provider or other M+C 
organization representative.''
    Response: In response to this comment, we have changed the language 
in question to read, ``Pre-approved by a plan provider or other 
organization representative.'' (See Sec. 422.113(c)(2)(i).)
3. Service Area Requirements (Secs. 422.2, 422.100, 422.304(b)(2))
    In the June 26, 1998 interim final rule, we defined the term 
``service area'' as a geographic area approved by us within which an 
M+C eligible individual may enroll in a particular M+C plan offered by 
an M+C organization. We specified that for coordinated care plans and 
network medical savings account (MSA) plans only, the service area also 
is the area within which a network of providers exists that meets the 
access standards in Sec. 422.112. Existing regulations also require 
that an M+C plan's uniform benefit package must be available throughout 
a plan's service area (see the discussion below of modifications to 
this policy made by the BBRA). In deciding whether to approve a service 
area proposed by an M+C organization for an M+C plan, we consider the 
M+C organization's commercial service area for the type of plan in 
question (if applicable), community practices generally, whether the 
boundaries of the service area are discriminatory in effect, and, in 
the case of coordinated care and network MSA plans, the adequacy of the 
provider network in the proposed service area. As discussed in the 
interim final rule preamble, because of unique rules pertaining to the 
amount deposited in MSA plan accounts, we may approve single county M+C 
non-network MSA plans even if the M+C organization has a different 
commercial service area (63 FR 34971).
    We note that since the publication of the interim final rule, we 
have issued further guidance implementing the definition of service 
area set forth in Sec. 422.2, including an affirmation of our 
longstanding policy of not approving less than full county service 
areas unless circumstances justify an exception to this rule. This 
policy, which we refer to as the ``county integrity policy,'' is 
explained in detail in OPL 99.090 released April 23, 1999. The county 
integrity rule, which implements the reference in the service area 
definition to consideration of whether boundaries are discriminatory in 
effect, prevents the establishment of boundaries that could ``game'' 
the county-wide M+C payment system by excluding high cost areas of a 
county. (Note that M+C organizations are paid based on Medicare 
expenditures at the county level.) Under limited circumstances, as 
described in OPL 99.090, we will allow an M+C organization to establish 
a service area that includes a partial county. However, it is never 
acceptable for an M+C organization to devise an M+C plan service area 
that excludes portions of a county because it anticipates enrollees 
with higher health care needs.
    Under Sec. 422.100(f), an M+C organization may offer more than one 
M+C plan in the same service area subject to the conditions and 
limitations for each M+C plan set forth in subpart C of the M+C 
regulations. For example, Sec. 422.100(g) provides that we review and 
approve each M+C plan to ensure that the service area boundaries do not 
promote discrimination (for example, that they do not include partial 
counties unless justified), discourage enrollment, steer specific 
subsets of Medicare beneficiaries to particular M+C plans, or inhibit 
access to services.
    We received about 20 letters commenting on various aspects of M+C 
service area policy and an M+C organization's ability to offer multiple 
M+C plans.
    Comment: Several commenters objected to the requirement that each 
M+C plan offered by an M+C organization must be offered to 
beneficiaries with a uniform benefit package and cost-sharing structure 
that cannot vary throughout each M+C plan's service area. Some of these 
commenters expressed concern that this requirement will make it 
difficult for M+C organizations to serve multi-county areas due to the 
differences in Medicare payment rates across counties, and that this 
could result in beneficiaries in low-payment or rural counties having 
decreased access to M+C plans.
    Response: As noted by the commenters, existing M+C regulations 
provide that each M+C plan offered by an M+C organization must be 
offered to all beneficiaries in an M+C plan's service area with a 
uniform benefit package and uniform cost-sharing arrangements. This 
requirement implemented the requirement of section 1854(c) of the Act 
for uniform premiums for all individuals enrolled in an M+C plan. Thus, 
under Sec. 422.2, an M+C plan was defined as health benefits coverage 
offered under a policy or contract by an M+C organization that includes 
a specific set of health benefits offered at a uniform premium and 
uniform level of cost-sharing to all Medicare beneficiaries residing in 
the service area of the M+C plan. The BBA requirement that an M+C plan 
consist of a uniform benefit package that cannot vary in terms of 
benefits or price throughout the plan's HCFA-approved service area 
contrasted with our previous ``flexible benefits'' policy, which 
permitted HMOs and CMPs under section 1876 to vary premium and benefit 
offerings by county within a service area. As discussed in the preamble 
to the interim final rule, however, an M+C organization was able to 
achieve the same result as the flexible benefits policy by offering 
multiple M+C plans, either in the same or in different service areas. 
This administrative policy allowed an M+C organization great 
flexibility to offer M+C plans that take into account varying county 
payment rates and preferences of the Medicare population. (Each M+C 
plan offered by an M+C organization must have a HCFA-approved service 
area and meet access standards for health care services as described in 
our regulations at Sec. 422.112.)
    As noted in section I.C of this preamble, section 515 of the BBRA 
amended section 1854 of the Act by adding a new paragraph (h) to 
permit, effective for contract years beginning on or after January 1, 
2001, the application of the uniformity rule to individual ``segments'' 
of an M+C plan service area, provided that each segment is composed of 
one or more M+C payment areas (that is, one or more counties), and a 
separate complete ACR is submitted for each such segment. The practical 
implications of this option are similar to our existing administrative 
policy, under which M+C organizations have the flexibility, by offering 
multiple plans in a given area or areas, to tailor the benefits offered 
under their M+C plans to the areas where the plans are offered. In 
practice, we anticipate that organizations will likely continue to 
offer multiple M+C plans, since they have already established such 
separate

[[Page 40205]]

plans, and they would have to submit the ACR information required under 
section 1854(a)(2) of the Act for each segment under the BBRA option, 
just as they do for each M+C plan now. However, the statute gives M+C 
organizations the alternative of choosing instead to establish a single 
M+C plan consisting of segmented service areas, with a separate ACR 
submission for each segment of the service area. In this final rule, we 
are adding a new Sec. 422.304(b)(2) which reflects section 515 of the 
BBRA. We also are making needed conforming changes to the definitions 
of ``service area'' and ``M+C plan'' in Sec. 422.2, and to 
Sec. 422.100(d) concerning the structure of M+C plans.
    Comment: A commenter asked that we clarify our requirements for 
approving the service area of M+C plans. The commenter stated that the 
discussion of service area in the preamble and the definition at 
Sec. 422.2 did not provide specific guidance on what constitutes an 
acceptable service area for an M+C plan offered by an M+C organization.
    Response: Although we believe that the service area definition in 
Sec. 422.2 is fairly detailed and specific, we agree that some 
additional guidance and reorganization of the definition could be of 
value. Specifically, while our county integrity policy discussed above 
implements language in the current definition with regard to 
discriminatory boundaries, the current regulation text does not 
expressly reflect our longstanding county integrity policy. In response 
to this comment, and under our authority in section 1856(b)(1) of the 
Act to establish M+C standards, we are revising the service area 
definition to specify that in deciding whether to approve an M+C plan's 
proposed service area, we consider the following criteria:
    (1) Whether the area meets the ``county integrity rule'' that a 
service area generally consists of a full county or counties. However, 
we may approve a service area that includes a portion of a county if we 
determine that the ``partial county'' area is necessary, 
nondiscriminatory, and in the best interests of the beneficiaries.
    (2) The extent to which the proposed service area mirrors service 
areas of existing commercial health care plans or M+C plans offered by 
the organization.
    (3) For M+C coordinated care plans and network M+C MSA plans, 
whether the contracting provider network meets the access and 
availability standards set forth in Sec. 422.112. Although not all 
contracting providers must be located within the plan's service area, 
HCFA must determine that all services covered under the plan are 
accessible from the service area.
    (4) For non-network M+C MSA plans, we may approve single county 
non-network M+C MSA plans even if the M+C organization's commercial 
plans have multiple county service areas.
    We believe that these revisions to the service area definition, 
although they do not constitute policy changes, should help to clarify 
for M+C organizations our method for determining whether a service area 
is acceptable.
    Comment: A commenter supported the M+C standard that the 
delineation of an M+C plan's service area should not discriminate 
against beneficiaries through ``gerrymandering'' or ``red-lining'' to 
deliberately avoid particular areas (for example, to prevent the 
enrollment of poorer Medicare beneficiaries, or those known to be in 
poor health). The commenter asked that we also include cultural 
accommodations (for example, language access) as part of the 
requirements for service area designation.
    Response: We are very concerned that the service areas for M+C 
plans be drawn in a manner that avoids discriminating against certain 
groups of beneficiaries who may be perceived as having higher than 
average health care needs. The general requirement that M+C plan 
service areas be made up of whole counties, as discussed in OPL 99.090, 
is intended in part to preclude any incentive to create M+C service 
areas that serve only the lowest cost population of a particular 
county. We believe that the revised service area definition, which 
continues to provide for our consideration of discriminatory effects, 
already provides sufficient authority to disapprove a service area if 
there is evidence that an M+C organization attempted to establish 
boundaries based upon cultural discrimination, or discrimination 
against non-English speaking beneficiaries.
    Comment: A commenter pointed out that the definition of service 
area states that the service area also is ``the area within which a 
network of providers exists that meets the access standards in 
Sec. 422.112.'' The commenter believes that this wording implies that 
all services must be provided in the service area itself, and that this 
requirement conflicts with Sec. 422.101(a), which states that services 
obtained outside the geographic area are acceptable if it is common 
practice to refer patients to sources outside the geographic area. The 
commenter asked that we allow some services to be furnished outside of 
an M+C plan's service area if patients traditionally go outside the 
service area to receive such services. Another commenter stated that 
the M+C organizations should be permitted the flexibility of 
structuring plan benefits and provider networks in accordance with 
local patterns of care regardless of political boundaries. The 
commenter believes this would afford a broader choice of health care 
options to beneficiaries.
    Response: The intent of the cited language from the service area 
definition is to require that services are available to a plan's 
enrollees through an M+C plan provider network that is accessible from 
the service area. We have not interpreted this language to prohibit the 
inclusion in a plan's network of providers physically located outside 
the area. In fact, as noted above, we allow M+C coordinated care and 
network MSA plans to establish a provider network with contracting 
providers located outside of the M+C plan service area, provided that 
we determine that the M+C organization's contracted provider network 
meets Medicare access and availability standards at Sec. 422.112. We 
believe that the revised service area definition described above should 
eliminate any implication that all network providers must be located 
within the service area.
    Under both the former risk contracting program and the M+C program, 
we generally have required that M+C organizations make health care 
services available through a network of contracting providers located 
within the boundaries of the M+C plan service area. Under certain 
circumstances, however, we have always allowed exceptions to this 
policy, such as in rural areas when providers were not available in a 
plan's service area, when traveling outside the service area to obtain 
health care is not uncommon, and also when the services are still 
reasonably accessible and available. We have also allowed plans to 
provide certain specialist services outside of a plan's service area if 
the specialist services were not available in the plan's service area 
and if the specialist was reasonably accessible.
    Another reason that we do not require an M+C plan's provider 
network to be located entirely within the plan's service area is to 
allow for multiple M+C plans in the same or close geographic areas that 
share the same provider network, as discussed in the next comment and 
response. However, we will continue to employ the same criteria in 
evaluating whether beneficiaries enrolling in an M+C plan are provided 
with the required access and availability to health care services. 
Generally, we will evaluate the provider

[[Page 40206]]

network supporting an M+C plan by considering the prevailing community 
patterns of care in obtaining health care services (for example, where 
people obtain care, the types of providers available in the community, 
reasonable travel times to obtain care) and the access standards at 
Sec. 422.112.
    Comment: A commenter notes that an M+C organization can offer 
multiple M+C plans under a single M+C contract with us. The commenter 
asks how multiple plans would work, and whether each would be required 
to have a separate health services delivery system.
    Response: In order to respond to the commenter's question, we will 
briefly review the principal requirements that each M+C plan offered by 
an M+C organization must independently meet. We note that these M+C 
plan requirements also are discussed in greater detail in other parts 
of this preamble. Each M+C plan must be approved by us through the 
adjusted community rate (ACR) process, and each M+C plan must be 
offered to all beneficiaries in the given M+C plan's service area. An 
M+C organization can offer multiple M+C plans. Each M+C plan offered by 
an M+C organization must have a HCFA-approved service area that is 
generally made up of whole counties consistent with our county 
integrity policy discussed above, and reflected in OPL 99.090. The M+C 
plans offered by an M+C organization can have the same or different 
service areas. For example, an M+C organization may choose to offer 
more than one M+C plan in the same service area in order to provide 
beneficiaries with a choice of plan benefit packages and cost-sharing 
structures, including differing basic premium amounts. Also, each M+C 
coordinated care plan must provide enrolled beneficiaries access to 
health care service through a network of contracting providers. M+C 
plans may share the same provider network and portions of the provider 
network may be located outside of the plan's service area. However, the 
provider network supporting an M+C plan must meet M+C access standards 
with respect to all enrollees in that plan's service area (see 
Sec. 422.112) as determined by HCFA. We note that under 
Sec. 422.501(e), when an M+C organization includes several M+C plans 
under a single contract, the contract must provide for an amendment 
upon our request to remove an individual M+C plan from the contract, so 
that we have the flexibility to nonrenew or terminate only a single M+C 
plan if a problem is confined to one such plan.
4. Benefits (Secs. 422.2, 422.100, 422.101, 422.106)
    The regulations contained in subpart C describe the requirements 
for M+C organizations' benefit offerings. The statutory basis for these 
provisions generally can be found in section 1852 of the Act. The basic 
categories of benefits parallel those that applied under the section 
1876 risk contracting program with the exception of the use of the term 
``basic benefits,'' which we now define as both original Medicare 
benefits and additional benefits. Despite the limited changes, we 
believe it is important to carefully define the different benefit 
categories, because, historically, organizations participating in the 
risk-contracting program often used different terminology in describing 
their benefit packages to beneficiaries and in structuring benefits 
under Medicare risk contracts.
    Thus, in order to promote consistency, M+C organizations must use 
the benefit terminology specified in the M+C regulations and in 
instructions and operational policy letters. We intend to provide 
further instructions over the next several years to assist 
organizations in standardizing the structure and terminology used in 
describing their benefit offerings. In addition to issuing 
instructions, we will be reviewing benefit design closely to provide 
feedback to M+C organizations on ways they can improve their benefit 
descriptions and ensure that the benefits comply with our requirements. 
The use of consistent terminology in describing benefit categories will 
result in better information for Medicare beneficiaries to compare 
their Medicare options as well as help us to review both benefits paid 
for with Medicare capitation payments and benefits for which Medicare 
beneficiaries are charged a premium.
    Comment: Several commenters asked for additional clarification 
regarding the new definitions of the benefit categories under the M+C 
program.
    Response: We have been aware of confusion about the benefit 
terminology used in the Medicare risk contracting program, and have 
attempted to clarify the terminology in the M+C regulations. As noted 
above, a significant change under the M+C program involves the 
definition of the term ``basic benefits.'' Under the M+C program, basic 
benefits means both benefits covered under original Medicare and 
additional benefits, not otherwise covered under original Medicare, 
that are paid for with Medicare payments. Additional benefits are 
grouped with original Medicare benefits because they are part of the 
package of basic benefits for which beneficiaries are not charged a 
premium, beyond any premium the M+C organization is permitted to charge 
for original Medicare benefits. As discussed more fully below in 
section II. D, the costs of additional benefits are funded by the 
difference between an organization's ACR for the original Medicare 
benefit package, and the M+C payment plus any approved enrollee cost 
sharing.
    Mandatory supplemental benefits are M+C plan benefits not otherwise 
covered under original Medicare for which anyone who enrolls in an M+C 
plan is charged a premium. Thus, additional benefits (included in the 
basic benefit package) and mandatory supplemental benefits are similar 
in that they are not covered by original Medicare, and all M+C 
enrollees receive them as part of their M+C plan. The difference is in 
the way these benefits are funded: additional benefits are funded with 
Medicare payments through the M+C payment rate, and mandatory 
supplemental benefits are fully paid for by M+C enrollees through a 
separate premium or cost sharing.
    Like additional benefits and mandatory supplemental benefits, 
optional supplemental benefits are not covered by original Medicare. 
However, plan enrollees may choose whether to elect and pay for 
optional supplemental benefits. M+C organizations may offer M+C plans 
that have individual items or groups of items and services as optional 
supplemental benefits.
    We are making several minor technical changes to improve the 
accuracy and consistency of the benefit-related definitions set forth 
in Sec. 422.2. For example, we are clarifying under the definitions of 
``mandatory supplemental benefits'' and ``optional supplemental 
benefits'' that these categories of benefits consist of ``health care 
services'' that may be paid through premiums ``and/or'' cost sharing. 
Also, we are clarifying in the definition of ``benefits'' that the 
costs an M+C organization incurs in providing benefits may not be 
solely an administrative processing cost and that benefits must be 
``submitted and approved through the ACR process.''
    Comment: Commenters suggested that we consider developing 
standardized definitions or descriptions for the individual items and 
services that make up a benefit package.
    Response: The intent of the regulations is to clarify the meaning 
of the terms used in the statute, which reflect the funding source for 
various groups of benefits. We recognize the value of standardizing the 
definitions of

[[Page 40207]]

individual items and services that might be included as additional or 
supplemental benefits, such as a drug benefit. Both the annual Summary 
of Benefits and the Plan Benefit Package are important parts of our 
standardization efforts. As noted above, we intend to provide further 
instructions over the next several years to assist organizations in 
standardizing the terminology used in describing their benefit 
offerings. Work on defining individual items and services so that 
beneficiaries may compare benefit offerings is taking place 
predominantly within the context of our information campaign. We are 
not including standardized definitions in this final rule.
    Comment: Several commenters asked for further clarification of the 
meaning of the requirement in Sec. 422.101(a) that an M+C organization 
provide all Medicare-covered services that are available to 
beneficiaries residing in a plan's geographic area, including services 
obtained outside of the area if it is common practice to refer patients 
to sources outside the area. Two commenters noted that the term 
``common practice'' might be misleading, and recommended that we revise 
the regulations to state that services may need to be provided outside 
the area, provided that the services are reasonably accessible to 
enrollees and such use is consistent with community practice patterns. 
One commenter recommended that we confirm in the final rule the basic 
premise that M+C organizations must provide all their enrollees with 
all services covered under original Medicare, including any needed out-
of-area care. Another commenter questioned whether the requirement that 
an M+C organization provide all Medicare-covered services that are 
available to beneficiaries residing in the service area implies that 
the M+C organization's health care delivery patterns must mirror care 
delivery patterns in original Medicare.
    Response: Consistent with section 1852(a)(1)(A) of the Act, 
Sec. 422.101(a) establishes the principle that an M+C organization must 
provide its plan enrollees with all the Medicare-covered services 
available to other Medicare beneficiaries in the area served by the 
plan. We recognize that the existing regulatory language in this 
section creates some potential for confusion and are making several 
changes along the lines suggested by commenters in order to clarify the 
regulations. Revised Sec. 422.101(a) continues to specify that an M+C 
organization must provide coverage of all Medicare-covered services 
available to beneficiaries residing in a plan's service area. We are 
adding a provision to state explicitly that services may be provided 
outside of the service area of the plan if the services ``are 
accessible and available to enrollees in the same area.''
    When we assess the capability of any proposed plan to serve an M+C 
service area, we consider the numbers, types, and locations of all 
providers needed to provide all Medicare-covered services or, in 
regulation terms, the access and availability of Medicare-covered 
services. We continue to believe that it is in the best interest of the 
Medicare program and Medicare beneficiaries to evaluate proposed M+C 
plan networks on a case-by-case basis taking into account the patterns 
of care and access to care in particular geographic areas. It is not 
unusual for services such as a dialysis center or transplant center not 
to be available in a county. If, for example, a Medicare beneficiary 
would normally have to travel to a different county for renal dialysis 
or a transplant, we believe it would not be unreasonable for an M+C 
plan enrollee to be required similarly to travel outside of a service 
area for access to such services. Such exceptions to in-area care 
access should, however, be limited in order to have a viable M+C plan.
    The fundamental requirement under Sec. 422.101(a) that an M+C 
organization provide coverage for all Medicare-covered services is not 
intended to dictate care delivery approaches for a particular service. 
For example, M+C organizations may furnish a given service using a 
defined network of providers, some of whom may not see patients in 
original Medicare. M+C organizations may also encourage patients to see 
more cost-effective provider types than would be the typical pattern in 
original Medicare (as long as those providers are working within the 
scope of care they are licensed to provide, and the M+C organization 
complies with the provider antidiscrimination rules now set forth under 
new Sec. 422.205).
    M+C organizations' flexibility to deliver care using cost-effective 
approaches should not be construed to mean that Medicare coverage 
policies do not apply to the M+C program. If original Medicare covers a 
service only when certain conditions are met, these conditions must be 
met in order for the service to be considered part of the Medicare 
benefits component of an M+C plan. M+C plans may cover the same service 
when the conditions are not met, but these benefits would then be 
defined as additional or supplemental.
    In summary, each M+C plan must include all Medicare-covered 
services available in the service area served by the M+C plan, with the 
exception of hospice services. Our longstanding policy of allowing 
organizations flexibility in the provision of services (for example, in 
terms of who provides the service, what equipment is used, where the 
service is provided, and what procedure is used) has not been affected 
by the BBA. Organizations are required to provide services within the 
guidelines of Medicare national coverage policy and other Medicare 
rules and requirements that apply to the traditional Medicare fee-for-
service system. When a health care service can be Medicare-covered and 
delivered in more than one way, or by more than one type of 
practitioner, we continue to recognize a managed care organization's 
right to choose how services will be provided. These decisions have 
been left to managed care organizations to allow them to maximize their 
value purchasing power, and use resulting savings to provide services 
not covered by the Medicare program.
    Comment: Several commenters raised questions about the requirements 
in Sec. 422.101(b) that M+C organizations comply with our national 
coverage decisions and with the coverage decisions of local carriers 
and intermediaries with jurisdiction for claims in an M+C plan's 
geographic area. Among the issues raised were the following.
    <bullet> The national requirements which must be followed, and the 
meaning of ``HCFA's national coverage decisions''.
    <bullet> General confusion about the relationship between national 
coverage decisions and local medical review policy.
    <bullet> Need for additional guidance in situations when plan 
service areas extend over a geographic area involving multiple carriers 
or intermediaries, and thus potentially conflicting medical review 
policies.
    <bullet> Difficulties in obtaining coverage decisions by local 
carriers and intermediaries, and the unwillingness of some carriers to 
permit M+C organizations to be represented on carrier advisory boards.
    Response: As discussed in detail above, M+C organizations must 
provide their plan enrollees access to all Medicare covered services. 
However, there is a distinction between the general rule that a health 
care service is covered under Medicare and the decision that an 
individual patient fits the clinical criteria necessary for receipt of 
the service. National coverage determinations and local medical

[[Page 40208]]

review policies establish what could be a covered benefit under 
Medicare and the clinical criteria under which the benefit must be 
provided. The M+C organization must determine whether or not an 
individual patient fits this clinical criteria. This process at the 
plan level constitutes an organization determination. In making 
organization determinations, M+C organizations are required to follow 
all national coverage determinations and relevant local medical review 
policies.
    It is important to note, that all M+C organization determinations 
must be made based on the individual circumstances of a given case, 
using the best and most relevant information available. All 
organization determinations are subject to enrollee appeals to the M+C 
organization and subsequently to an independent review entity. The fact 
that an M+C organization determination was applying a local medical 
review policy does not in itself ensure that an appeal to the 
independent review entity might not result in a determination that the 
service in question was medically necessary for the individual enrollee 
and therefore should be covered.
    In this final rule, we are revising Sec. 422.101(b)(1) to clarify 
that the requirement that M+C organizations comply with national 
coverage decisions includes following the general coverage guidelines 
included in original Medicare's manuals and instructions to 
contractors, unless superseded by the M+C regulations or operational 
policy letters. The Coverage Issues Manual is the primary resource for 
national coverage decisions. Additional guidance on coverage of 
hospital and skilled nursing services, home health services, physician 
services, and other Medicare services can be found in the instructions 
in the Carriers, Intermediaries, and other HCFA manuals. In the absence 
of a national standard, M+C organizations should follow local medical 
review policies in making medical necessity decisions.
    We recognize the potential for conflicting local medical review 
policies when an M+C plan's service area extends across the 
jurisdictions of more than one carrier, for example. Our general rule 
under OPL 46 continues to be that the M+C organization should apply the 
medical review policy of the Medicare carrier in the area where the 
services are furnished, since that is the policy that would apply to 
those services under original Medicare. However, as one commenter 
pointed out, an M+C organization is not precluded from covering 
services that a local carrier may have determined are not covered, if 
the organization's own utilization and quality management standards 
support the medical necessity of the service. Similarly, an 
organization may occasionally need to make a coverage determination in 
a situation when there is neither national coverage policy or relevant 
local review guidelines. In all such cases, an M+C organization's 
fundamental responsibility is to use the best information available to 
make an informed decision on the medical necessity of a given service, 
and then to provide the medically necessary service, even if doing so 
may conflict with local medical review policies.
    One way for an M+C organization to attempt to pursue consistency in 
medical review policies is to participate on the review boards of local 
carriers or intermediaries. We are aware of the difficulties M+C 
organizations are encountering in some areas of the country in 
participating on these boards, and are actively working to address this 
issue. We remain committed to establishing more standardized procedures 
for developing medical review policies, and for increasing M+C 
representation in formulating these policies.
    Comment: Several commenters requested clarification of our policy 
regarding employer groups and the coordination of benefits with 
employer group health plans (EGHPs). They asked for clarification as to 
whether members of an EGHP had to be offered the same benefits as other 
Medicare enrollees, and whether it would be acceptable to offer an 
actuarial equivalent package. Another commenter asked that Sec. 422.106 
be amended to address coordination of Medicaid benefits, as well as 
EGHP benefits.
    Response: EGHPs that are offered by an M+C organization must 
provide Medicare-eligible EGHP members the same benefits provided to 
all other Medicare enrollees under the M+C plan in which the 
beneficiary is enrolled. The benefits in the M+C plan may not be 
reduced or otherwise changed, and actuarially equivalent benefits may 
not be substituted in place of the M+C plan benefits. As noted below in 
the next response, EGHP benefits beyond those benefits offered under 
the M+C plan are considered outside the purview of our regulatory 
authority under the M+C program. However, we retain the authority and 
responsibility to assure that all Medicare beneficiaries enrolled in 
organizations that have a contract with Medicare (even if they are 
dually entitled to coverage under another plan) receive the same 
benefits and protections as other Medicare beneficiaries enrolled in 
the plan.
    We recognize that the existing regulations describing these 
situations are somewhat unclear. Therefore, we are revising the 
language at Sec. 422.106 by reorganizing its requirements for clarity. 
Revised Sec. 422.106(a)(1) clarifies that if an M+C organization 
contracts with an EGHP that covers enrollees in an M+C plan, or 
contracts with a State Medicaid agency to provide Medicaid benefits to 
individuals who are eligible for both Medicare and Medicaid, and who 
are enrolled in an M+C plan, the enrollees must be provided the same 
benefits as all other enrollees in the M+C plan, with the EGHP or 
Medicaid benefits supplementing the M+C plan benefits. Section 
422.106(a)(1) states that all M+C program requirements apply to the M+C 
plan coverage provided to enrollees eligible for benefits under an EGHP 
or Medicaid contract. We also are revising Sec. 422.106 to delineate 
clearly that our review authority extends only to the M+C plan benefits 
provided to members of the EGHP, and the associated marketing 
materials, rather than to any other complementary benefits provided 
only under the EGHP. The rules contained in this regulation and the 
corresponding instructions and operational policy letters take 
precedence for benefits included in the M+C plan.
    We are also adopting the commenter's suggestion that Sec. 422.106 
incorporate our requirements concerning the coordination of M+C and 
Medicaid benefits. These rules are conceptually identical to those 
governing EGHPs. Thus, for individuals dually eligible under Medicare 
and Medicaid who are enrolled in an M+C plan, the enrollees must be 
provided the same benefits as all other enrollees in the M+C plan, with 
the Medicaid benefits supplementing the M+C plan benefits.
    Comment: One commenter questioned whether group health benefits 
offered by employers were considered to be supplemental benefits under 
the M+C program.
    Response: Employer group health plan benefits paid by an employer 
on behalf of an employee or retiree, as well as Medicaid benefits 
furnished under a Medicaid State plan, are neither basic nor 
supplemental benefits. They are therefore outside the scope of M+C plan 
benefits regulated by the Medicare program. Other laws and regulations 
may apply to these benefits (such as ERISA requirements for EGHPs). We 
recognize in Sec. 422.106 that M+C organizations may contract with 
employers to furnish benefits that complement those that an employee or

[[Page 40209]]

retiree receives under an M+C plan. Such benefits may include M+C plan 
premiums, cost sharing, and additional services. M+C organizations may 
design an M+C plan with the expectation that an employer group will 
offer a particular set of complementary benefits. In such a case, 
however, the M+C plan must be offered to all Medicare beneficiaries in 
the service area, regardless of whether they are eligible for the 
employer group benefits, and meet all other M+C plan requirements.
    Comment: Several commenters expressed confusion regarding the 
benefit-related implications of the ``conscience protection'' provision 
contained in section 1852(j)(3) of the Act, which is a new provision 
giving enrollees rights to unrestricted physician counseling and 
advice. Under the conscience protection provision in section 
1852(j)(3)(B) of the Act, implemented in Sec. 422.206(b), the 
prohibition on interference with provider advice to enrollees in 
section 1852(j)(3)(A) of the Act (reflected in Sec. 422.206(a)) may not 
be construed to require an M+C organization to provide or pay for 
counseling or referrals if the organization objects on moral or 
religious grounds and notifies enrollees of its policies in this 
regard. Some commenters asked whether the conscience clause in section 
1852(j)(3)(B) of the Act and Sec. 422.206(b) would permit an M+C 
organization to refuse to include a Medicare-covered service in its M+C 
plan, as otherwise required under Sec. 422.101.
    Response: The conscience protection in section 1852(j)(3)(B) of the 
Act affects only obligations under section 1852(j)(3)(A) of the Act, 
not obligations that arise elsewhere in the statute, such as the 
obligation under section 1852(a)(1) of the Act to cover all Medicare-
covered services available in the area served by the M+C plan. To the 
extent the operation of the right to advice and counseling under 
section 1852(j)(3)(A) of the Act would obligate an M+C organization to 
cover counseling or referral services that it would not otherwise be 
obligated to cover, section 1852(j)(3)(B) of the Act allows the 
organization to decline to provide such service on conscience grounds 
if appropriate notice is provided to beneficiaries. However, if the 
service is one that the organization is obligated to provide 
independent of section 1852(j)(3)(A) of the Act, it could not be 
affected by a provision that by its own terms affects only the way that 
``[s]ubparagraph (A) [of section 1852(j)(3)] shall * * * be 
construed.'' It in no way affects obligations that arise elsewhere in 
the statute. Therefore, an M+C organization could not rely upon section 
1852(j)(3)(B) of the Act or Sec. 422.206(b) in an attempt to avoid 
coverage of services that it is obligated under section 1852(a)(1) to 
cover.
    We note, however, that in the case of abortion-related services, 
Congress has provided M+C organizations with conscience protections 
independent of that in section 1852(j)(3)(B) of the Act. Specifically, 
under section 211 of the fiscal year 2000 Department of Health and 
Human Services Appropriations Act, Pub. L. 106-113, we are prohibited 
from denying a M+C contract to an entity on the grounds that it refuses 
on conscience grounds to cover abortions. We are required, however, to 
make appropriate adjustments to such an entity's M+C capitation 
payments to cover our costs in providing Medicare-covered abortion 
services outside the M+C contract.
    Comment: Commenters requested that copayments for outpatient 
psychiatric services be limited to the same percentages of copayments 
allowed for other services.
    Response: With the sole exception of out-of-area emergency 
services, we have not prescribed limitations on copayments for 
individual Medicare services in the M+C regulations. In this case, the 
commenter's suggestion would impose a requirement on M+C organizations 
that is inconsistent with the cost-sharing structure of original 
Medicare. We do not believe this would be appropriate.
5. Special Rules for Screening Mammography, Influenza Vaccine, and 
Pneumococcal Vaccine (Sec. 422.100(h))
    Section 422.100(h) establishes special rules for screening 
mammography, influenza vaccine, and pneumococcal vaccine. Enrollees of 
M+C organizations may directly access, through self-referral, screening 
mammography and influenza vaccine. In addition, M+C organizations may 
not impose cost sharing for influenza vaccine and pneumococcal vaccine.
    Comment: Several commenters expressed concern that enrollees may 
directly access out-of-network providers through self-referral. They 
believe that self-referrals should be limited to in-network providers. 
Furthermore, they feared that an enrollee may self-refer to 
noncertified facilities or noncredentialed providers.
    Response: The right to directly access screening mammography 
services and flu vaccines does not include accessing these services out 
of network. Section 422.112(a) specifies that an M+C organization ``may 
specify the networks of providers from whom enrollees may obtain 
services'' if the organization meets a number of specified conditions. 
M+C organizations thus have the discretion under Sec. 422.100(h)(1) to 
require that self-referrals be made to a provider within the M+C plan's 
network, as long as sufficient access is provided in that network. We 
note that if an M+C organization offers a point-of-service (POS) option 
under its M+C plan, an enrollee selecting this option could self-refer 
to an out-of-network provider, consistent with the payment rules 
established by the M+C organization.
    Comment: One commenter stated that we should prohibit cost sharing 
for mammography as well as vaccines, noting that both health care 
services are preventive in nature and would be cost-effective measures 
for the Medicare program in the long term. The commenter pointed out 
that women constitute a substantial portion of the Medicare population, 
and asserted that allowing cost sharing for screening mammographies 
could be perceived as both gender-specific and discriminatory in 
nature.
    Response: Various provisions of Title XVIII of the Social Security 
Act specify the coverage of mammography, influenza vaccine, and 
pneumococcal vaccine. The Act provides that there should be no 
deductible for any of these services. Further, while the Act indicates 
that there be no copayment for influenza and pneumococcal vaccine, it 
provides for a 20 percent coinsurance for mammography. (See, for 
example, section 1834(c) of Title XVIII and 42 CFR 410.152(h).) These 
are policies established by statute for the original Medicare program, 
and we see no basis for requiring M+C organizations to provide more 
favorable treatment to M+C enrollees than that provided to original 
Medicare beneficiaries.
    Comment: A commenter requested that we clarify in the regulations 
that the prohibition on cost-sharing for influenza and pneumococcal 
vaccine applies to the imposition of cost-sharing on M+C plan 
enrollees.
    Response: As requested by the commenter, we have added language to 
the regulation text to clarify that M+C organizations are prohibited 
from imposing cost sharing ``on their M+C plan enrollees'' for 
influenza and pneumococcal vaccines.
6. Special Rules for Point-of-Service (POS) Option (Sec. 422.105)
    A POS benefit is an option that an M+C organization may offer under 
an M+C coordinated care plan, or network M+C MSA plan, to provide 
enrollees in

[[Page 40210]]

such plans with additional choice in obtaining specified health care 
services. A coordinated care plan may include a POS option as an 
additional benefit, a mandatory supplemental benefit, or an optional 
supplemental benefit. A network MSA plan may include a POS option only 
as a supplemental benefit.
    Under a POS option, the M+C organization generally permits 
enrollees to obtain specified items and services outside of the M+C 
plan's normal prior authorization rules, but provides that enrollees 
will incur higher financial liability for such services. The enrollee 
may be required to pay a premium for the benefit unless the benefit is 
offered as an additional benefit. M+C organizations can establish what 
services are available under a POS benefit and the amount of member 
cost sharing subject to ACR limits. M+C organizations may also place 
other limits on the benefit; for example, a plan could offer a POS 
benefit as a travel benefit allowing members to access specified 
services when the member is traveling outside of the plan's service 
area.
    Comment: Several commenters objected to the restriction in the 
interim final regulation at Sec. 422.105(a) stating that a POS benefit 
can be used only to obtain services from providers that do not have a 
contract with the M+C organization. The commenters maintained that an 
important aspect of a POS benefit is that it allows beneficiaries who 
have reservations about joining a managed care plan the opportunity to 
enroll without following strict prior authorization requirements to 
access services, and that this consideration applies without regard to 
whether the provider is part of the M+C plan network. Some commenters 
also noted that the restriction against in-network use of a POS benefit 
was particularly unfair to M+C plans with large provider networks, 
since the likelihood of an in-network referral was much greater. 
Several commenters stated that if we are concerned about in-plan use of 
a POS benefit, the solution is monitoring rather than prohibiting 
beneficiary choice.
    Response: In the interim final M+C regulations, we specified that 
an M+C POS benefit could be used by plan members only to obtain health 
care services from providers outside of the plan's contracted provider 
network (non-network providers). The intent of this restriction was to 
ensure that plan enrollees were not inappropriately induced to use a 
POS benefit to obtain services at higher cost from plan contracting 
providers that they could otherwise receive at lower cost by following 
the plan authorization rules for obtaining health care services. 
However, we have reconsidered this position in response to the above 
comments, and in recognition of the fact that a number of organizations 
withdrew their POS benefit due to this restriction. We recognize that 
for some beneficiaries the ability to obtain health care services 
directly from providers without obtaining advance authorization is an 
important choice. Accordingly, in order to ensure that beneficiaries 
have the widest possible array of choices, we have decided to allow 
plans the option of offering a POS benefit that can be used by plan 
members to receive services from plan contracting providers.
    We remain concerned about the potential for inappropriate cost-
shifting to beneficiaries. To help guard against this possibility, we 
have revised Sec. 422.105 to require that M+C organizations offering a 
POS benefit must track, and report to us upon request, POS utilization 
at the M+C plan level by both contracting providers and noncontracting 
providers. In monitoring use of the POS benefit, we will pay particular 
attention to potential over-utilization of the POS benefit by plan 
enrollees in obtaining services from the plan contracting provider 
network. We will attempt to verify that it is a matter of choice when a 
plan member uses a POS benefit to obtain services, rather than due to 
the member being inappropriately denied prompt access to the service by 
the plan. We note that an M+C organization still has the option of 
offering a POS benefit through an M+C plan that can be used by plan 
members only to obtain health care services from providers who do not 
contract with the plan.
    Comment: A commenter asked if the POS regulations apply to POS 
benefits that are offered only for employer group members. The 
commenter noted that under Sec. 422.106, employer group benefits that 
are designed to complement the Medicare benefits are exempted from our 
review.
    Response: An employer may through negotiation with an M+C 
organization provide a POS benefit for members of an employer group who 
elect to join an M+C plan. As described in the regulations at 
Sec. 422.106, such enhancements to the Medicare-approved benefit 
package are not subject to our review or approval.
    Comment: A commenter expressed concern about the requirement at 
Sec. 422.105(d)(2)(iv) that a POS benefit must have a maximum annual 
out-of-pocket cap on enrollee liability. The commenter questioned 
whether capping enrollee out-of-pocket expenses would leave the plan at 
risk for all out-of-network care received by the enrollee once the cap 
was exceeded.
    Response: As the commenter stated, M+C plans offering a POS benefit 
must place an annual maximum cap on an enrollee's financial liability 
in using a POS benefit. The reason for requiring a cap on beneficiary 
financial liability is to ensure that beneficiaries understand in 
advance what their maximum financial risk is in using a POS benefit. 
However, once the annual maximum for a POS benefit is reached 
(including the beneficiary cap), the plan does not have to continue 
paying for health care service under a POS benefit. For example, 
consider a plan that offers a POS benefit with a $5,000 annual maximum, 
and requires 20 percent coinsurance from the beneficiary using the POS 
benefit. In this example, the member's annual maximum financial 
liability under POS is $1,000 (20 percent of $5,000). Once the $5,000 
overall POS annual maximum is reached, the beneficiary has paid the 
out-of-pocket maximum of $1,000 and the plan has contributed $4,000 of 
the $5,000 annual maximum for the POS benefit. At this point, the plan 
has no further obligation to cover services for the beneficiary under 
the POS benefit. Thus, any use of the POS benefit beyond this maximum 
would be at the enrollee's financial liability. We note that 
Sec. 422.105(d)(2)(iii) specifies that an M+C organization must explain 
in the Evidence of Coverage the enrollee's financial responsibility for 
services that are not covered under the POS benefit or services beyond 
the maximum POS limit.
    In general, we expect that organizations offering a POS benefit 
will be able to provide enrollees with timely information on the POS 
financial limits, coverage rules, and enrollee cost-sharing for a given 
service, including the capacity to provide enrollees with advance 
coverage information over the phone. For example, if the POS benefit 
has an annual dollar cap, enrollees should be able to phone the 
organization offering the POS benefit and be informed of how close they 
are to reaching the financial cap on the benefit. In addition, the plan 
should be able to advise an enrollee whether a particular service will 
be paid for under a POS benefit, how much the member will pay out-of-
pocket, and how much the plan will contribute under the POS benefit.

[[Page 40211]]

7. Medicare Secondary Payer (MSP) Procedures (Sec. 422.108)
    As stated in the June 26, 1998 interim final rule, Medicare does 
not pay for services to the extent that there is a third party that is 
to be the primary payer under the provisions in section 1862(b) of the 
Act and 42 CFR Part 411. The M+C organization must, for each M+C plan, 
identify payers that are primary to Medicare under section 1862(b) of 
the Act and part 411; determine the amounts payable by those payers; 
and coordinate its benefits to Medicare enrollees with the benefits of 
the primary payers.
    The M+C organization may charge, or authorize a provider to charge, 
other individuals or entities for covered Medicare services for which 
Medicare is not the primary payer. If an enrollee receives from an M+C 
organization covered services that are also covered under State or 
Federal workers' compensation, any no-fault insurance, or any liability 
insurance policy or plan, including a self-insured plan, the M+C 
organization may charge, or authorize a provider to charge the 
insurance carrier, the employer, or any other entity that is liable for 
payment for the services under section 1862(b) of the Act and part 411 
of this chapter, or the M+C enrollee, to the extent that he or she has 
been paid by the carrier, employer, or entity for covered medical 
expenses.
    Where Medicare is a secondary payer to employer coverage in the 
case of certain working Medicare beneficiaries, an M+C organization may 
charge a group health plan (GHP) or large group health plan (LGHP) for 
services it furnishes to a Medicare enrollee who is also covered under 
the GHP/LGHP, and may charge the Medicare enrollee to the extent that 
he or she has been paid by the GHP/LGHP.
    Comment: Two commenters requested that the M+C regulations provide 
that Medicare secondary payer regulations apply generally to M+C 
organizations. One of these commenters also favored a cross reference 
to the Medicare overpayment regulations.
    Response: M+C organizations are to apply only the Medicare 
secondary payer (MSP) rules as found in section 1852(a)(4) of the Act 
and in Sec. 422.108. Other MSP provisions do not apply to M+C 
organizations, and they do not have recourse to them. However, M+C 
organizations are expected, as provided under Sec. 422.108(a), to look 
to section 1862(b) of the Act and 42 CFR Part 411 to determine whether 
Medicare or some other party is the primary payer.
    Since section 1852(a)(4) of the Act and Sec. 422.108 are the only 
MSP provisions that apply in the M+C context, M+C organizations would 
pursue their Federally authorized claims under State law. Federal 
preemption of State laws in the MSP context would occur only to the 
extent a State law would prohibit an M+C organization from complying 
with what the Federal rules authorize (that is, from billing and 
recovering from specified third parties, and from beneficiaries to the 
extent they have received third party payments that are primary to 
Medicare under MSP rules). These recoveries are not made on behalf of 
the United States and, therefore, the Federal overpayment rules cited 
by the commenter do not apply.
    Comment: One commenter requested that enrollees be given written 
notice of their right to appeal an M+C organization decision to 
withhold payment under MSP rules, or file a request for a waiver of 
recovery of the overpayment.
    Response: Section 422.568 requires an M+C organization to give an 
enrollee written notice of any denial, in whole or in part, which 
includes a description of the enrollee's appeal rights. It is not 
necessary to create a separate requirement in the MSP context. With 
respect to a request for waiver of recovery of the overpayment, since 
any recoveries are not obtained on behalf of the United States, State 
laws rather than Federal overpayment rules would apply.
    Comment: One commenter believes that if an M+C plan enrollee with 
coverage primary to Medicare obtained services from providers not 
participating in the M+C plan, the M+C organization should pay for the 
services. By paying nonplan providers first, and then seeking recovery 
from the primary payer, the beneficiary would not be held responsible 
for the bill.
    Response: There is no statutory authority to require M+C 
organizations to make payments to nonplan providers, except in the 
circumstances set forth in Sec. 422.100(b)(1) (for example, emergency 
or urgently needed services, out-of-area dialysis) and Sec. 422.114(b) 
(for example, access to services under an M+C private fee-for-service 
plan).
    Comment: Three commenters recommended that since some States have 
laws that do not allow HMOs and health insurers to seek payment from 
primary payers, the regulations should be clarified to indicate that 
MSP rules preempt any State laws that would prevent an M+C organization 
from complying with the Federal law and regulations.
    Response: We are adding a new paragraph ``f'' to Sec. 422.108 to 
clarify that a State cannot take away an M+C organization's Federal 
rights to bill or authorize providers to bill for services for which 
Medicare is not the primary payer. However, nothing in section 
1852(a)(4) of the Act would prohibit a State from limiting the amount 
of the recovery; therefore, State law could modify an M+C 
organization's rights in this regard, but could not deny them entirely.
    Comment: One commenter believes that the use of the term ``charge'' 
in this section is not appropriate. The commenter pointed out that 
``charge'' has a specific meaning in the Medicare context (as in 
``reasonable charge''), and the use of ``charge'' in this section is 
not consistent with the commenter's understanding of the common meaning 
of this term. The commenter recommended revising the regulations to use 
the term ``bill'' or ``collect from.'' The same commenter also 
suggested that there was ambiguity in the use of the word ``determine'' 
in Sec. 422.108(b)(2), because ``determine'' and ``determinations'' 
also have different specific meanings under Medicare. ``Calculate'' or 
``identify'' was suggested as a replacement.
    Response: The intended meaning of ``charge'' as used in this 
section is ``the imposing of a pecuniary obligation on another 
entity.'' Although this usage is technically correct and consistent 
with statutory language, in the interest of clarity, we are adopting 
the commenter's request, and changing ``charge'' to ``collect from'' in 
the regulation headings, and to ``bill'' in the body of the regulation 
text. We also have changed ``determining'' to ``identify'' in 
subsection (b)(2).
8. National Coverage Determinations (Sec. 422.109)
    Section 422.109 addresses how M+C organizations are paid when a new 
Medicare benefit is required under a national coverage determination, 
but payment for this benefit is not yet included in the organization's 
capitation rate. Frequently, we develop coverage policy on new 
procedures or technology during the year. M+C organizations must 
provide these benefits as soon as they are covered by Medicare, even if 
this occurs during the middle of a contract year. If the cost of such 
new benefits exceeds a specified threshold, we pay the M+C organization 
on a fee-for-service basis under original Medicare payment rules to 
cover the services in question.
    Comment: Commenters requested that we include a definition of 
``national coverage determination'' in the M+C regulations, and 
objected to the fact that beneficiaries would be liable for paying

[[Page 40212]]

the Part A deductible, when the beneficiary in most cases has already 
been charged premium or cost-sharing amounts based on the actuarial 
value of this deductible.
    Response: The definition of ``national coverage determination'' was 
not included in the M+C regulations because it is already set forth in 
Sec. 400.202 of title 42 of the CFR; however, for the convenience of 
users of the M+C regulations, we have now repeated this definition in 
Sec. 422.2. With respect to the issue of the Part A deductible, section 
1852(a)(5)(A) of the Act provides that services covered by a national 
coverage determination involving significant costs not included in M+C 
capitation payments are not covered as a service that must be provided 
under the M+C contract in exchange for capitation payments. Section 
1852(a)(5)(B) of the Act provides that the normal rule that capitation 
payments are made in lieu of regular Medicare payments (section 
1851(i)(1) of the Act) does not apply in the case of additional 
services covered under a national coverage determination. Thus, the 
services would be covered under original Medicare's coverage rules. 
Congress did not provide for a similar exception, however, to the rule 
in section 1851(i)(2) of the Act providing that ``only the M+C 
organization shall be entitled to receive payments from the Secretary 
under this title for services furnished to [an M+C enrollee of that 
organization].'' Read together, these provisions mean that the M+C 
organization will receive Medicare payment under original Medicare's 
payment rules for services covered by a national coverage determination 
that triggers the procedures in Sec. 422.109.
    Under these payment rules, a beneficiary is liable for deductible 
and cost-sharing amounts, which is why Sec. 422.109(b)(5) provides that 
enrollees would pay these amounts. Although the enrollee has in most 
cases paid a premium and other cost sharing based on the actuarial 
value of Part A and Part B deductibles and cost sharing, this amount is 
for services covered under the contract. These services are covered 
outside the contract under original Medicare payment rules. However, 
since the general Part A deductible arguably would already have been 
satisfied for the beneficiary through M+C plan premiums and cost 
sharing, we are revising Sec. 422.109(b)(5) in response to this comment 
to provide that M+C enrollees are responsible only for coinsurance 
amounts. Medicare payments will thus be made without regard to 
satisfaction of the Part A deductible.
9. Discrimination Against Beneficiaries Prohibited (Sec. 422.110)
    Consistent with section 1852(b)(1) of the Act, Sec. 422.110 
establishes that an M+C organization may not discriminate among 
Medicare beneficiaries based on any factor that is related to health 
status, including, but not limited to the following factors: medical 
condition (including mental as well as physical illness), claims 
experience, receipt of health care, medical history, genetic 
information, evidence of insurability (including conditions arising out 
of acts of domestic violence), or disability. The only exception to 
this rule is that an M+C organization may not enroll an individual who 
has been medically determined to have end-stage renal disease (unless 
the individual is already enrolled with the organization under a 
different plan). M+C organizations are required to observe the 
provisions of the Civil Rights Act, Age Discrimination Act, 
Rehabilitation Act of 1973, and Americans with Disabilities Act.
    Comment: One commenter suggested that we require M+C organizations 
to provide handicapped-accessible facilities for marketing 
presentations, full access to plan information and plan providers, as 
well as access to the M+C organization itself.
    Response: This comment speaks to the practice of health screening 
and the allocation of marketing resources with respect to disabled 
populations. Section 422.110(c) requires M+C organizations to meet the 
requirements of the Americans with Disabilities Act (ADA). Consistent 
with ADA, an M+C organization must ensure that its providers and 
marketing presentations accommodate persons with disabilities, both in 
terms of physical accessibility and communication of information. Thus, 
the organization and providers must afford the same freedom of choice 
with respect to providers to all enrollees. Further, access to 
information must be provided in appropriate alternative formats upon 
request, such as Braille, enlarged font (at least 14 point), audio 
cassette, closed or open captioning, or formats that accommodate low-
literacy beneficiaries. In providing information access to hearing-
impaired individuals, M+C organizations must not rely on relay services 
but must make available TTY/TDD service as well. Again, these 
requirements are consistent both with the Americans with Disabilities 
Act and with the M+C provisions in Sec. 422.80(e)(2) regarding 
marketing to the disabled population.
10. Disclosure Requirements (Sec. 422.111)
    Section 1852(c) of the Act lists several areas where an M+C 
organization must disclose specific information to each M+C plan 
enrollee. These disclosure requirements are set forth in Sec. 422.111 
of the regulation. M+C organizations are required to provide to each 
M+C plan enrollee, at the time of enrollment and at least annually 
thereafter, in a clear, accurate, and standardized form (that is, 
through the Evidence of Coverage), the following information regarding 
the enrollee's M+C plan: Service area, benefits offered under the plan 
and under original Medicare, access to providers, out-of-area coverage, 
emergency coverage, supplemental benefits, prior authorization rules, 
grievance and appeals rights and procedures, quality assurance 
programs, and disenrollment rights and responsibilities.
    M+C organizations are also required to provide additional 
information upon request of a beneficiary, including: General coverage 
and comparative plan information, information on the number and 
disposition of grievances and appeals, information on the financial 
condition of the M+C organization, the procedures the organization uses 
to control utilization of services and expenditures, and a summary of 
physician compensation arrangements. Section 422.111 also includes 
procedures for an M+C organization to follow when it intends to change 
its rules for an M+C plan, and describes the enrollee notification 
requirements when there are changes in a plan's provider network.
    Finally, as discussed in section II.B of this preamble, Sec. 422.64 
no longer lists the information that we must provide to beneficiaries. 
However, because Sec. 422.111 referred to this material in several 
places, we are revising Sec. 422.111 to incorporate the necessary 
specifications into a new paragraph (f).
    Comment: Several commenters acknowledged the importance of 
providing beneficiaries with information on their range of health care 
choices, so that they can make informed decisions about their Medicare 
coverage. However, they were concerned that duplication of efforts will 
result from our responsibilities to provide beneficiaries with the 
information formerly specified in Sec. 422.64(c) (now set forth in 
Sec. 422.111(f)) combined with the requirements in Sec. 422.111 
concerning information that an M+C organization must disclose to its 
enrollees. The commenters viewed these requirements

[[Page 40213]]

as an unnecessary overlap of information.
    Response: We have no intention of burdening M+C organizations with 
unnecessary disclosure requirements that duplicate our efforts. 
However, just as section 1851(d) of the Act mandates our 
responsibilities for distributing information to all beneficiaries 
(including the requirement at section 1851(d)(7) of the Act that M+C 
organizations provide us with the information needed to carry out these 
responsibilities), section 1852(c) of the Act establishes several 
specific requirements for M+C organizations to disclose plan 
information to their enrollees, and to individuals eligible to enroll 
in their plans. The M+C regulations do not expand upon the disclosure 
requirements set forth in the M+C statute. In general, the plan-
specific information that we collect from M+C organizations for 
Medicare Compare (our database of comparative plan information) can 
also be used by M+C organizations to meet their statutory information 
disclosure responsibilities. Thus, although the statute does mandate 
that M+C organizations report similar information both to us and to 
their plan enrollees, we do not believe that the M+C disclosure 
requirements should result in significant additional burdens for M+C 
organizations.
    Comment: Commenters discussed the importance of conveying required 
information to beneficiaries in a culturally competent manner. They 
suggested that criteria be developed by us for use by M+C 
organizations.
    Response: We agree that plan information needs to be provided to 
beneficiaries in a culturally competent manner, so that beneficiaries 
are provided with the opportunity to make fully informed health care 
choices. We note that Sec. 422.80(c)(5) addresses this concern by 
specifying that, for markets with a significant non-English speaking 
population, marketing materials and election forms must be provided in 
the language of those individuals. In order for M+C organizations to 
provide beneficiaries with plan information in a culturally competent 
manner, we provide guidance for both developing and reviewing marketing 
materials through our managed care manual, marketing guidelines, and 
operational policy letters. M+C organizations are required to submit 
their marketing materials and election forms to us for review prior to 
distribution to Medicare beneficiaries. The Regional Offices (RO), with 
direction from Central Office, are involved in reviewing and approving 
plans' marketing materials. In carrying out these efforts, the ROs 
balance the M+C organizations' needs for flexibility in developing 
beneficiary information with our responsibility to assure that 
materials are compliant with the regulation and are consistent 
nationwide. The ROs require that information be changed if it is 
inaccurate, misleading, or unclear.
    Our plans for standardizing beneficiary enrollment and appeals 
notices, including the Evidence of Coverage (EOC), involve consulting 
with interested parties, including beneficiary advocacy groups. We are 
now in the process of consumer testing the enrollment and appeals 
notices to ensure that the message of each notice is clearly understood 
by beneficiaries. (For a further discussion of cultural competency 
issues as they pertain to the delivery of services, see section II.C.11 
below.)
    Comment: Commenters suggested that information should be disclosed 
in a standard format or model notice, including information that must 
be provided upon request of the beneficiary.
    Response: We agree that standardized formats for M+C beneficiary 
notification materials are needed. Health care information that is 
provided in a well-designed standardized format, using consistent, 
descriptive terminology, assists beneficiaries in making important 
decisions about their health care.
    We have initiated a two-phase Marketing Material Standardization 
Project that includes input from the managed care industry and 
beneficiary advocacy groups. In Phase I, we have implemented, beginning 
October 15, 1999, a standardized Summary of Benefits (SB), the key pre-
enrollment marketing document provided to beneficiaries, so that they 
can compare the same benefits and costs across several M+C plans and 
original Medicare. Phase II will involve standardizing beneficiary 
enrollment and appeals notices. We are conducting consumer testing of 
these notices in preparation for the final phase of the standardization 
initiative.
    Phase II of our standardization project includes the EOC, also 
known as the Subscriber Agreement and Member Contract. The EOC contains 
an explanation of plan benefits (covered services), member rights, and 
member/M+C plan contractual responsibilities and obligations. The EOC 
is provided to beneficiaries when they join the M+C plan and annually 
thereafter. As part of the standardization process for the EOC, we 
released a model EOC on December 1, 1999, for use in contract year 
2000, that M+C organizations are required to distribute to all enrolled 
members by May 15, 2000. In developing the model EOC, we consulted with 
managed care industry representatives and beneficiary advocacy groups, 
and we intend to use this model as a baseline for developing the 
standardized EOC. The process for standardizing a document as important 
and comprehensive as the EOC requires adequate time for input from the 
industry and beneficiary advocacy groups, for public review and 
comment, and for implementation of the standardized document. We plan 
to begin standardization of the EOC in the Spring of 2000 and to 
complete the process in time for the November 2001 annual election 
period for contract year 2002.
    We also have provided guidance to M+C organizations on the manner 
and form for disclosing the information required under Sec. 422.111(c) 
upon a beneficiary's request. For example, OPL 099.081, issued on 
February 10, 1999, addresses appeal and grievance data disclosure 
requirements, and further clarifying instructions were issued in OPL 
2000.114. These disclosure requirements are consistent with the 
reporting units for the Health Plan Employer Data and Information Set 
(HEDIS), the Medicare Consumer Assessment of Health Plans Study 
(CAHPS), and the Medicare Health Outcomes Survey (HOS). We have also 
issued guidance on how M+C organizations can best provide information 
relating to compensation for physicians, specifically incentive 
arrangements. The guidance includes suggested language for marketing 
materials as well as suggested responses for requests from 
beneficiaries. Again, our ROs will review these materials as part of 
their usual responsibilities for pre-approving beneficiary materials.
    Comment: Commenters expressed concern that information concerning 
the number and disposition of appeals and grievances from M+C plans 
with low enrollment may not be statistically valid, and suggested that 
reporting such data could be misleading to beneficiaries. They 
recommended that, if an M+C organization offers a number of different 
M+C plans in a single service area, the organization should report 
appeals and grievance data on an aggregate basis, rather than on a 
plan-specific basis.
    Response: We assessed alternative ways to report this information 
and decided that the most meaningful way to report this information 
would be to make it consistent with the reporting unit for HEDIS, 
CAHPS, and the Medicare HOS. The reporting unit for

[[Page 40214]]

these instruments is the ``contract market,'' which implies either 
reporting by contract or by a market area within a contract. M+C 
organizations must report for each contract unless we divide the 
contract service area into ``market areas.'' We will assess all 
contract service areas to determine whether M+C organizations must 
report by market area, and will notify plans as soon as possible 
whether they must report by market area. Further details on subdividing 
the contract service area into market areas can be found in OPL 099-
081. The OPL also describes the data collection periods and reporting 
periods that have been established in order for M+C organizations to 
report data consistently. We and our contractors are working with M+C 
organizations and consumer groups to determine additional information 
needed to develop a national managed care appeal and grievance data 
collection and reporting system, with data disclosure requirements to 
be built into this system.
    Comment: Several commenters expressed concerns over the requirement 
for public reporting of quality improvement results. They feared that 
this reporting could result in: (1) M+C organizations altering their 
decision making to produce competitively attractive numbers'' at the 
expense of good patient care, or (2) the dissemination of data that 
could easily be misinterpreted by Medicare beneficiaries, rather than 
of value in facilitating informed beneficiary choice.
    Response: The reporting of plan-specific quality and performance 
indicators is based directly on the requirements of section 
1851(d)(4)(D) of the Act. Moreover, we believe that it is essential for 
plan comparison purposes that M+C organizations report on standardized 
quality measures. The standardized measures that we are requiring, as 
discussed in detail in section II.D of this preamble, are largely those 
of HEDIS. These measures are predictive of health care outcomes, well-
defined, and well-established in the private sector. Thus, we do not 
believe that the commenters' concerns that the reporting of these 
measures will negatively affect M+C organizations' decision making and 
lead to widespread public misinterpretation are justified.
    Comment: We received several comments regarding notification of 
beneficiaries of changes in an M+C plan's provider network. Three 
commenters suggested that the requirement that written notification to 
the enrollee occur within 15 working days of the receipt or issuance of 
a notice of provider termination would be confusing for enrollees and 
an administrative burden for M+C organizations. Another commenter 
suggested that the 15 working days be converted to calendar days to be 
consistent with the appeals requirements under Subpart M.
    Response: We recognize that the requirement that written notice be 
provided ``within 15 working days of receipt or issuance of a notice of 
termination'' has the potential in some situations to cause confusion 
for beneficiaries and impose an unnecessary administrative burden on 
M+C organizations. For example, because contract negotiations with 
providers often extend beyond a 15-day period after initial notice of 
termination, an M+C organization may be unable to furnish definitive 
network information to its enrollees within the 15-day time frame. 
Therefore, we are revising Sec. 422.111(e) to decouple the enrollee 
notice time frame from the ``issuance or receipt'' of a notice of 
termination and instead require that an M+C organization make a good 
faith effort to provide written notice at least 30 calendar days before 
the termination effective date. (As the commenter suggested, we agree 
that measuring this time frame by using calendar days, rather than 
working days, would improve the internal consistency of the M+C 
regulations, as well as eliminating any possible confusion over what 
constitutes a ``working day.'')
    Comment: Two commenters suggested defining ``regular basis'' for 
purposes of Sec. 422.111(e). Under this requirement, a M+C organization 
must notify ``all enrollees who are patients seen on a regular basis by 
the provider whose contract is terminating.'' One commenter suggested 
that ``regular basis'' be defined as seeing a provider within the last 
180 days or 6 months.
    Response: Section 422.111(e) is clear that all enrollees who are 
patients of a primary care professional (PCP) must be notified by the 
M+C organization when a PCP's contract is terminated. We are not making 
any change in this regard. For other providers, the regulations 
establish the ``regular basis'' standard. Generally, we would interpret 
this standard to require the notification of all enrollees who have a 
referral to a specialist for an ongoing course of treatment, or of all 
regular patients of an OB/GYN, for example. In combination with the 
explicit requirement for notification of all patients of a PCP, we 
believe that the ``regular basis'' standard is sufficient for 
accomplishing the objective of notifying all enrollees who are likely 
to be affected by a provider termination. We note that this requirement 
does not preclude the providers themselves from notifying M+C enrollees 
of the termination of their participation in an M+C plan's provider 
network.
11. General Access Requirements (Sec. 422.112)

a. Introduction

    Section 422.112 establishes a series of requirements aimed at 
ensuring that enrollees in M+C plans have adequate access to services. 
As discussed in our June 26, 1998 interim final rule (63 FR 34989), 
these requirements stem from section 1852(d) of the Act and existing 
regulations and policies under part 417, as well as addressing 
recommendations from the Consumer Bill of Rights and Responsibilities, 
and reflecting standards from the Quality Improvement System for 
Managed Care (QISMC).
    On February 17, 1999, we published a final rule (64 FR 7968) that 
set forth limited changes to the M+C regulations published in the June 
26, 1998 interim final rule. In the February 17, 1999 final rule, we 
made changes to several of the access provisions of this section. These 
changes involved the coordination of care requirements, provisions 
related to complex or serious medical conditions, notification 
requirements when specialists are terminated from an M+C plan, and 
initial care assessment requirements.
    More specifically, for serious and complex conditions, the 
treatment plan may be updated by a health care professional other than 
the primary care provider. Furthermore, this section now requires that 
the M+C organization ensure adequate coordination of providers for 
persons with serious or complex medical conditions. Under the general 
coordination of care requirements, the responsibility for ensuring 
coordination of care is not limited to an individual provider. Instead, 
the organization must: (1) Establish policies to ensure coordination; 
and (2) offer each enrollee a primary source of care. Further, as to 
the initial assessment, each organization will be expected only to 
demonstrate a ``best effort'' attempt to complete the assessment of 
health care needs within 90 days of enrollment. Finally, we no longer 
require, when a specialist is involuntarily terminated from an M+C 
plan, that the M+C organization offer to provide enrollees with the 
names of other plans in the area that contract with the specialist. 
However, as discussed above, the general requirements regarding 
notification of affected patients upon provider

[[Page 40215]]

termination remain in effect. Comments on aspects of the access 
requirements that were not addressed in our February 17, 1999 final 
rule are discussed below.

b. Provider Network (Sec. 422.112(a)(1))

    Section 422.112(a)(1) requires M+C organizations that wish to limit 
an enrollee's choice of providers to maintain and monitor a network of 
appropriate providers that is supported by written agreements and is 
sufficient to provide adequate access to covered services to meet the 
needs of the population served. We received several comments regarding 
access standards and one comment regarding contracting with community 
pharmacies.
    Comment: Several commenters asked us to elaborate on access 
standards by including time and distance travel standards, such as 
specifying a 30-mile standard except where travel is difficult.
    Response: Both the Medicare managed care manual and the QISMC 
guidelines issued on September 28, 1998 specify that a 30-mile standard 
must be satisfied in order to meet access requirements, except where a 
different standard is justified by geographic factors. We believe the 
inclusion of this requirement in these documents provides sufficient 
guidance on this subject. Furthermore, because the community pattern of 
care in some rural areas is to travel further than 30 miles for care, 
we do not believe it would be appropriate to establish an absolute 30-
mile standard in the regulations.
    Comment: One commenter requested that we require M+C organizations 
to contract with community pharmacies that are easily accessible.
    Response: Community pharmacies have a number of advantages, and 
thus, M+C organizations should consider this as an option in providing 
pharmacy services. However, other options, such as pharmacy benefit 
management companies or mail order pharmacies, may have other 
advantages that are appropriate for M+C organizations to consider, such 
as lower cost. In choosing among these options, the M+C organizations 
must ensure that the providers of pharmacy services meet the various 
access and quality standards required by these regulations, 
implementing manuals and guidelines. Given these criteria, we do not 
believe it appropriate to require that community pharmacies be mandated 
as the source of pharmacy services.

c. Primary Care Provider Panel (Sec. 422.112(a)(2))

    Section 422.112(a)(2) requires an M+C organization that wishes to 
limit an enrollee's choice of providers to establish a panel of PCPs 
from which an enrollee may choose. We received two comments regarding 
the PCP panel.
    Comment: One commenter specified that all PCPs should be licensed 
physicians or Doctors of Osteopathy.
    Response: QISMC Standard 3.2.1.2 provides additional guidance with 
respect to our policies regarding PCPs. The guideline states:

    An organization may permit licensed practitioners other than 
physicians to serve as primary care providers, consistent with 
requirements of applicable State laws. (Qualifications of such 
practitioners, and the degree of supervision required, are generally 
established under State law). If an organization designates 
nonphysician practitioners as primary care providers, it must still 
ensure that each enrollee has a right to direct access to a 
physician for primary medical care. This right may be ensured in 
either of two ways: (a) the enrollee may choose between a physician 
and nonphysician primary care provider, and may change this choice 
at any time; or (b) when the enrollee is not allowed such a choice, 
an enrollee with a nonphysician primary care provider may have 
timely access to a physician upon request.

    The guideline further states: ``An organization may allow an 
enrollee to select a physician group, clinic, federally qualified 
health center, or other facility with multiple practitioners as his or 
her primary source of care. To the extent feasible, the enrollee must 
be allowed to choose an individual primary care provider within the 
group or facility.''
    Thus, the QISMC guidelines do not limit enrollees to the use of 
physicians or Doctors of Osteopathy as PCPs. However, as indicated, an 
M+C organization must provide enrollees with access to physicians or 
Doctors of Osteopathy upon request. Furthermore, Sec. 422.112(a)(1) 
requires that the M+C organization have an adequate network of 
providers and Sec. 422.112(b)(2) requires the organization to offer 
each enrollee a source of primary care. In addition, consistent with 
the BBA provisions regarding antidiscrimination, and the Consumer Bill 
of Rights and Responsibilities, we intend to provide enrollees with 
freedom of choice in the selection of providers subject to the above 
constraints. Therefore, we are not adopting the commenter's suggestion. 
We note that an M+C organization's use of nonphysicians to deliver 
Medicare benefits must be consistent with Medicare coverage 
requirements, such as ``incident to'' supervision requirements. To the 
extent nonphysicians are providing non-Medicare covered services as an 
additional or supplemental benefit, these requirements do not apply.

d. Specialty Care (Sec. 422.112(a)(3))

    This section requires an M+C organization to provide or arrange for 
necessary specialty care, and gives women enrollees the option of 
direct access to a women's health specialist within the network for 
women's routine and preventive health care services, notwithstanding 
that the M+C organization maintains a PCP or some other means for 
continuity of care.
    Comment: One commenter expressed concern that an M+C organization 
may prohibit enrollee access to a specialist without a referral from a 
PCP, even when not all enrollees will choose to select, or be provided, 
a PCP. This would effectively deny access to specialist care to such 
individuals.
    Response: Again, all M+C organizations must provide an adequate 
network of providers (Sec. 422.112(a)(1)), offer to provide each 
enrollee with an ongoing source of primary care (Sec. 422.112(b)(2)), 
and provide a primary source of care to each enrollee who requests one. 
In addition, Sec. 422.112(a)(3) requires an M+C organization to provide 
or arrange for necessary specialty care. (As discussed above in section 
II.C.1, we are revising Sec. 422.112(a)(3) to clarify that an M+C 
organization shall authorize out-of-network specialty care when its 
plan network is unavailable or inadequate to meet an enrollee's medical 
needs.) If an M+C organization requires its enrollees to obtain a 
referral in most situations before receiving services from a 
specialist, specialty care is medically necessary, and the enrollee has 
not selected a PCP, the M+C organization must either assign a PCP for 
purposes of making the needed referral or make other arrangements to 
provide the necessary care. Accordingly, we have revised 
Sec. 422.112(a)(2) to specify that the M+C organization must make 
specialty care available even if a plan enrollee has not selected a 
PCP.
    Comments: Several commenters asked for clarification of the terms 
``routine'' and ``preventive'' as they apply to women's health 
services. They asserted that routine services should include more than 
just preventive services, while the examples offered in the preamble to 
the June 26, 1998 interim final rule only were limited to preventive 
services. One commenter noted that there are many services that OB/GYNs 
are most appropriately qualified to provide that should not require a 
referral from another physician, such as hormonal replacement therapy, 
and treatment of osteoporosis, genital relaxation disorders, 
incontinence, abnormal uterine bleeding, urinary tract infections

[[Page 40216]]

(UTI), and sexual dysfunction. Another commenter suggested that we 
clarify that even though women have direct access to women's health 
specialists, it was not intended that the PCP be bypassed.
    Response: We consider routine and preventive women's health care 
services to mean: an exam that is provided on a regular, periodic 
basis, in the absence of presenting symptoms, diagnosis or complaints, 
for disease prevention and health maintenance. The examples from the 
commenter, therefore, are not routine and preventive.
    In the setting of such an exam, abnormalities may be found, such as 
incidental vaginitis or UTI, or abnormal Pap smear. We would consider 
routine services to follow up on such gynecologic abnormalities to be 
included under this definition.
    We agree that the provision is unclear about the role of PCPs, and 
have deleted from Sec. 422.112(a)(3) the reference to ``while the plan 
maintains a PCP or some other means for continuity of care.''
    Although the regulations require that M+C organizations allow women 
direct access (that is, without referrals or preauthorization) to a 
women's health care specialist within the network for women's routine 
and preventive services, if there is a PCP, he or she needs to be kept 
informed of the health care provided by such specialists. It is up to 
the M+C organization to develop appropriate strategies for assuring 
such an outcome.
    We note that an M+C organization may place restrictions on 
enrollees as to the eligible universe of providers to whom they may 
``self-refer'' for women's health services. Thus, QISMC guideline 
2.2.3.2 provides for M+C organizations to create formal subnetworks. In 
these cases, an organization can require an enrollee at the time of 
initial selection of a PCP, to choose an entire subnetwork that may 
also include specialists, hospitals, or other providers. The enrollee 
may be required to obtain covered services, including routine and 
preventive women's health services through providers affiliated with 
the system. Under the QISMC guideline, an enrollee could change his or 
her choice of subnetwork at any time. (See the guidelines for further 
details, including an M+C organization's responsibilities to ensure 
that enrollees are aware of the implications of their choice of a PCP 
in terms of the available subnetworks associated with a given PCP.)
    Comment: One commenter suggested that we allow OB/GYN specialists 
to serve as PCPs.
    Response: Although such a practice is permissible under the M+C 
regulations, we believe that this is a decision that should be made by 
the M+C organizations, based upon the needs of their enrollees and 
available resources. This position is consistent with that adopted 
regarding use of specialists with respect to ``serious and complex'' 
medical conditions, as stated in the February 17, 1999 final rule.

e. Serious Medical Conditions (Sec. 422.112(a)(4))

    Under Sec. 422.112(a)(4), M+C organizations must have procedures 
that enable the organization to identify individuals with serious or 
complex medical conditions, assess and monitor those conditions, and 
establish and implement treatment plans.
    Comment: Several commenters asked for clarification of what is 
meant by ``serious or complex medical conditions.''
    Response: On August 31, 1999, the Institute of Medicine (IOM) 
submitted a final report to us, entitled ``Definition of Serious and 
Complex Medical Conditions.'' This report is available through the 
Internet at ``www.nas.edu''.
    A key recommendation made in the report is: ``The committee 
recommends that the Health Care Financing Administration should provide 
guidance [emphasis added] to health plans to assist their efforts to 
identify patients with serious and complex medical conditions. 
Specifically, the committee recommends the following language be used 
to facilitate efforts of plans to identify their enrollees with 
``serious and complex conditions'': A serious and complex condition is 
one that is persistent and substantially disabling or life-threatening 
that requires treatments and services across a variety of domains of 
care to ensure the best possible outcomes for each unique patient or 
member.''
    In view of the committee's recommendation that it is premature to 
establish an administrative definition of these terms, we have decided 
not to make any changes at this time to the regulations regarding 
serious medical conditions. We will provide further policy guidance on 
the meaning of this definition through a future OPL. For now, M+C 
organizations have the option of adopting the IOM definition or 
developing an alternative definition.
    The committee also recommended that rather than focus on access to 
specialists, the treatment plans that M+C organizations develop should 
address access to specialty care. Furthermore, the committee 
recommended that M+C organizations develop a care management strategy 
that integrates the participation of all those involved in the care of 
the patient, including primary care physicians; medical and surgical 
specialists; nurses and nurse specialists; behavioral and mental health 
specialists; physical, occupational, and speech therapists; social 
workers; allied health professionals; and community-based service 
providers. The forthcoming OPL will address these strategies, as well 
as provide guidance on implementation and monitoring procedures.

f. Written Standards (Sec. 422.112(a)(7))

    Section 422.112(a)(7) (as recodified in the February 17, 1999 final 
rule) requires the establishment of written standards for specified 
areas of policy and procedures (coverage rules, practice guidelines, 
payment policies, and utilization management). This section is based on 
existing regulations and policies under part 417. We received two 
comments regarding this requirement.
    Comment: In a comment cosigned by one hundred and fifty advocacy 
organizations, it was suggested that we amend the regulations regarding 
use of practice guidelines to specifically encourage or require 
contracting managed care plans to use Federally-developed practice 
guidelines, where appropriate.
    Response: In general, we concur with the commenters that the use of 
Federally-developed practice guidelines, such as those produced by the 
Department of Health and Human Services, in the provision of services 
is a desirable objective. However, we believe that the commenter's 
suggestion that use of these guidelines be mandated by regulation would 
be inconsistent with section 1801 of the Act, which provides that the 
Medicare statute ``shall [not] be construed to authorize any Federal 
officer or employee to exercise any supervision or control over the 
practice of medicine or the manner in which medical services are 
provided. * * * '' While we thus do not believe that mandating use of 
Federal guidelines is appropriate, we do encourage M+C organization 
health provider committees to explicitly consider such recommendations, 
particularly as they relate to care of enrollees with high-risk, 
complex care needs (such as those with HIV disease, cancer, etc.).
    Comment: One commenter requested that we specify that the 
``responsible health professionals'' be included in the development of 
practice guidelines and medical review criteria.

[[Page 40217]]

    Response: We encourage M+C organizations to include the responsible 
health professionals in the development of such written standards. In 
some cases, however, a physician may be qualified to develop standards 
that apply to other health professionals, and it could impose an undue 
burden on M+C organizations to require that all responsible health care 
professionals always be consulted about standards. We therefore do not 
believe it would be appropriate to impose an absolute requirement that 
all health professionals always be included in developing written 
practice guidelines. We believe, however, that as a general matter, it 
is important that health care professionals such as physician 
assistants, advanced practice nurses, clinical psychologists and others 
integrally involved and knowledgeable regarding treatment planning and 
delivery, contribute to the process of standard development. We would 
thus expect that M+C organizations generally will consult with such 
professionals in developing guidelines in their areas, even though we 
are not imposing an absolute requirement for such consultation in all 
cases. For a further discussion of this issue, see the portion of the 
February 17, 1999 final rule dealing with provider participation rules.

g. Cultural Considerations (Sec. 422.112(a)(9))

    Section 422.112(a)(9) (as recodified in the February 17, 1999 final 
rule) requires that services be provided in a culturally competent 
manner to all enrollees, including those with limited English 
proficiency or reading skills, diverse cultural and ethnic backgrounds, 
and physical or mental disabilities. We received many comments 
regarding this section.
    Comment: Many commenters asked for clarification regarding the term 
``culturally competent'' and our expectations with respect to the 
implementation and monitoring of this requirement. While some 
commenters asserted that the cultural competence requirement would be 
too burdensome and should be deleted, most supported the requirement, 
but requested additional detail and guidance regarding its 
interpretation.
    Response: In reviewing the comments received, there were several 
recurrent themes: (1) Widespread support of the general requirement 
that all health care services be provided in a culturally competent 
fashion; and (2) a need for us to clarify our expectations with respect 
to acceptable activities undertaken to achieve that goal.
    We do not believe that changes to the regulation text regarding the 
definition of cultural competence are needed, other than to delete the 
reference in the regulations to mental and physical disabilities (as 
discussed below). However, in this preamble, we will attempt to provide 
further guidance on this issue. We also intend to incorporate the 
principles discussed here into the QISMC guidelines as we revise the 
QISMC cultural competence standards.
    We believe that the delivery of culturally competent health care 
and services requires health care providers and administrative staff to 
possess a set of attitudes, skills, behaviors, and policies that 
enables the organization to function effectively in cross-cultural 
situations. Appropriate care delivery should reflect an understanding 
of the importance of acquiring and using knowledge of the unique 
health-related beliefs, attitudes, practices and communication patterns 
of beneficiaries and their families to improve services, strengthen 
programs, increase community participation and eliminate disparities in 
health status among diverse population groups.
    Activities to promote achievement of this objective fall under a 
variety of categories, including but not limited what we refer to as 
``Organizational Readiness,'' ``Community Assessment,'' ``Program 
Development,'' and ``Performance Improvement,'' for example. Under 
Organizational Readiness, M+C organizations would conduct educational 
programs to increase the knowledge of their staff about the unique 
health care beliefs, attitudes, practices, and communication patterns 
of the populations served by their plan. Title VI of the Civil Rights 
Act (see 28 CFR Sec. 42.405(d)(1)) specifically requires that M+C 
organizations provide assistance to persons with limited English 
proficiency, where a significant number or percentage of the eligible 
population is likely to be affected. These requirements may require the 
organization to take some of the following steps: assess the language 
needs of beneficiaries in their service area, provide sufficient access 
to proficient interpreters, and disseminate written policies on the use 
of interpreters. In addition, the M+C organization provider network 
should be capable of meeting the cultural, linguistic, and 
informational needs of the beneficiaries residing in the service area. 
Ideally, the racial and ethnic diversity of the service area would be 
reflected in the provider network and staff of the M+C organization. 
The literature has demonstrated that enrollees are more likely to seek 
and accept health care services when delivered by one of their own 
racial or ethnic group. The M+C organization must ensure that all 
employees have received education regarding the importance of providing 
clinically competent and culturally appropriate services.
    Community Assessment entails conduct of a market assessment to 
identify the specific health care needs of the beneficiary population 
as they relate to enrollee groups' health problems (for example, some 
diseases are ethnically and genetically linked). Using existing and 
secondary data resources, organizations would collect data to the 
extent necessary to identify any special culturally-based health care 
needs among their beneficiaries. Program Development would entail 
implementation of formal programs and culturally sensitive patient 
education projects that reduce and eventually eliminate cultural, 
linguistic, and informational barriers known to deter or discourage 
health-seeking behavior.
    Finally, Performance Improvement would entail addressing an 
identified need or opportunity for improvement, either through a 
quality improvement project or other formal program that seeks to 
resolve undesirable differences in utilization of services and outcomes 
of care across all relevant racial, ethnic and cultural groups served 
by the managed care organization.
    The goal is to promote quality health care services, ensure 
effective dissemination of information, and enhance consumer rights and 
protections by fostering a demonstrated commitment to and establishing 
a coordinated and integrated system for, cultural competence. This 
approach is consistent with other Federal initiatives and 
recommendations from the President's Race Initiative and from the 
President's Advisory Commission on Consumer Protection and Quality in 
the Health Care Industry.
    As achieving this objective is a M+C program requirement, M+C 
organizations will be monitored for compliance in this regard. We have 
developed additional implementation tools to assist M+C organizations 
in meeting the cultural competency requirement, such as operational 
specifications for five initial test measures and further steps which 
could be taken to improve, test, and expand on enrollee, disparity and 
standard-based inventories. The specifications for the five initial 
measures were developed based upon the recommendations of an expert 
panel and would require no new data collection on the part of the M+C

[[Page 40218]]

organization. We will soon be offering these measures to M+C 
organizations for use in their QAPI projects.
    Finally, ensuring culturally competent care is congruent with our 
commitment to being a prudent purchaser of health care services. A 
growing body of knowledge demonstrates that when care is provided in a 
clinically competent and culturally appropriate fashion, it is more 
readily understood and accepted by the patient. As a result, patient 
compliance with treatment is enhanced, outcomes are improved, and 
health care costs and expenses are reduced as a result of diminished 
morbidity and mortality.
    Comment: One commenter pointed out that physical and mental 
disabilities are unrelated to cultural competence issues. The commenter 
stated that including a reference in Sec. 422.112(a)(9) to individuals 
with physical and mental disabilities was insensitive and 
inappropriate, noting that such disabilities are not a ``culture''.
    Response: We believe that the principle objective underlying the 
requirement to provide services in a culturally competent manner is to 
address unique racial and ethnically-related health care concerns. 
Thus, we agree with this commenter, and are deleting the relevant 
language. We note that the special concerns and rights of individuals 
with physical or mental disabilities are addressed elsewhere in the M+C 
regulations (for example, under Secs. 422.110(c) and 
422.502(h)(1)(iii)).
    Comment: One commenter believes that Federal law prohibits 
providing material below high school reading level.
    Response: We were unable to locate any statutory citation in 
support of the commenter's view, and none was provided by the 
commenter. We believe that the commenter is mistaken that materials at 
a reading level below high school cannot be provided. Market research 
has shown that the majority of Medicare enrollees are able to most 
effectively comprehend the complex issues addressed in our literature 
when the information is targeted for those at a 4th-6th grade reading 
level. The Medicare Handbook accordingly is geared for individuals at 
precisely that level. Therefore, we believe that our current approach 
is both appropriate and well-justified.
12. Confidentiality and Accuracy of Enrollee Records (Sec. 422.118)
    Consistent with section 1852(h) of the Act, Sec. 422.118 requires 
M+C organizations to establish procedures that safeguard the 
confidentiality and accuracy of enrollee records that identify a 
particular enrollee, including medical documents, administrative 
documents, and enrollment information. The regulations specify that 
information from these records may be released only to authorized 
individuals. Each M+C organization must establish procedures for 
complying with the confidentiality standards, including policies 
governing access to information within the organization as well as when 
and how information may be disclosed outside the organization without 
enrollee authorization. Additionally, the M+C organization must 
maintain accurate records and ensure timely access for enrollees who 
wish to examine their own records.
    The M+C organization must abide by all applicable State and Federal 
laws regarding confidentiality and disclosure of health information and 
any other information about enrollees. In the existing regulations, 
``mental health records'' are mentioned separately as subject to this 
requirement. However, because mental health records clearly constitute 
a subset of the other health records specified at Sec. 422.118 (that 
is, ``medical records, health information, and any other enrollee 
information''), we are revising the regulations via this final rule to 
eliminate the redundant separate reference. This has no effect on the 
substance of the requirement.
    Comment: Several commenters have suggested that the industry needs 
one Federal standard for confidentiality, especially in light of the 
fact that State confidentiality laws would not be preempted unless they 
conflict with Federal requirements. One commenter stated that there 
thus could be 50 different sets of patient confidentiality standards.
    Response: The M+C regulations are not the appropriate vehicle for 
establishing the balance between State and Federal confidentiality 
laws. This issue is under discussion in Congress, which is a more 
appropriate venue for making this determination. Further, because 
Federal standards for confidentiality and privacy of individually 
identifiable health information have recently been proposed by the 
Secretary (as discussed in some detail below), and because M+C 
organizations will be required to comply with those regulations once 
they are finalized, we have chosen not to make substantive changes in 
the existing M+C confidentiality regulations at this time. In the 
interests of clarification, however, we have made some technical 
changes in the existing requirements, including reorganizing them to 
(1) promote consistency with the confidentiality requirements under 
other Federal health care programs (such as Medicaid) and (2) emphasize 
the importance of applicable Federal and State laws, while still 
ensuring that the privacy of M+C enrollees' health information is 
safeguarded in the absence of other applicable laws.
    Pursuant to Section 264 of the Health Insurance Portability and 
Accountability Act (HIPAA) (Pub. L. 104-191), the Secretary of Health 
and Human Services was directed to promulgate regulations on the 
confidentiality and privacy of individually identifiable health 
information if confidentiality legislation governing electronic health 
information was not enacted by August 20, 1999. Such legislation was 
not enacted, and the Secretary published a notice of proposed 
rulemaking, Standards for Privacy of Individually Identifiable Health 
Information, in the Federal Register at 45 FR 160, et seq., on November 
3, 1999. (This proposed rule is available at the Administrative 
Simplification web site, http://aspe.hhs.gov/admnsimp/). As proposed, 
these regulations would apply to health information that has been 
maintained or transmitted electronically, or held by health plans, 
health care providers who engage in certain electronic transactions, 
and health care clearinghouses. M+C organizations would be considered 
health plans for the purposes of the proposed privacy regulation. The 
proposed rule would establish detailed standards for the use and 
disclosure of electronic health information.
    Comment: Several commenters suggested that we develop procedures 
regarding the maintenance of confidentiality of patient records, and 
have said that these procedures should be provided to the beneficiary.
    Response: As noted above, in light of the pending privacy 
regulations, we are not imposing any additional requirements here. The 
Secretary's proposal would require health plans (including M+C 
organizations) and other covered entities to develop procedures for 
maintaining the privacy of health information and to inform patients 
and enrollees of their confi dentiality practices.
    Comment: Several commenters asked for clarification of preamble 
language at 63 FR 34991, which they read to preclude M+C organizations 
from sharing patient information with outside contractor claims 
administrators without individual patient consent.
    Response: The M+C regulations are not intended to prohibit the 
sharing of patient identifiable information within an M+C organization 
or between the

[[Page 40219]]

organization and its contractors for the purposes of payment, treatment 
or coverage decisions. Thus, an M+C organization may circulate such 
information within the organization, and externally, to the extent that 
such information is needed to coordinate or bill for the care of an M+C 
enrollee. However, M+C organizations generally are prohibited from 
selling or circulating patient identifiable data to outside 
organizations or entities that are not involved in payment, treatment, 
or coverage decisions, without specific authorization from the enrollee 
or an enrollee's authorized representative.
    Comment: Several commenters asked us to specify that patient data 
may be shared for bona fide medical research, and to limit the extent 
to which patient identifiable information could be released for 
research purposes. One commenter asked for clarification as to whether 
information can be shared in the event of a court order or subpoena.
    Response: As discussed above, we are not expanding on the existing 
M+C confidentiality requirements to address specific issues here, such 
as to whom and under what conditions release of patient identifiable 
information is authorized. To the extent that M+C organizations have 
proper safeguards in place and to the extent that State law authorizes 
the release of such information, this section of this regulation does 
not bar the use and disclosure of records for medical research. Section 
422.118(a) expressly states that medical records may be released in 
accordance with ``court orders or subpoenas.'' The Department's 
proposed privacy regulation would set forth specific standards for 
disclosing information in both of these situations, and when that 
regulation is finalized, M+C organizations will be permitted to 
disclose information only in accord with those standards. In the 
interim, M+C organizations could voluntarily use those proposed privacy 
standards as a guide in formulating their policies and making 
disclosure decisions.
13. Information on Advance Directives (Sec. 422.128)
    Advance directives are documents recognized under State law, signed 
by a patient or his/her authorized representative that explain the 
patient's wishes concerning a given course of medical care should a 
situation arise when he or she is unable to make these wishes known. 
The M+C organization is legally responsible for providing enrollees 
with information on their rights under State law to establish advance 
directives, and ensuring that advance directives are documented in a 
prominent part of the beneficiary's medical record. The M+C 
organization is permitted to contract with other entities to furnish 
information concerning advance directives requirements. The M+C 
regulations retain for M+C organizations the requirements that applied 
to HMOs and CMPs under part 417, which state an HMO must maintain 
written policies and procedures concerning advance directives as 
defined in Sec. 489.100 with respect to all adult individuals receiving 
medical services by or through HMOs.
    Comment: Commenters asserted that M+C organizations should not be 
responsible for obtaining or documenting the existence of an advance 
directive, and that organizations should ensure that ``responsible 
health care entities educate patients and document the existence of 
advanced directives.'' The commenters stated that an M+C organization 
cannot reasonably be held responsible for documenting whether an 
individual has elected an advance directive because the chart is in the 
control of the primary care physician.
    Response: Our position that an M+C organization should be 
responsible for obtaining and documenting the existence of advance 
directives is consistent with the requirements of both State law and 
the Patient Determination Act of 1991, which we expanded upon in our 
final rule on June 27, 1995 (42 CFR Sec. 489.100). Both the Act and the 
regulations include managed care organizations among the entities 
responsible for obtaining and documenting advance directives 
information. The BBA made these same standards applicable to M+C 
organizations.
    Comment: A commenter asked for clarification as to what we will 
accept as evidence of best efforts and reasonable plan oversight. 
Another commenter suggested we should require M+C organizations to 
submit and receive approval on all advance directive documents. This 
commenter feared (and alleged that there is proof) that an M+C 
organization might lead beneficiaries down a path of less care in times 
of greatest need, and that advance directives could be used by an 
organization to coerce a beneficiary to forego care.
    Response: The M+C advance directive requirements, which fee-for-
service providers have been following for some years, are guidelines 
which refer to State law. Therefore, M+C organizations must comply with 
the advance directive requirements of the States which they serve, and 
we cannot give detailed guidelines as to what constitutes best efforts 
in each State. We believe the Medicare regulations give provider 
entities and States a great deal of flexibility, and we are prepared to 
work with them on specific entities.
    Regarding the commenter's concerns about possible encouragement of 
inappropriate underutilization as the result of advance directives, we 
believe that the monitoring process will prevent and/or identify abuses 
of advance directives. For example, the M+C contractor interim 
monitoring guide states that an organization's policies must promote 
enrollee understanding of their conditions and facilitate the 
development of mutually agreed upon treatment goals. We have stated in 
QISMC and OPL 98-72, that with respect to advance directives, the M+C 
organization must meet several criteria, including that it may not make 
treatment conditional or otherwise discriminate on the basis of whether 
an individual has executed an advance directive. Underutilization 
patterns should be revealed by other aspects of the monitoring process, 
and, with regard to advance directives specifically, we are exploring 
the possibility of developing further monitoring criteria.

D. Quality Assurance

1. Overview
    The quality assurance requirements for M+C organizations were 
addressed in subpart D of the June 26, 1998 interim final rule. These 
requirements implement and are based on the provisions of section 
1852(e) of the Act. Further, they incorporate the requirements of 
section 1851(d)(4)(D) of the Act, which provides that the information 
made available to Medicare beneficiaries for plan comparison purposes 
must include plan quality and performance indicators, to the extent 
available. Section 1852(e)(1) of the Act sets forth the general rule 
that each M+C organization must establish an ongoing quality assurance 
program, consistent with implementing regulations, for the health care 
services it provides to enrollees in the organization's M+C plan or 
plans. The remaining portions of section 1852(e) of the Act contain the 
required elements of the quality assurance program, requirements for 
external review, and provisions concerning the use of accreditation 
organizations to determine compliance with the quality assurance 
requirements.
2. Quality Assessment and Performance Improvement Requirements 
(Sec. 422.152)
    Section 422.152 incorporates each of the explicit statutory 
requirements of

[[Page 40220]]

sections 1852(e)(1) and (2) and section 1851(d)(4)(D) of the Act. 
Section 422.152 also includes additional detail to clarify what an M+C 
organization must do to meet the statutory requirements. Sections 
422.152(b) through (d) of the interim final rule set forth requirements 
that M+C organizations must meet with respect to M+C coordinated care 
plans and network MSA plans.
    Section 422.152(c) requires that the organization: (1) measure and 
report its performance to HCFA using measures required by HCFA; and (2) 
for M+C coordinated care plans, achieve any minimum performance levels 
that may be established locally, regionally, or nationally by HCFA.
    Section 422.152(d) establishes the requirements for performance 
improvement projects, beginning with the requirement that performance 
improvement projects focus on specified areas of clinical and 
nonclinical services. It also explains that we will set M+C 
organizational and plan-specific requirements for the number and 
distribution of these projects among the required areas. In addition, 
it authorizes us to direct an M+C organization to undertake specific 
performance improvement projects and participate in national and state-
wide performance improvement projects. Section 422.152(d) reflects many 
of the provisions of section 1852(e)(2) of the Act.
    In enacting the quality assurance provisions of the BBA, Congress 
recognized that not all of the quality assessment and performance 
improvement activities that are appropriate for a plan with a defined 
provider network would be appropriate for an M+C non-network MSA plan 
or an M+C PFFS plan. The requirements specific to these types of plans 
are addressed in Sec. 422.152(e). (Note that, as discussed below and in 
section I.C of the preamble, section 520 of the BBRA amended section 
1852(e) of the Act to apply the non-network plan requirements to PPO 
plans as well.)
    In order to support the measurement of performance levels and the 
conduct of performance improvement projects, if applicable, M+C 
organizations offering all types of M+C plans must maintain a health 
information system that collects, analyzes, integrates, and reports 
data. This requirement is covered at Sec. 422.152(f)(1). Section 
422.152(f)(2) requires that for each M+C plan an M+C organization 
offers, it has a process for formal evaluation, at a minimum annually, 
of the impact and effectiveness of the quality assessment and 
performance improvement program strategy with respect to services under 
that plan.
    Comment: A number of commenters asserted that the quality 
assessment and performance improvement (QAPI) requirements will be 
difficult for M+C organizations offering M+C plans with loosely 
organized provider networks to meet, and will discourage such 
organizations from participating in the M+C program. In particular, 
commenters were concerned that the QAPI requirements will deter 
organizations from offering MSA plans, PFFS plans, and PPO-type 
coordinated care plans. One commenter explained that organizations 
offering non-HMO plans cannot require physicians to track outcomes for 
these plans because the organizations do not have contracts with the 
physicians, making data collection and reporting infeasible. Four 
commenters specifically addressed the challenges facing PPOs in 
producing performance data and influencing provider practice patterns 
as required to demonstrate performance improvement. Two commenters 
complained that it is not appropriate to require reporting of all 
clinical performance indicators from the ``Healthplan and Employer Data 
and Information Set'' (HEDIS) in the case of a broad access PPO-type 
coordinated care plan. These and other commenters suggested that we 
instead establish quality standards that account for variation in 
organization capabilities.
    Response: The BBA recognized that the structure of health plans has 
a direct impact on the degree to which the organizations that offer 
them can reasonably be expected to directly affect the health care 
services provided to their enrollees. As a result, the M+C statute and 
interim final regulations, as well as guidance implementing these 
provisions, have been tailored to the varying structural differences 
and associated capabilities of M+C organizations. As discussed in 
section I.C of this preamble, section 520 of the BBRA amended section 
1852(e) of the Act to revise the quality assurance requirements for PPO 
plans. Consistent with the commenters' concerns, the quality assurance 
requirements for PPO plans are now the same requirements that apply to 
non-network M+C MSA plans and M+C PFFS plans. Thus, while PPO plans are 
still considered coordinated care plans, they are treated differently 
than other coordinated care plans for the purposes of the M+C quality 
assurance requirements of Sec. 422.152, in recognition of the fact that 
their provider networks are subject to a lesser degree of control and 
accountability. The result is that M+C organizations are no longer 
required to conduct performance improvement projects relative to their 
PPO plans, or to have their PPO plans meet minimum performance levels. 
M+C organizations offering PPO plans must still report on standard 
measures, however, and continue to comply with the QAPI requirements 
that apply to all plans, such as those relating to health information 
and program review. We are revising Sec. 422.152 to implement these 
changes.
    Section 520(a)(3) of the BBRA defined a PPO plan as an M+C plan 
that (1) has a network of providers that have agreed to a contractually 
specified reimbursement for covered benefits with the organization 
offering the plan; (2) provides for reimbursement for all covered 
benefits regardless of whether such benefits are provided within such 
network of providers; and (3) is offered by an organization that is not 
licensed or organized under State law as a health maintenance 
organization. This definition is being added to the regulation at 
Sec. 422.4.
    Comment: A few commenters addressed the costs associated with 
collecting and reporting QAPI data. They argued that the data required 
will add significant administrative costs to M+C organization 
operations, with two commenters contending that most of the patient 
encounter data required for quality improvement projects go beyond the 
claims data currently collected and processed by organizations and 
Medicare fiscal intermediaries. Another commenter suggested that 
because the data collection and reporting costs will be so significant, 
we should make decisions as to what information to require only after 
much deliberation. One commenter expressed concern that M+C 
organizations will pass along the costs of data collection and 
reporting to hospitals.
    Response: While not all M+C organizations are accredited, the 
majority are either seeking or have already been granted accreditation 
by national bodies such as the National Committee for Quality Assurance 
(NCQA). For those organizations in particular, the collection and 
reporting of standard measures does not constitute a new activity as it 
is a condition of the accreditation process. In addition, many managed 
care organizations have been voluntarily conducting a variety of 
quality improvement projects over the years, although they may not have 
routinely reported on standard measures. Again, for these 
organizations, the process of identifying quality of care concerns, 
selecting a patient population for study, implementing an intervention 
and

[[Page 40221]]

collecting data on the outcomes of that intervention are not at all 
new. The quality improvement process under the M+C program is 
essentially comparable to current industry practice, with the slight 
addition of the requirement to report on specific types of indicators 
relevant to the condition in question. For these reasons, we do not 
believe that the data collection and reporting requirements established 
under the M+C regulations will impose unreasonable costs, and we 
believe that a great deal of deliberation has already gone into the 
establishment of these requirements (for example, the collection and 
reporting of HEDIS measures) at this time.
    With respect to the issue of whether hospitals will be asked to 
bear costs associated with data collection, we do not expect these 
costs to be unreasonable, and we note that they are voluntarily assumed 
when the hospital decides to participate in the M+C organization's 
network.
    Comment: A few commenters contended that the costs of implementing 
their QAPI programs would be excessive.
    Response: We have given M+C organizations significant latitude in 
terms of designing their performance improvement projects, so that they 
can choose efforts that are relevant to their enrollees and that 
involve cost effective interventions To further reduce administrative 
and financial burden, M+C organizations may collaborate with entities 
such as the Peer Review Organizations (PROs) on their performance 
improvement projects.
    Comment: Two commenters addressed the collection and reporting of 
HEDIS measures. These commenters were concerned that the HEDIS measures 
do not, in their view, adequately address the health issues of older 
adults in Medicare, and they do not track the experiences of people 
with chronic and disabling conditions.
    Response: M+C organizations are required to report HEDIS measures 
for the purposes of Secs. 422.152(c)(1) and (e)(1). Currently, the 
HEDIS measures offer the most comprehensive view of managed care 
performance available. We have been working with the Geriatric 
Measurement Advisory Panel to develop additional measures for people 
with chronic and disabling conditions. It is important to recognize 
that HEDIS is an evolving instrument, and as valid measures of other 
aspects of care are developed, they will be incorporated. For example, 
HEDIS 1999 added measures for cholesterol management after acute 
cardiovascular events, and HEDIS 2000 has added a measure to assess 
whether blood pressure was controlled among people with diagnosed 
hypertension. Additionally, Medicare will be requiring six measures for 
people with diabetes. Additions such as these, plus others that will be 
added as valid measures are developed, should address the commenters' 
concerns.
    Comment: Two commenters suggested that we add other areas for 
standard measures in Sec. 422.152(e)(1) for M+C PFFS and non-network 
MSA plans. These commenters believe that the information collected for 
these types of plans should be as consistent as possible with that 
collected for other types of M+C plans to allow for comparison among 
them. The commenters recommended that if certain types of data are 
unavailable for non-network M+C MSAs and M+C PFFS plans, a statement 
should be made available to beneficiaries explaining the lack of 
information.
    Response: We agree with commenters that for purposes of plan 
comparison, reporting on standard measures should be as consistent 
across plan types as possible. Therefore, we are revising 
Sec. 422.152(e) to specify that the standard measures on which 
reporting will be required for M+C PFFS plans, non-network MSA plans 
and now PPO plans will relate to the same areas to which the measures 
required for M+C coordinated care plans (other than the PPO plans) and 
network M+C MSA plans relate. As stated in the preamble to the interim 
final rule, no M+C organization will be required to report information 
to which it does not reasonably have access under a plan. Where data on 
particular measures are not reasonably available with respect to a 
given plan, organizations will be allowed to report ``not available.''
    Comment: A number of commenters addressed the form and content of 
the required standard measures. One commenter asked that we develop 
core measures not just at the M+C plan level, but also at the provider 
and facility level. Another commenter asked that we develop core 
measures for high-risk, low-incidence conditions. Another commenter 
asked that we develop measures for all persons with disabilities under 
age 65 that are comparable to the senior health status data that are 
being collected for a sample of Medicare beneficiaries over 65 in 
Medicare managed care plans as part of HEDIS 3.0.
    Response: Each of these suggestions has merit; however, we are 
taking an incremental approach to implementation with respect to the 
QAPI activities under the M+C program that includes working with 
private purchasers to expand the set of measures. We believe it is 
important to give M+C organizations time to adjust to the current 
standard measures before imposing further requirements. Our experience 
with the standard measures in place now will also be helpful in 
deciding whether additional measures are appropriate, and if so, which 
measures would be most effective.
    Comment: Certain commenters asked that the standard measures we 
require be predictive of outcomes, and be established utilizing 
evidence-based medical research. One commenter asked that we establish 
a ``data dictionary'' that will give M+C organizations detailed and 
clear definitions of the required measures. Another commenter cautioned 
that the development of another set of core measures for M+C 
organizations will result in unnecessary duplication and lead to 
confusion if the measures are defined differently by accreditation 
organizations and by HCFA.
    Response: As mentioned earlier, M+C organizations are required to 
report HEDIS data. The HEDIS measures are predictive of outcomes, are 
well defined, and are well established in the private sector. Our 
requirements may change in future years as the HEDIS instrument evolves 
and as other measurement instruments are developed.
    Comment: One commenter asked what role, if any, JCAHO's ORYX 
performance indicators will have in meeting our data reporting 
requirements, and whether there would be duplication. One commenter 
asked that we consider the OASIS data set and OBQI system for home care 
(and eventually PACE) to be reasonable alternatives to HEDIS for 
managed long-term care plans.
    Response: Again, our goals with respect to data management are to 
minimize burden and maximize effectiveness. We are working 
collaboratively with accrediting organizations like the JCAHO, with 
these goals in mind. The ORYX indicators are still in the developmental 
stage and, furthermore, since they focus specifically on hospitals, 
they cannot be used to measure much of the performance of managed care 
organizations. All home health agencies serving Medicare beneficiaries, 
whether in managed care or traditional Medicare, are required to 
provide information through OASIS. In general, we are not requiring 
managed long-term care plans to provide HEDIS information, with the 
exception of several demonstration sites. However, reporting 
requirements

[[Page 40222]]

for long-term care entities may change in the future.
    Comment: A few commenters addressed our intention to consider 
historical plan and original Medicare performance data and trends when 
establishing minimum performance levels. One asked for clarification as 
to the standards we will use. Two objected to basing minimum 
performance levels on historical performance data and trends, 
explaining that many Medicare program requirements, including those 
related to access to services, emergency services and due process, are 
not ideal targets, but rather legal requirements under Federal law. The 
commenters were concerned that looking to historical performance might 
result in establishing a minimum performance level that is less than 
what the law requires.
    Response: We agree with commenters that it would not be appropriate 
to establish minimum performance levels for aspects of care or service 
for which required levels of performance have already been dictated by 
regulation or statute. However, there are many measures of care, such 
as mammography or immunization rates, for which no mandated minimum 
exists. In these areas, it is useful to know what historical 
performance has been, because while we are interested in establishing 
minimum performance levels that motivate improvement, we want those 
levels to be achievable. At this time, the process for establishing 
minimum performance levels has not been finalized, but we expect that 
we will set the minimum at a percentile of previous performance, and 
revise the minimum year by year as overall performance rises.
    Comment: A number of commenters objected to our intention to 
establish minimum performance levels. One commenter said that it would 
be inconsistent with our statement in the preamble to the interim final 
rule that we would not adopt a ``one size fits all'' approach to 
performance measurement. Another commenter, although not opposed to 
minimum performance levels, asked that we take into consideration 
variation in the model of delivery, such as network-model or group-
model, when establishing the levels.
    Response: We believe that it is feasible and in the best interest 
of Medicare beneficiaries to require that the quality of care provided 
by M+C organizations offering network plans meet minimum standards. 
This is an additional protection above making performance information 
available to beneficiaries for the purpose of plan selection. We 
believe that there would be a de facto requirement that organizations 
achieve minimum performance levels, even if there were no explicit 
requirement in the regulation. That is, even if the regulation required 
only that organizations report their performance on standard measures, 
we would still judge their performance by comparing it with some 
benchmark for the purpose of determining whether to take remedial 
action or continue contracting with the organization, which would have 
the same effect as applying a minimum performance level. We see no 
reason not to recognize this implicit requirement in the regulation.
    As we stated in the preamble to the interim final rule, we are 
sensitive to the different structures of plans. We will consider the 
impact plan structure has upon the ability of an M+C organization to 
affect provider behavior. We will consider these issues when making our 
decisions regarding the standard measures for which it is appropriate 
to establish minimum levels of performance.
    Comment: Two commenters addressed the possibility that some of the 
minimum performance levels HCFA establishes will be regional instead of 
national. One commenter objected to establishing non-national 
performance levels. The other supported the idea of establishing 
minimum performance levels with consideration for regional area 
variation.
    Response: Because it is our intention to establish minimum 
performance levels that are meaningful as well as achievable, we must 
consider regional variation where it exists. It is our ultimate goal to 
have national minimum performance levels, but it may be necessary to 
move towards this goal incrementally by first establishing regional 
performance levels.
    Comment: One commenter asked how we can require that M+C 
organizations meet minimum performance levels 1 year after the levels 
are established, if we recognize a 3-year cycle as the standard for 
performance improvement.
    Response: The purpose of performance improvement projects is not to 
bring plan performance up to minimum performance levels, but rather to 
move it closer to national benchmarks. In most cases, we believe that 
plan performance would already surpass the ``minimum performance 
levels'' that we are now in the process of developing. An immediate 
intervention and not a lengthy performance improvement project would 
probably be called for if a plan offered by an M+C organization failed 
to meet a minimum performance level.
    Comment: One commenter asked that we establish some minimum 
performance levels related to the care of persons with disabilities.
    Response: As noted above, we are still in the early stages of 
identifying the measures for which minimum performance levels will be 
established. When we do, we will consider the commenter's suggestion.
    Comment: A number of commenters objected to the possibility that we 
will nonrenew an organization's contract on the basis of its failure to 
meet minimum performance levels. Two of these commenters complained 
that any organization might fall short of a specific numerical standard 
because of random events beyond its control. As an alternative to 
nonrenewal, one commenter asked that we impose intermediate sanctions. 
Another asked that we not impose sanctions at all if an organization is 
making a good faith effort to meet the requirements. Some commenters 
suggested that we work with organizations to improve their performance 
in lieu of nonrenewal. In particular, one commenter recommended that we 
require organizations to participate in PRO-sponsored improvement 
projects when minimum performance levels are not met.
    Response: As a value-based purchaser, HCFA has a responsibility to 
implement requirements that promote accountability on the part of M+C 
organizations. Although we have the authority to nonrenew an 
organization's contract for failure to meet quality assurance 
requirements, we have stated that in most instances we will first offer 
technical assistance and/or require corrective action plans. 
Intermediate sanctions are also within HCFA's prerogative.
    Comment: One commenter asked that we reward an organization that 
shows demonstrable improvement in the health status of beneficiaries by 
giving it a bonus payment such as a percentage of its capitation rate. 
The commenter contended that a bonus payment is necessary to ensure 
that organizations are equitably reimbursed, since under a risk-
adjusted ACR, organizations will receive lower payments for healthy 
enrollees.
    Response: It is appropriate that an M+C organization receive lower 
payments for healthy enrollees because the cost of caring for them is 
proportionately lower. Because an organization that successfully 
completes a performance improvement project will have reduced the 
incidence of negative

[[Page 40223]]

outcomes and the expenses associated with them, any reduction in 
Medicare payment as the result of risk adjustment should not adversely 
affect the organization's profitability. Indeed, the successful 
completion of performance improvement projects should bolster an 
organization's business. The information that an organization has 
successfully completed performance improvement projects will be shared 
with potential enrollees, and should help its market position.
    Comment: One commenter asked that we establish public recognition 
awards at the state and national level for innovative and successful 
organization performance improvement projects.
    Response: Although there has been much discussion around the issue 
of establishing performance incentives, we currently have no plans to 
develop an awards program for M+C organizations. However, they may wish 
to consider promoting their excellent performance themselves through 
the media and their marketing materials.
    Comment: One commenter requested that we specify the nature and 
form of the documentation and data that organizations must make 
available to demonstrate compliance.
    Response: With respect to monitoring compliance, we have completed 
the design of a revised M+C interim monitoring tool that follows the 
structure of both the M+C regulations and the Quality Improvement 
System for Managed Care (QISMC) Interim Standards and Guidelines (which 
provide interpretive guidance for both subpart D standards as well as 
standards relating to the delivery of health care and enrollee 
services). The monitoring tool specifies the documentation and data 
that we will look for in our compliance monitoring.
    Comment: Many commenters emphasized the importance of collaboration 
between the managed care industry and HCFA as implementation of the 
regulation proceeds. One commenter recommended that we establish a 
formal advisory counsel composed of representatives of industry 
associations. Other commenters urged that we consult with physicians 
and accreditation organizations in selecting standard measures and 
setting minimum performance levels.
    Response: Since we began developing QISMC 4 years ago, we have been 
engaged in an ongoing dialogue with representatives of the managed care 
industry, advocacy groups, various health care providers, and state 
regulatory bodies to ensure broad involvement in the document 
development process. We recognize the value of this type of 
collaborative exchange and intend to continue this activity.
    Comment: A number of commenters asked that we coordinate our 
quality improvement efforts with those of the private sector, 
particularly NCQA. One commenter was concerned that we are establishing 
an independent system of quality improvement requirements rather than 
building upon the collaborative public-private efforts that we have 
participated in, such as HEDIS.
    Response: The QAPI requirements established in the regulation build 
upon a number of the public-private efforts mentioned by commenters. 
For instance, as noted above, the standard measures on which M+C 
organizations now are required to report to comply with Sec. 422.152 
(c)(1) and (e)(1) are the HEDIS measures; we have been collaborating 
with private sector group purchasers since 1994 to develop these 
measures, and we recognized the value of incorporating them into our 
QAPI strategy.
    Comment: One commenter questioned HCFA's authority to require that 
performance improvement projects achieve ``significant'' improvement, 
pointing out that the statute requires only that M+C organizations 
``take action'' to improve quality. Another commenter questioned our 
authority to impose as much structure on performance improvement 
projects as we have, asserting that by requiring that projects focus on 
specified areas of clinical and nonclinical services, and directing M+C 
organizations to undertake specific projects among the required areas, 
we have exceeded our statutory mandate.
    Response: We believe that our responsibility as a value-based 
purchaser and duty as a trustee of Medicare funds includes requiring 
that M+C organizations provide high quality services, and the statute 
recognizes this responsibility. For instance, section 1852(e)(2)(A)(vi) 
of the Act requires that M+C organizations ``provide the Secretary with 
such access to information collected as may be appropriate to monitor 
and ensure the quality of care provided under this part'' (emphasis 
added). Requiring that M+C organizations conduct projects that achieve 
improvement that is significant and sustained over time is one way for 
us to meet our obligation under the statute. We also believe that the 
language quoted by the commenter, requiring that M+C organizations 
``take action'' to improve quality can be reasonably interpreted to 
require that improvement actually occur. A requirement to ``take 
action'' to improve quality clearly suggests that the M+C organization 
have an objective in mind in doing so. We believe that a significant 
improvement is a reasonable and logical objective for ``action'' to 
improve quality. While the structure imposed in the interim final rule 
is flexible, and grants M+C organizations broad discretion in many 
areas in designing their QAPI programs, we believe that some structure 
is necessary in order to ensure that the projects will be meaningful 
for Medicare enrollees. We believe that the M+C quality assurance 
requirements represent a reasonable interpretation of requirements in 
section 1852(e), and a reasonable exercise of our broad authority under 
section 1856(b)(1) to establish M+C standards by regulation.
    Comment: Two commenters addressed the issue of the number of 
performance improvement projects M+C organizations are required to 
perform. One commenter explained that it is difficult to conduct valid 
and reliable performance improvement projects with a small number of 
participants, and asked that the number of required performance 
improvement projects be proportionate to the size of the plan. The 
second commenter asked that we limit the number of required performance 
improvement projects to one new project per year, and limit the number 
of projects required to be underway at any one time to four.
    Response: QISMC requires that M+C organizations initiate two 
performance improvement projects a year. Given that projects are 
allowed 3 years in which to achieve significant improvement, once QISMC 
is fully implemented an organization will not need to have more than 
six projects underway at any one time: two in the initiation stage, two 
in the intervention stage, and two in the completion stage. We believe 
this is a reasonable burden for both large and small plans. Smaller 
plans are not at a disadvantage because organizations are not required 
to show statistically significant improvement on every topic affecting 
a small population. Statistical significance is only required in 
instances when an organization chooses to sample its population. For 
small populations, an organization has a strong incentive to measure 
the results of its project on the entire affected population, because, 
when the organization's project targets the entire affected population, 
only a 10 percent reduction in the ``performance gap'' is required, not 
statistical significance. For example, if an organization chose to 
study a condition that affected only 100 enrollees, and its current 
performance was 50 percent, to achieve a 10 percent

[[Page 40224]]

reduction in the performance gap it would have to demonstrate that it 
improved the care to five enrollees. If the organization measured the 
results of its project on a sample of the population, it would have to 
show improvement for many more enrollees to achieve statistical 
significance.
    We are aware that a number of technical issues relating to 
improvement project design remain to be resolved. For instance, we must 
decide what to do when a project population is so small that 
measurement of the results of the project is not meaningful or what to 
do if the baseline performance is so high that the sample size required 
for statistical significance is very large. We intend to resolve these 
issues in an updated version of QISMC.
    Comment: One commenter pointed out that a significant period of 
time will be required following the intervention before improvements 
are observed at the population level, and the commenter was concerned 
that there appears to be no allowance for this time period.
    Response: QISMC allows for such a time period. As mentioned 
earlier, QISMC does not require a performance improvement project to 
achieve significant improvement until the end of its third year. 
Experience has shown that there are many opportunities for an 
intervention to yield results within three years. QISMC makes an even 
more generous allowance for more complicated projects.
    Comment: Many commenters addressed the requirement that performance 
improvement projects achieve significant improvement. The majority of 
these commenters opposed the 10 percent standard for reduction in the 
performance gap. As discussed above, this standard (which is specified 
in QISMC) requires that the organization reduce by at least 10 percent 
the percentage of cases in which the quality indicator that measures 
its performance in the project's focus area is failed. Several of these 
commenters complained that the standard is not realistic. One commenter 
explained that in many data situations, administrative claims may not 
be complete or be reliable to allow for a meaningful evaluation. Other 
commenters offered other examples of impediments to achieving 
significant improvement, including regional variation of utilization 
and imperfect provider and enrollee compliance. One commenter asked us 
to recognize that enrollee lifestyle choices, diet, and compliance with 
medical treatment will impact upon an organization's ability to achieve 
significant improvement in health status. Another commenter asked that 
we recognize that it is the provider who actually has control of the 
care process. For these reasons, these commenters asked that we not 
hold organizations responsible for achieving significant improvement, 
but for initiating activities that, if followed by enrollees and 
providers, are likely to improve the health status of enrollees.
    Two other commenters suggested that we take a different approach. 
They recommended that in lieu of requiring a 10 percent reduction in 
the performance gap, we follow NCQA's approach and require that managed 
care organizations provide meaningful evidence that they are making 
improvements in clinical care and service. One of these commenters 
suggested that to define ``meaningful,'' we consider whether the 
improvement resulted in a better outcome for the enrolled population, 
whether it is attributable to the organization's actions, and whether 
it affects high-volume, high-risk, and/or high-cost conditions or 
services. The commenter added that this would be more effective in 
encouraging complex or innovative projects that have a high risk of 
failure but that offer significant potential, a comment that was echoed 
by other commenters who were concerned that a rigid numerical 
significant improvement standard would encourage organizations to 
pursue performance goals that are easily attainable.
    A third alternative to the 10 percent standard was submitted by a 
commenter concerned that certain characteristics of the Medicare 
population will complicate the achievement of significant improvement. 
This commenter pointed out that the elderly population is at a higher 
risk of illness and disease, and that a greater percentage of Medicare 
beneficiaries have multiple disabilities and comorbidities, which 
results in greater instability in their health status. This commenter 
recommended that we require only that organizations establish 
measurable goals for their interventions, and that we evaluate 
organizations on their ability to demonstrate the strength of their 
interventions and performance gains over time. Further support of this 
approach was offered by an additional commenter who was concerned that 
the 10 percent standard would encourage risk selection and discourage 
the enrollment of sicker beneficiaries with more complex health issues.
    Response: We chose to make a 10 percent reduction in the 
performance gap the standard because we believe it is necessary to have 
an objective standard to assess whether an organization has achieved 
significant improvement in health care quality, and because we have 
observed much higher percentage increases in performance than 10 
percent. Therefore, 10 percent is a reasonable benchmark to use based 
on our observation of past organizational performance in improving 
health care quality. Nationally recognized standards that do not 
incorporate objective standards for determining if quality improvement 
has occurred have been criticized as being subjective and lacking in 
reliability and validity. We have learned from the lessons of such 
standards, and based on the strong evidence from the Medicare and 
Medicaid programs, have elected to implement a standard that is 
consistent with our knowledge of quality improvement in both the 
Medicare and Medicaid programs.
    The 10 percent improvement standard is the best way we have at 
present to ensure that projects are meaningful, and that they translate 
into positive changes in enrollees' lives. In the long run, in order to 
mitigate the incentive to choose trivial projects, we will attempt to 
devise a way to measure and report the relative contribution of each 
performance improvement project, taking into account such factors as 
the number of enrollees affected by the improvement and the impact the 
improvement actually has upon enrollee health and satisfaction. Such a 
system is years away, but we have taken a first step towards it by 
starting to develop a common vocabulary for performance improvement 
projects.
    As for the comment that requiring a 10 percent reduction in the 
performance gap will encourage risk selection, we believe that there 
exist numerous opportunities for M+C organizations to improve 
performance on measures relating to the care of sicker enrollees with 
complex health care needs. In fact, we believe the improvement 
potential associated with the care of sicker enrollees exceeds that 
associated with the care of healthier enrollees. In addition, the 
introduction of risk-adjusted payments to M+C organizations should 
further discourage risk selection.
    Comment: One commenter was concerned that allowing an organization 
to set its own performance goals would be a disincentive to undertaking 
any project that might ``lower its status'' with us or with enrollees.
    Response: We believe the commenter is referencing the QISMC 
standard that addresses projects in which data are collected on the 
entire population to be studied (that is, in which a census is 
involved). QISMC specifies that, in the case of a project developed by 
the

[[Page 40225]]

organization itself, significant improvement is demonstrated by 
achieving a benchmark level of performance that is defined in advance 
by the organization. However, the standard goes on to say that the 
organization's benchmark must reduce the opportunity for improvement by 
at least 10 percent, which is the same standard for HCFA specified 
projects. So, the commenter's concern is unfounded because the 
objective nature of the benchmark ensures an acceptable level of effort 
on the part of the organization.
    Comment: One commenter noted that when multiple interventions are 
employed, they all would have the potential to bring about improvements 
in outcomes. The commenter asked how we will determine which 
intervention was responsible for the observed change.
    Response: It is only necessary that an M+C organization show that 
its improvement was the result of its own actions and not chance. It is 
not necessary to determine to which of its interventions the 
improvement should be attributed, although we expect that the M+C 
organization will want to do so for its own management purposes.
    Comment: A number of commenters addressed the issue of required 
participation in national or statewide performance improvement 
projects. Half of the commenters supported the idea of such projects. 
One commenter asked that we consider the identification and diagnosis 
of persons with Alzheimer's as a possible national performance 
improvement project, and another asked that we require organizations to 
participate in national improvement projects pertaining to persons with 
disabilities.
    One of the commenters opposed to national or statewide performance 
improvement projects complained that mandated projects will detract 
from the flexibility organizations need to best care for their 
enrollees. This commenter pointed out that many organizations have 
already conducted projects addressing flu and pneumonia; consequently, 
it would be a poor use of resources for them to be required to conduct 
another such project. Another opponent argued that national or 
statewide performance improvement projects may prove to be inconsistent 
with local market considerations.
    Response: In response to these concerns, we included in OPL 98-72 a 
statement that an M+C organization is not required to participate in 
the HCFA-sponsored national diabetes project but may, at its 
discretion, conduct another diabetes-focused project that utilizes the 
Diabetes Quality Improvement Program (DQIP) indicators, and meets the 
project requirements as outlined in QISMC Domain 1. For their second 
performance improvement project, M+C organizations were free to select 
a topic and focus area of their choice.
    With respect to the concern that organizations may have already 
conducted projects addressing influenza and pneumonia, which have been 
selected as the national project topics for 2000, there are many 
aspects to the care and prevention of these diseases that organizations 
may not have fully addressed in previous projects that would lend 
themselves very well to further projects.
    At this point, we have not selected national project topics beyond 
year 2000, but we will consider the care of enrollees with Alzheimer's 
and with disabilities when making future selections.
    Comment: One commenter asked us how we will decide who must 
participate in national or statewide performance improvement projects.
    Response: It is a contracting requirement for all M+C organizations 
offering coordinated care plans that they conduct a project addressing 
a topic that we have determined represents a national health care 
priority. At this time, although we have the authority to specify 
State-specific topics, we have not done so.
    Comment: One commenter advocated that we explicitly include 
requirements in the regulation for organization participation in PRO-
sponsored activities.
    Response: There is no requirement that organizations participate in 
PRO-sponsored activities: there is only the requirement, as stated in 
QISMC, that one of the two performance improvement projects that an 
organization initiates per year relate to a topic and involve quality 
indicators chosen by us. The PRO is required to provide technical 
assistance on the national project (and on all other projects) if an 
organization requests it, but organizations are not required to work 
with the PROs on their projects. However, we expect that many 
organizations will choose to work with the PROs, because the PROs can 
provide clinical and biostatistical expertise; assistance in the design 
and conduct of projects; advice on sampling, data collection and 
analysis; and, review and analysis of project findings and 
interventions.
    Comment: A few commenters opposed allowing organizations to select 
the topics of their performance improvement projects from within the 
specified clinical and nonclinical areas. One commenter was concerned 
that organizations will choose the disease with which they are most 
familiar, thereby neglecting low-incidence diseases. Two other 
commenters were concerned that organizations will avoid undertaking 
projects in areas that highlight poor performance or that relate to 
discrete, but vulnerable, cohorts of patients, such as those with 
disabilities or rare conditions. These commenters recommended that as 
alternatives to allowing organizations to select their own performance 
improvement project topics, we standardize the topics across all 
organizations; we standardize the topics across all organizations 
within a given service area, selecting the topics on the basis of the 
morbidity and mortality measures for seniors in the service area; or, 
we select the topics for each individual organization on the basis of 
needs identified through an annual onsite audit.
    Response: We believe it is essential that M+C organizations be 
allowed to target at least some of their performance improvement 
activities to those areas they determine would be of most benefit to 
their enrollees. Balanced against this opportunity is the obligation to 
address areas that we consider to be of universal importance to the 
Medicare population. Between organization-specific projects and 
national projects, we expect that all significant improvement 
opportunities can be addressed. If upon review we find that an 
organization's performance in a particular aspect of care or service is 
poor and the organization has repeatedly failed to initiate action to 
improve it, we have the authority to direct that the organization do 
so.
    Comment: Two commenters asked that we expand the required clinical 
focus areas. One asked that we include high-risk, low-incidence 
conditions and populations, and the other asked that we include 
laboratory and other diagnostic services.
    Response: High-risk, low-incidence conditions are subsumed within 
the high-risk focus area. Although issues selected for study generally 
should affect a significant portion of the organization's Medicare 
enrollees (or a specified subpopulation of enrollees), organizations 
should target infrequent conditions or services if data indicate they 
warrant study. As for laboratory and other diagnostic services, they 
could fall under a number of the current focus areas. Therefore, we do 
not find it necessary to add to the current list of focus areas.

[[Page 40226]]

    Comment: One commenter asked how ``high-volume services'' and 
``high-risk services'' are defined.
    Response: We did not provide a definition of ``high-volume'' or 
``high-risk'' services for several reasons. First, it was our intention 
to allow organizations discretion in developing their own definitions 
and criteria, consistent with the needs of their organizations. For the 
most part, both terms have commonly understood meanings, and therefore, 
we did not think they required explanations.
    Since M+C organizations will be monitored on whether they conduct 
QAPI projects addressing these focus areas, and to respond to the 
request for further information, we suggest that organizations consult 
the QISMC Interim Standards and Guidelines (specifically, Standards 
1.3.4.5 and 1.3.4.6) for further guidance as to our expectations. In 
selecting a quality improvement project focusing on high-risk or high-
volume services, we note that the focus does not necessarily have to be 
on a clinical condition per se, but on a service and how it may be 
improved. In HEDIS 99, Volume 2, Technical Specifications, there are 
several clinical conditions for which suggested indicators are provided 
in assessing ``High-Occurrence/High-Cost'' DRGs. Congestive heart 
failure, angina pectoris, chronic obstructive pulmonary disease and 
other conditions which place the enrollee at risk of increased 
morbidity or mortality would certainly constitute appropriate 
conditions under the ``high-risk'' category. An organization may assess 
experiences of care received from specialized centers inside or outside 
of its network, such as burn centers, transplant centers, or cardiac 
surgery centers. With respect to ``high-volume'' services, an M+C 
organization may target quality improvement in a frequently performed 
surgical procedure, or across different surgical or invasive 
procedures.
    Comment: One commenter asked how ``clinical area'' is defined. The 
commenter asked whether it is a clinical condition, such as diabetes, 
or, an opportunity within a clinical condition, such as the number of 
glycohemoglobin blood tests performed for diabetic enrollees.
    Response: The answer is that it can be either. Standard 1.3.4 of 
the QISMC Interim Standards and Guidelines provides additional detail 
regarding the specific focus areas. It should be noted that in choosing 
the areas, we avoided a disease-specific focus, opting instead to 
define them in a broad sense and therefore allow M+C organizations 
maximum discretion in determining where their specific project might 
best fit. For example, performance of dilated eye exams in the 
diagnosis and treatment of diabetic retinopathy might best be placed 
under the clinical focus area of Secondary Prevention of a chronic 
condition (Standard 1.3.4.2), as it serves to identify and potentially 
control a diabetes-related condition.
    Comment: One commenter recommended that the clinical area of 
``continuity and coordination of care'' include an evaluation of 
whether the appropriate mix of services is being furnished, and of 
whether there is adequate access to specialty care.
    Response: These are aspects of continuity and coordination of care 
that organizations may choose to select as project topics. However, we 
will not require these as topics because such specificity might serve 
to unduly restrict an organization in its efforts to identify those 
aspects of care and service most in need of a formal performance 
improvement project. General requirements and concepts relating to 
continuity of care and access to services are found at Sec. 422.112.
    Comment: Two commenters addressed the need to coordinate 
performance improvement projects. The first commenter asked that in 
areas where there are multiple M+C organizations, we require that 
organizations coordinate their selection of project topics so as to 
minimize the data gathering and reporting burden that will be imposed 
on hospitals. The second commenter asked that we allow M+C 
organizations serving in more than one region to partner in 
collaborative projects, perhaps under the aegis of a national 
organization such as the Blue Cross Blue Shield Association. This 
commenter also asked that we permit collaborative projects through the 
Agency for Health Care Policy and Research (now known as the Agency for 
Healthcare Research and Quality) or professional organizations/
societies.
    Response: We agree with these commenters. We have consistently 
stated that we encourage M+C organizations to collaborate across plans, 
with other organizations, and within their States and regions to 
promote reduction of administrative burden and to enhance the general 
applicability of study findings. Certainly, the PROs may serve in a 
convener/collaborator role with respect to promoting such activity. To 
further this effort, we co-sponsored a National Diabetes Conference in 
conjunction with the American Association of Health Plans and the 
American Diabetes Association to provide additional guidance and 
materials which may be used uniformly by M+C organizations in the 
conduct of their diabetes performance improvement projects. We expect 
other ad hoc collaborations to occur in the future.
    Comment: One commenter asked that we encourage M+C organizations to 
work with their contracted providers, as well as other health care 
professionals and associations, in developing their performance 
improvement projects.
    Response: As indicated in the previous response, we recognize the 
importance of collaboration. To that end, QISMC requires that an 
organization allow its providers (and enrollees) an adequate 
opportunity to provide input regarding the selection and prioritization 
of performance improvement projects.
    Comment: Two commenters addressed the requirements relating to 
health information. One commenter claimed that without uniform 
collection methods, it is unreasonable to require organizations to 
ensure that the information they receive from providers of services is 
reliable and complete. This commenter believes that some organizations, 
especially those offering non-network M+C MSA plans and M+C PFFS plans, 
will be unable to meet this requirement. The other commenter asked that 
we clarify what level of organization oversight will be necessary for 
an organization to meet the requirement that it ensure the reliability 
and completeness of the information it receives from providers of 
services.
    Response: To promote continuous quality improvement, it is 
essential that collection and management of meaningful statistical 
information be seen as means to that end. Statistically valid data that 
assist in explaining patterns of care and in justifying variations in 
care are as valuable as data that identify problems in the provision of 
care. Without good data, we cannot make scientifically defensible or 
financially meaningful health care decisions. Therefore, collection of 
appropriate and accurate data is both good science and good business. 
To the extent that a particular M+C organization currently is unable to 
meet these requirements, we believe that the answer is not to change 
the requirements, but for the organization to make the changes 
necessary to be able to meet these requirements.
    As for oversight of the health information system, the organization 
is ultimately responsible for determining at what level within its 
structure there will be oversight which ensures the reliability and 
completeness of information received from providers.

[[Page 40227]]

    Comment: One commenter suggested that we require that 
organizations, in processing requests for initial or continued 
authorization of services, follow written policies and procedures that 
reflect scientifically sound and evidence-based medical guidelines, 
rather than reflect current standards of medical practice. The 
commenter contended that not all current standards reflect the best 
medical practices.
    Response: Historically, current standards of medical practice have 
been the benchmark for care provided by managed care organizations. The 
purpose of using these standards has been to ensure that the quality of 
care delivered through managed care organizations was comparable to, or 
better than, that provided by fee-for-service entities. During the last 
decade, advances in quality measurement and the development of practice 
guidelines and improved mechanisms for assessing utilization management 
have been adopted as standard practice in many organizations.
    We agree with the commenter that in processing requests for 
authorization of services, the organization should follow policies and 
procedures that are based on scientifically sound and evidence-based 
guidelines. Nevertheless, we recognize that in instances where such 
guidelines do not exist, individuals making authorization 
determinations may need to refer to current standards of medical 
practice. In those cases, an M+C organization must have in place 
written policies and procedures to ensure that all coverage decisions 
are designed to provide care in the safest, most beneficial and cost-
effective fashion.
    Comment: One commenter asked that we require organizations offering 
M+C PFFS and non-network MSA plans to use written protocols for 
utilization review, and to provide their utilization review findings to 
enrollees and providers at least annually.
    Response: Section 1852(e)(2) of the Act does not require that M+C 
PFFS and non-network MSA plans (and under the BBRA, PPO plans) 
establish written protocols for utilization review. To the contrary, 
section 1852(e)(2)(B)(ii) imposes requirements ``insofar as'' an 
organization provides for such protocols, clearly contemplating that 
some M+C organizations may choose to do so, and some may not. Thus, we 
do not believe that such a requirement would be consistent with 
statutory intent.
    Comment: Four commenters were concerned about the lack of an 
explicit requirement that organizations take immediate remedial action 
when individual quality problems are found. Two commenters explained 
that performance measurement and performance improvement projects 
result in the collection of data that can be used to establish 
baselines and track performance over time, but neither serves as a 
mechanism for ensuring that real problems experienced by current 
enrollees are systematically identified and corrected. These commenters 
recommended that we require that organizations ``take appropriate 
remedial action whenever inappropriate or substandard services have 
been provided or services that ought to have been furnished have not 
been provided.''
    Response: Clearly, an essential component of any effective 
``ongoing quality assurance program'' as required under section 1852(e) 
of the Act is the correction of identified problems. QISMC already 
requires that an organization correct significant systemic problems 
that come to its attention through internal surveillance, complaints or 
other mechanisms. As the commenters suggested, we are adding a modified 
version of this requirement under new Sec. 422.152(f)(3) to require 
correction of all identified problems, because it is our intention that 
an organization take appropriate remedial action whenever a problem 
comes to its attention. Although Sec. 422.152 generally focuses on 
systemic improvement, we believe it is appropriate to make our 
intention explicit. In monitoring this requirement, HCFA reviewers will 
operate by a ``rule of reasonableness,'' taking into consideration 
factors including but not limited to the severity and prevalence of the 
complaints and the level of effort demonstrated by the organization in 
seeking to resolve the matter.
    Comment: Many commenters addressed the relationship between QISMC 
and the M+C regulations. Two commenters asserted that it was premature 
to model the regulation on the QISMC requirements, arguing that the 
QISMC requirements should be tested and evaluated before being applied 
to M+C organizations. These commenters asked that we scale back the 
quality assurance requirements until after they have been tested and 
evaluated, and if appropriate, restore them to the regulation using the 
normal notice and comment process. Two other commenters also 
recommended deleting the QAPI requirements of QISMC from the final 
rule, explaining that there are areas within QISMC that should be 
refined before they are implemented, such as the number and kinds of 
performance improvement projects that will be required.
    Response: As we mentioned earlier, we have developed a cross-walk 
between the QISMC requirements and the NCQA accreditation requirements, 
which are currently considered the industry standard. For the most 
part, QISMC requirements are either identical to or consistent with 
NCQA requirements. Therefore, we are confident that our expectations 
have not outpaced the state of the art. Also, the HEDIS measures on 
which M+C organizations must report have already been fully tested and 
adopted by the managed care industry.
    Finally, in response to concerns raised by managed care 
organizations regarding the potential burden imposed by the QISMC 
performance improvement project requirements, we significantly scaled 
back the number of required projects per year from nine required 
projects to only two per year. To assist M+C organizations further in 
this effort, we are currently developing model performance improvement 
projects and other implementation tools.
    Comment: Two commenters addressed the time frame for QAPI program 
implementation. The first commenter recommended that the regulation 
reflect the transition policy found in the QISMC document, which allows 
organizations a period of time in which to build and refine their 
quality assessment infrastructure before their quality improvement 
projects will be expected to achieve significant improvement. The 
second commenter echoed the need for a long implementation time frame.
    Response: Implementation policy is more appropriately handled 
through the issuance of operational policy letters and program manuals 
than through regulation. In addition, we have stated publicly that we 
will ``phase-in'' both implementation and enforcement of these 
requirements, in recognition of the fact that many organizations are 
still navigating the performance improvement learning curve.
    Comment: A few commenters objected to the statement in the preamble 
to the interim final rule that we would not make public the results of 
an organization's performance improvement projects. One commenter 
complained that such a policy would be contradictory to our commitment 
to informed consumer choice. Another commenter challenged our rationale 
for withholding results, which was that releasing them might compromise 
enrollee confidentiality as they might involve enrollee-specific 
information. This commenter suggested that we

[[Page 40228]]

redact enrollee-specific information, or direct organizations to report 
information in ways that protect enrollee identities. Another commenter 
also supported the notion of releasing pertinent, non-confidential 
information about organization quality gleaned from performance 
improvement projects.
    One commenter praised the policy we put forth in the preamble, 
explaining that providing the results of performance improvement 
projects to Medicare beneficiaries could undermine the legal 
confidentiality of peer review activities and could make such 
information reported outside the organization discoverable in legal 
proceedings. Another commenter also expressed support for our 
disclosure policy, noting that performance improvement requirements are 
new and that a non-punitive atmosphere is most conducive to 
improvement. However, this commenter recommended that we reexamine our 
disclosure policy in the future, and make it our goal to provide public 
access to performance information that will not violate patient 
confidentiality.
    Response: To promote collaboration, we believe that it is important 
where possible to share development of best practices and interventions 
that work. In addition, to provide the necessary information to assist 
enrollee decision-making as they choose among various health plans, it 
is essential that we inform the public generally as to whether an M+C 
organization has met its responsibility to achieve demonstrable 
improvement. M+C organizations are free to release the specific results 
of their performance improvement projects, and we encourage this, but 
we do not believe such release should be mandatory. We are concerned 
that M+C organizations might be reluctant to undertake projects 
addressing their areas of poorest performance, if that means that their 
poor performance will be highlighted. The natural progression of 
performance improvement projects will be to generate additional 
measures for inclusion in the HEDIS data set. At that point all 
organizations will be required to submit this information for public 
disclosure.
    We note that we do make a substantial amount of information 
available to the public for research purposes, such as the HEDIS public 
use file on our website; moreover, there is nothing to preclude 
researchers from attempting to obtain information directly from the M+C 
organizations themselves as long as enrollee confidentiality is 
protected.
    Comment: Certain commenters asked that we require M+C organizations 
to report their performance on standard measures and the results of 
their performance improvement projects to entities other than HCFA. One 
commenter asked that we require that organizations report their 
performance on standard measures to their designated external review 
entity. The commenter explained that this information would help 
optimize the effectiveness and timeliness of interventions by the PROs, 
which as the external review entities will be assisting organizations 
in meeting their QAPI requirements. Another commenter recommended that 
organizations be required to make information available to their State, 
in that the organization is licensed under State law. A third commenter 
asked that organizations be required to share the results of their 
performance improvement projects with the Agency for Health Care Policy 
and Research (now known as the Agency for Healthcare Research and 
Quality).
    Response: We agree that it is essential that the PRO, in its role 
as independent quality review and improvement organization, have access 
to performance data, but it is preferable that the data not go directly 
from the M+C organization to the review organization (or State) for two 
reasons. First, the M+C organization's reporting burden would be 
doubled. Also, raw performance data are not useful to the review 
organization, State, or HCFA, which is why we have contracted with NCQA 
to analyze the data for us. M+C organizations will report the HEDIS 
measures to NCQA, and after its analysis, NCQA will report the measures 
to us. At this point, we will share summary data with the review 
organizations and States.
    The same is true for the results of performance improvement 
projects. We again believe it preferable that performance improvement 
project data not go directly to the PRO. The data will be reported 
either to HCFA or to the specialized quality review organizations with 
which we have contracted to evaluate the success of performance 
improvement projects (the M+C/QROs). HCFA or the M+C/QROs will then 
present and interpret the results for the PROs.
3. External Review (Sec. 422.154)
    Section 422.154 implements section 1852(e)(3) of the Act. Section 
1852(e)(3) requires, subject to certain exceptions, that each M+C 
organization, for each M+C plan it operates, have an agreement with an 
independent quality review and improvement organization approved by us 
to perform functions of the type described in part 466 of chapter 42, 
which establishes review responsibilities for utilization and quality 
control Peer Review Organizations (PROs). This general requirement 
appears in Sec. 422.154(a) of the interim final rule. The terms of the 
agreement are described in Sec. 422.154(b), and the exceptions to the 
general requirement are stated in Sec. 422.154(c).
    Comment: One commenter expressed concern that organizations 
contracting with both Medicare and Medicaid would be burdened by dual 
external reviews.
    Response: Sections 1932(c)(2)(B) and (C) of the Act specifically 
address this scenario. The first provision authorizes a State to exempt 
a Medicaid-contracting managed care organization (MCO) that is 
accredited by a private independent entity, or that has a Medicare 
review conducted under section 1852(e)(3) of the Act, from Medicaid 
review activities conducted under section 1932(c)(2)(A) of the Act that 
would be duplicative of the accreditation process or the Medicare 
review activities. The second provision provides a State with the 
option to exempt entirely from the external review requirements under 
section 1932(c)(2)(A) a Medicaid MCO that is also an M+C organization, 
as long as that organization has had a Medicaid contract under section 
1903(m) for at least 2 years during which the new BBA external quality 
review procedures are in effect. On December 1, 1999, we published a 
separate notice of proposed rulemaking setting forth our proposed 
interpretation of these provisions of section 1932(c)(2) of the Act (64 
FR 31101).
    Comment: A number of commenters asked that the regulation identify 
distinct review organization functions. One commenter recommended the 
following functions: population-based surveillance monitoring of 
access, quality and outcomes of care in M+C plans; auditing and 
validating the results of performance improvement projects; sponsoring 
national and statewide performance improvement projects; investigating 
quality complaints; conducting reconsiderations of hospital notices of 
non-coverage and conducting expedited appeals; and collaborating with 
consumer assistance organizations to better understand and use national 
and statewide performance improvement information when counseling 
beneficiaries on plan selection. Another commenter asked that we define 
external review requirements in the regulation that align with the PRO 
contractual requirements delineated in the Sixth Scope of Work.

[[Page 40229]]

    Response: As we explained in the preamble to the interim final 
rule, we have approved the PROs to serve as independent quality review 
and improvement organizations (review organizations) for the purpose of 
this section of the regulation. We believe that the functional 
specifics of review organization responsibility are more appropriately 
detailed in the PRO scope of work than in the regulation. As M+C 
organizations implement their QAPI programs, needs may become apparent 
that will suggest that the review approach of the PRO be refined. The 
scope of work process permits a more rapid response to changing 
circumstances than does the regulatory process, which we believe should 
be used only for purposes of making changes in substantive standards 
for review.
    Comment: One commenter asked that we require review organizations 
to involve broad community interests, particularly representatives of 
the Medicare beneficiary and consumer communities, in policy making and 
review activities.
    Response: Such a requirement already exists. As stated in the PRO 
manual, each PRO is obligated to have at least one consumer 
representative on its governing board, and that representative must be 
a Medicare beneficiary. In addition, the Sixth Scope of Work requires 
each PRO to conduct beneficiary outreach and to maintain a Medicare 
hotline to facilitate communication with beneficiaries within its 
State.
    Comment: One commenter addressed the external review waiver, 
supporting our decision to delay rulemaking on the waiver until we have 
experience with the implementation of the QAPI program.
    Response: We appreciate the commenter's support of our decision.
    Comment: A few commenters addressed our intention to exempt M+C 
organizations from external review activities that duplicate our 
monitoring activities. Two commenters argued that such a policy has no 
statutory basis and advocated its elimination. These commenters believe 
that this policy is inconsistent with the fact that HCFA, as Medicare 
purchaser and regulator, is ultimately responsible for monitoring and 
overseeing all quality assurance functions including the work of both 
review organizations and accreditation organizations. The commenters 
stated that our work, by definition, necessarily duplicates the work of 
review organizations, and therefore they were concerned that we would 
use the duplication as a pretense to design a PRO scope of work that is 
meaningless and insignificant. One commenter, although not opposed to 
exemption in principle, asked that any exemption of external review 
activities be subject to the notice and comment process.
    Response: Section 1852(e)(3)(B) of the Act mandates that the 
Secretary ensure that the external review activities under section 
1852(e)(3)(A) of the Act ``are not duplicative of review activities 
conducted as part of the accreditation process.'' The commenter is 
correct that HCFA has overall responsibility for monitoring and 
overseeing quality assurance functions. We believe that this extends to 
our review of areas addressed in the accreditation process. In this 
sense, we believe that our quality monitoring activities constitute a 
part of an overall ``accreditation process'' in that they are relevant 
to the continuing accreditation of M+C organizations. We also believe 
that Congress intended in section 1852(e)(3)(B) of the Act to require 
that we ensure that external review activities are not duplicative 
generally. Because there is little value and much additional burden in 
having the review organization repeat monitoring activity already 
conducted by HCFA, we are interpreting section 1852(e)(3)(B) of the Act 
broadly to extend to review activities that would be duplicative of our 
own monitoring activities. We believe that this interpretation of the 
intent of section 1852(e)(3)(B) of the Act, combined with our broad 
authority under section 1856(b)(1) of the Act to establish M+C 
standards by regulation, supports our decision to ensure that external 
review activities are not duplicative of our own review.
    With respect to the comment that our application of the ``anti-
duplication'' policy in section 1852(e)(3)(B) of the Act be subjected 
to notice and comment, we believe that the process of determining 
whether review activities are duplicative in a given case represents 
``operational'' implementation of the substantive standard set forth in 
the regulations. We believe it would be neither workable nor 
appropriate to subject such operational judgments to notice and comment 
rulemaking.
    Comment: Two commenters complained that the regulation does not 
indicate how we will determine what constitute duplicative review 
activities. One commenter recommended that we place the burden on the 
M+C organization to demonstrate how the accrediting process duplicates 
a specific external review activity. The commenter advocated that such 
demonstration include full disclosure of the standards and protocols 
used by the accrediting organization to reach accreditation decisions, 
a comparison of the actual survey data and reports, and information 
about the composition of the review teams. The commenter recommended 
that the M+C organization's enrollees be informed when the organization 
seeks exemption from external review activities, and that they be given 
an opportunity to comment upon the application for exemption. Finally, 
the commenter asked that the exemption not be granted for more than one 
year at a time, and not be granted if the accreditation results in 
nonpublic reports.
    Response: We intend to make the decision as to which external 
review activities an M+C organization accredited by an approved 
accreditation organization is exempt from as part of the process of 
approving the accreditation organization. The accreditation 
organization will supply us with all the information necessary to 
determine where its activities overlap with those of the review 
organization. The exemption will be reviewed as the accreditation 
process or scope of work changes. We are revising Sec. 422.154(b)(2) to 
make it clear that an exemption based on duplicative review under the 
accreditation process will be made only with respect to approved 
accreditation activities because these are the only activities we will 
be in a position to evaluate when determining whether there is 
duplication.
    With respect to the commenter's advocating that we require 
``disclosure'' by accreditation bodies of their protocols, and 
disclosure to beneficiaries of decisions on duplication (with an 
opportunity to comment), we do not believe these steps are warranted. 
The quality standards that apply to M+C organizations apply without 
regard to whether duplication has been found. A beneficiary has access 
to detailed information on these standards, which are all public. We 
believe that it should not make a difference to the beneficiary whether 
our judgment that these standards are being satisfied is based on the 
findings of an accreditation body, HCFA, or an external review entity, 
as long as HCFA is responsible for ensuring that they are met.
    We do not see the point in limiting exemptions to a year, if there 
is no reason to believe that the factors we will consider in making a 
decision on duplication will be changing.
    On the issue of ``nonpublic reports,'' we expect that the public 
will have access to the same quality information for all M+C 
organizations, without regard to whether specific review activities 
were found to be duplicative.

[[Page 40230]]

    Comment: One commenter asked that we designate the PROs as review 
organizations in the regulation text, and not simply in the preamble.
    Response: We currently have the authority to contract with non-PRO 
entities to perform functions of the type described in part 466, and 
although we have not chosen to exercise this authority at this time, we 
believe that it is important to maintain it. There may come a time when 
we decide that it is desirable to allow other entities to serve as 
review organizations; thus, we are not designating the PRO as the 
review organization in the regulation text.
    Comment: One commenter expressed concern that the regulation does 
not explicitly obligate M+C organizations to cooperate with review 
organizations' investigation of quality of care complaints. This 
commenter suggested that Sec. 422.154(b)(1)(ii) be revised to require 
that the M+C organization provide to the review organization all 
pertinent data it needs to carry out its reviews and make its 
determinations, including assessments of beneficiary quality of care 
complaints.
    Response: Because assessments of beneficiary quality of care 
complaints are among the determinations that the review organization 
makes, we believe the existing requirement as written is sufficient to 
compel M+C organizations to cooperate with any complaint investigations 
conducted by the review organization.
    Comment: One commenter asked that M+C organizations not be 
responsible for the cost of the external review.
    Response: HCFA pays the cost of the external review, not the M+C 
organization. The M+C organization might initially bear the cost of 
duplicating medical records requested by the review organization, but 
the organization will be reimbursed for that cost.
    Comment: Two commenters stressed the importance of public access to 
external review results. One of the commenters specifically asked that 
we require review organizations to release an annual report to the 
public summarizing their activities and the results of M+C organization 
performance improvement projects.
    Response: In the PRO manual, there are detailed requirements 
relating to an annual report, which the PRO is required to send to the 
State and local offices of aging, and to senior citizen groups. In 
addition, the PRO is obligated to make the report available to 
beneficiaries upon request. Because specialized quality review 
organizations (the M+C/QROs), rather than PROs, will be evaluating the 
results of M+C organization performance improvement projects, the PRO 
annual report will not include this information. However, we will 
ensure that there is a vehicle to inform the public of whether M+C 
organizations have met the requirement for achieving significant 
improvement.
    Comment: One commenter asked that the regulation require that the 
external review address each component of the health delivery system, 
including laboratory services.
    Response: Our own monitoring will assess the adequacy of an 
organization's health delivery system, of which we acknowledge 
laboratory services are a part.
    Comment: One commenter asked that we define the adequate space and 
data requirements in paragraph (b)(1).
    Response: We are not defining ``adequate space'' because the PRO's 
need for room in which to work could vary with each review. As for data 
requirements, they are generally stated in Sec. 476.102(c). This 
paragraph requires health care practitioners and providers to maintain 
evidence of the medical necessity and quality of health care services 
provided to Medicare patients as required by the PROs.
4. Deemed Compliance Based on Accreditation (Sec. 422.156)
    Section 1852(e)(4) of the Act gives the Secretary the authority to 
deem that an M+C organization meets certain requirements if the M+C 
organization is accredited and periodically reaccredited by a private 
organization under a process that we have determined ensures that the 
M+C organization, as a condition of accreditation, meets standards that 
are no less stringent than the applicable HCFA requirements.
    Section 422.156(a) of the M+C regulations specifies the conditions 
under which an M+C organization may be deemed to meet the HCFA 
requirements permitted to be deemed under section 1852(e)(4) of the 
Act.
    The current version of Sec. 422.156(b) specifies the requirements 
that could be deemed under the original BBA deeming provisions. In 
accordance with those BBA provisions, these included only the quality 
assessment and performance improvement requirements of Sec. 422.152, 
and the requirements of Sec. 422.118 related to confidentiality and 
accuracy of enrollee records. As discussed in section I.C. of this 
preamble, the BBRA amended section 1852(e)(4) of the Act to provide for 
deeming of additional requirements. An M+C organization accredited by 
an approved accreditation organization could be deemed to meet any or 
all of the requirements specified in section 1852(e)(4) of the Act, 
depending on the specific requirements for which its accreditation 
organization's request for approval was granted.
    Section 422.156(c) establishes when deemed status is effective. 
Deemed status is effective on the later of the following dates: The 
date on which the accreditation organization is approved by us, or the 
date that the M+C organization is accredited by the accreditation 
organization.
    Section 422.156(d) establishes the obligations of deemed M+C 
organizations. An M+C organization deemed to meet Medicare requirements 
must submit to surveys to validate its accreditation organization's 
accreditation process, and authorize its accreditation organization to 
release to us a copy of its most current accreditation survey, together 
with any information related to the survey that we may require 
(including corrective action plans and summaries of unmet HCFA 
requirements.)
    Section 422.156(e) addresses removal of deemed status. We will 
remove part or all of an M+C organization's deemed status if: (1) We 
determine, on the basis of our own survey or the results of the 
accreditation survey, that the M+C organization does not meet the 
Medicare requirements for which deemed status was granted; (2) we 
withdraw our approval of the accreditation organization that accredited 
the M+C organization; or (3) the M+C fails to meet the requirements of 
paragraph (d) of this section.
    Finally, Sec. 422.156(f) explains that we retain the authority to 
initiate enforcement action against any M+C organization that we 
determine, on the basis of our own survey or the results of the 
accreditation survey, no longer meets the Medicare requirements for 
which deemed status was granted.
    In addition to expanding the types of requirements that are 
deemable, section 518 of the BBRA also specified procedural changes to 
the accreditation process which are also discussed in section I.C above 
and in several responses below. As noted above, these changes have been 
reflected in a revised version of Sec. 422.156.
    The comments and responses regarding Sec. 422.156 are discussed 
below.
    Comment: Several commenters expressed general support for the 
deeming provisions as stated in the regulation.
    Response: The M+C deeming provisions are modeled on those that have 
been used successfully in original Medicare, and commenters have 
validated our belief that these

[[Page 40231]]

provisions will work equally well in Medicare managed care.
    Comment: One commenter was concerned that if we allow deeming, we 
will not be able to ensure access for disabled enrollees. This 
commenter recommended that we ensure that accreditation organizations 
include in their review an assessment of an organization's ability to 
treat members with disabilities and complex care needs.
    Response: We appreciate this comment, and agree that it is 
important that the needs of disabled enrollees not be overlooked. In 
evaluating whether standards imposed by an accreditation organization 
are at least as stringent as HCFA's, specifically QISMC Standard 3.1, 
we will take into account whether these standards account for the needs 
of disabled enrollees.
    Comment: Two commenters recommended that we expedite the 
implementation of the deeming program.
    Response: We recognize the value of deeming to M+C organizations 
and intend to proceed with deeming at the earliest opportunity. As a 
first step in this process, we will require that accreditation 
organizations develop crosswalks between their standards and the QISMC 
standards relating to the M+C requirements for which the organizations 
are seeking deeming approval. Only after we have revised the interim 
QISMC standards to reflect the changes made in this final rule and the 
final rule published February 17, 1999, will we have an accurate set of 
standards for use by the accreditation organizations in completing 
their crosswalks. We expect to release a revised set of QISMC standards 
shortly after publication of this final rule. Thirty days after 
publication we will begin accepting applications from accreditation 
organizations. A Federal Register notice formally announcing this 
timetable is being published concurrently with this final rule.
    Comment: Three commenters addressed the requirement that, as a 
condition of deemed compliance, an M+C organization be ``fully 
accredited.'' The commenters believe this condition would be 
problematic, given that many accreditation organizations have multiple 
accreditation categories. One of the commenters, an accreditation 
organization, stated that this policy is `` * * * a significant and 
substantive change from the current process under Medicare. At this 
time there exists a variety of accreditation levels * * *,'' not only 
within accreditation organizations but among them. A second 
accreditation organization complained that restricting deeming to only 
M+C organizations that have been ``fully accredited'' contradicts the 
stated policy of deeming on a standard-by-standard basis. It explained 
that requiring an M+C organization to meet all of an accreditation 
organization's standards decreases the potential savings and 
efficiencies associated with deeming.
    Response: Because accreditation categories differ among 
accreditation organizations, we expect that ``fully accredited'' will 
have to be defined on an organization by organization basis. Fully 
accredited will generally mean that all elements within all the 
accreditation standards for which the accreditation organization has 
been approved by HCFA have been surveyed and fully met or otherwise 
determined as acceptable without significant findings, recommendations, 
required actions or corrective actions. The commenter who complained 
that the requirement that an M+C organization be fully accredited is 
inconsistent with our intent to approve accreditation organizations on 
a standard-by-standard basis has misunderstood the requirement. The M+C 
organization must be fully accredited for only those standards for 
which the accreditation organization has been approved, not all of the 
accreditation organization's standards. We understand how the commenter 
misinterpreted the existing regulations, and we are revising 
Sec. 422.156(a)(1) to clarify this requirement.
    Comment: One commenter pointed out that if an M+C organization 
chooses not to be accredited, we will perform a complete audit of its 
functions. Because there is no cost to the M+C organization for our 
audit, the commenter believes it would be to an M+C organization's 
advantage not to be accredited, because it would avoid the cost of 
accreditation as well as duplicate reviews (for example, an accredited 
M+C organization's grievance and appeal program would be reviewed both 
by the accreditation organization and by HCFA because the grievance and 
appeal requirements are not deemable). The commenter asked whether this 
interpretation is correct.
    Response: The commenter's interpretation is correct, although there 
are benefits associated with accreditation, such as improved 
marketability, that we believe make accreditation attractive.
    Comment: Many commenters addressed the scope of deeming. The 
majority of commenters supported the limited deeming reflected in the 
interim final regulation. One of these commenters cited as support for 
limited deeming a recent report regarding the problems associated with 
deeming based on private accreditation of hospitals. One commenter 
advocated the continued development and implementation of the 
``enhanced review'' process begun several years ago. One commenter 
opposed limited deeming. This commenter, an accreditation organization, 
asserted that the regulation does a disservice to its clients as they 
are still subject to a our survey. Further, this accreditation 
organization complained that the regulation fosters ``the very 
duplication of effort and stifling of innovation that the BBA sought to 
avoid by requiring deemed status.''
    Response: In recognition of the efficiencies associated with 
deeming, section 518 of the BBRA amended section 1852(e)(4) of the Act 
to provide for the deeming of additional requirements. Specifically, 
the additional deemable requirements are those related to the following 
sections of the Act: section 1852(b) (which relates to 
antidiscrimination); section 1852(d) (which relates to access to 
services), section 1852(i) (which relates to information on advance 
directives), and section 1852(j) (which relates to provider 
participation rules). We are revising Sec. 422.156(b) to add these 
requirements.
    We note that HCFA's oversight of managed care accreditors will be 
different from that of hospital accreditors, i.e., the JCAHO. Deeming 
based on JCAHO accreditation is explicitly required by statute, whereas 
potential M+C accreditors must demonstrate their ability to apply and 
enforce standards at least as stringent as our own as a condition of 
approval. In the event that a managed care accreditor fails to perform 
as promised, we retain the authority to withdraw its approval. 
Therefore, there are safeguards in place to prevent the situation that 
has arisen in hospital deeming from repeating itself in managed care.
    Comment: Four commenters addressed the topic of approving 
accreditation organizations on a standard by standard basis as outlined 
in the regulation. Three commenters were in favor. One commenter asked 
if approving on a standard by standard basis means that we will ``* * * 
approve an accreditation organization for some standards but not for 
others.'' One commenter contended that our decision to approve 
accreditation organizations on a standard by standard basis is 
``inconsistent with the need to reduce the duplication of effort.'' 
This commenter, an accreditation

[[Page 40232]]

organization, recommended that accreditation organization standards be 
assessed to determine if overall they equal or exceed HCFA's 
requirements. This commenter continued to state that ``* * * approving 
individual standards will lead to a stifling of innovations and 
improvements over time.''
    Response: Section 518 of the BBRA has caused us to revise our 
approach to approving accreditation organizations. Originally, section 
1852(e)(4) of the Act stipulated that ``the Secretary shall provide 
that a Medicare+Choice organization is deemed to meet requirements'' of 
certain subsections of the Act if the organization were accredited by 
an approved organization. The BBRA changed the provision to read that 
``the Secretary shall provide that a Medicare+Choice organization is 
deemed to meet all the requirements'' (emphasis added) of certain cites 
within the Act. The result of the change is this: it is still possible 
for us to approve an accreditation organization for a subset of the 
deemable requirements alone; for instance, we may approve an 
accreditation organization for the quality assurance subset (which 
includes the quality assessment and performance improvement program 
requirements of Sec. 422.152) without approving it for any others. 
However, the accreditation organization must now have a comparable 
standard to every one of the M+C requirements within the quality 
assurance subset. Prior to enactment of the BBRA, an accreditation 
organization with only some quality assurance standards equivalent to 
the M+C requirements would have been permitted to participate in 
deeming; HCFA would have monitored for compliance with the M+C 
requirements for which no equivalent accreditation organization 
standards existed. Now, because the BBRA requires, in essence, that 
HCFA deem an accredited M+C organization by subset, rather than by 
requirement, we can approve an accreditation organization only if it 
has a standard that meets or exceeds each of the M+C requirements of 
the subset. While this policy could limit the extent to which an 
accreditation organization may be involved in deeming, it could be 
viewed as simplifying the oversight process, since there is no longer 
the potential for HCFA and an accreditation organization to divide 
responsibility for monitoring an M+C organization's compliance with the 
requirements of the same subset. We have revised the introductory 
clause in Sec. 422.157(a) (discussed below) to reflect this BBRA 
change.
    Comment: One commenter requested that public notice be given if an 
M+C organization's deemed status is removed or an accreditation 
organization's approval is withdrawn.
    Response: We agree that when we withdraw an accreditation 
organization's approval, HCFA should give public notice because the 
information may influence the choice of accreditation organization made 
by M+C organizations seeking accreditation. We expect to give this 
notice by posting it on our website.
    When we withdraw an accreditation organization's approval, we also 
remove the deemed status of all M+C organizations accredited by the 
organization. Upon removal of an M+C organization's deemed status, HCFA 
immediately assumes responsibility for ensuring that the organization 
meets our standards. Because beneficiaries are not at risk, and because 
notifying them of the loss of their M+C organization's deemed status 
could cause them to be concerned that they are at risk, we do not 
believe it is necessary or appropriate to so notify beneficiaries.
    Comment: A few commenters addressed our authority under 
Sec. 422.156(e)(1) to remove deemed status on the basis of a review of 
accreditation survey results. One of the commenters, an accreditation 
organization, strongly disagreed with the provision, complaining that 
it ``* * * would allow us to take the results of an accreditation 
survey and essentially ignore the decision of the accreditation 
organization without any independent data gathering.'' The commenter 
contended that the provision presumes that HCFA staff understand the 
accreditation requirements, and are better able to judge the 
performance of the M+C organization against those requirements than the 
accreditation organization's own surveyors. This commenter encouraged 
HCFA to conduct its own survey if we believe an M+C organization is not 
in compliance. If we reach a different conclusion than the 
accreditation organization after its own survey, then the commenter 
believes that we would be justified in removing deemed status. Another 
accreditation organization expressed similar concern with 
Sec. 422.156(e)(1), stating that the regulation language could be used 
by us to ``second guess the compliance determination using only the 
results of the accreditation survey.'' This commenter recommended 
limiting the removal authority to reflect this concern.
    Response: We do not intend to overrule an accreditation 
organization's survey decision without doing our own investigation. If 
our own investigation reveals, however, that a condition is not met, we 
reserve the right to remove deemed status even when the accreditation 
organization has not removed accreditation with respect to that 
condition. In order to clarify the distinction between--(1) a removal 
of deemed status by HCFA, based on HCFA's own survey, and (2) a removal 
based on a determination of noncompliance by an accreditation 
organization as a result of its accreditation survey, we have revised 
Sec. 422.156(a) to separate these two situations. This should make it 
clear that we will not ``second guess'' the accreditation 
organization's conclusions based on its review without doing our own 
independent investigation.
5. Accreditation Organizations (Sec. 422.157)
    In Sec. 422.157(a), we discuss three conditions for our approval of 
an accreditation organization. We may approve an accreditation 
organization if the organization applies and enforces standards for M+C 
organizations that are at least as stringent as Medicare requirements 
(as discussed above); the organization complies with the application 
and reapplication procedures set forth in Sec. 422.158, ``Procedures 
for approval of accreditation as a basis for deeming compliance;'' and, 
the organization is not controlled by the managed care organizations it 
accredits, as defined at Sec. 413.17.
    Section 422.157(b) of the interim final rule describes notice and 
comment procedures. Because the approval of an accreditation 
organization could have broad impact upon large numbers of 
organizations, providers, and consumers, we are providing notice and 
comment opportunities similar to those provided in the fee-for-service 
arena.
    Section 422.157(c) establishes ongoing accreditation organization 
responsibilities. These responsibilities largely parallel those 
currently imposed upon accreditors under original Medicare. One 
exception is the requirement at Sec. 422.157(c)(4) that an 
accreditation organization notify us in writing within 3 days of 
identifying, with respect to an accredited M+C organization, a 
deficiency that poses immediate jeopardy to the M+C organization's 
enrollees or to the general public.
    Section 422.157(d) establishes specific criteria and procedures for 
continuing oversight and for withdrawing approval of an accreditation 
organization. Oversight consists of equivalency review, validation 
review, and onsite observation.

[[Page 40233]]

    Section 422.157(d) states that an accreditation organization 
dissatisfied with a determination to withdraw our approval may request 
a reconsideration of that determination in accordance with subpart D of 
part 488 of this chapter. The comments and responses regarding 
Sec. 422.157 are discussed below.
    Comment: One commenter recommended that HCFA, when making a 
determination based on its own survey or the results of an 
accreditation survey that an M+C organization does not meet Medicare 
requirements, ``define the requirements, data collection tools, and 
scoring (including relative weights) guidelines'' used to make the 
determination. The commenter explained that disclosure of such 
information is consistent with assuring beneficiaries and providers 
that HCFA determinations and surveys are objective and based on 
criteria that are public, relevant and valid.
    Response: We agree with the need to make our process for making 
determinations available to the public. That is why materials such as 
our monitoring protocol are available to the public on HCFA's website, 
www.hcfa.gov/medicare/mgdcar1.htm.
    Comment: We received six comments requesting public disclosure of 
accreditation survey results. One commenter requested that we require 
in the regulation that enrollees be able to obtain from us their 
organization's accreditation survey results. An accreditation 
organization itself agreed with the need for public disclosure and 
stated that ``If the accreditation is to be used for a public purpose, 
participation in Medicare, then we are accountable for the decision and 
the information upon which it was based.''
    Response: We agree that public disclosure of accreditation survey 
results is appropriate. If an accreditation organization does not have 
a policy for publicly disclosing accreditation survey results, it will 
be required to develop one as a condition of our approval.
    Comment: An accreditation organization recommended that we provide 
accreditation organizations with quality-related information, for 
example, performance measurement data, quality improvement projects, 
etc.
    Response: We concur with the importance of ``two way 
communication,'' which is why we routinely publish or otherwise make 
available to interested parties the types of information referred to by 
the commenter, such as HEDIS results.
    Comment: One accreditation organization contended that the monthly 
reporting requirements exceed our needs, and it recommended that the 
regulation reflect our right to receive the information but not specify 
a reporting frequency until after information use and need is 
determined.
    Response: We believe the reporting requirements of 
Sec. 422.157(c)(1) accurately reflect our need for information. The 
information that accreditation organizations are required to report and 
the time frames in which they are required to report it are based on 
requirements that have proven their usefulness and necessity in deeming 
under original Medicare. We have no reason to believe that the 
organizations that accredit M+C organizations should be held to a 
different standard.
    Comment: Two commenters addressed the conflict-of-interest 
provision at Sec. 422.157(a)(3). One commenter stated that the 
provision is ``so broadly drawn as to preclude managed care 
organizations from serving on the boards of accreditation 
organizations, or otherwise participating in the accreditation 
development process.'' This commenter requested that we clarify that 
such activities are permissible. The second commenter also objected to 
the conflict-of-interest provision as written, recommending that we 
focus instead on whether the accreditation organization has policies in 
place that separate individuals affiliated with an M+C organization 
from an accreditation decision impacting that organization. This 
commenter asked for a definition of ``controlled'' that allows M+C 
organizations to participate in appropriate accreditation organization 
governance and policy making activities, but prohibits M+C 
organizations from having inappropriate influence on accreditation 
decisions affecting themselves.
    Response: We believe it is important that no single or group of 
managed care organizations be allowed to exert undue influence over a 
private accreditation organization in any decision making process that 
would allow that single or group of organizations to benefit at the 
expense of others. However, we recognize the valuable role that 
representatives of managed care organizations may play in private 
accreditation organizations, and we agree that the regulation as 
written appears to prohibit a number of acceptable activities. 
Therefore, we are revising Sec. 422.157(a)(3) to require that an 
accreditation organization ensures that: (1) Any individual associated 
with it who is also associated with an entity it accredits does not 
influence the accreditation decision concerning that entity; (2) the 
majority of the membership of its governing body is not comprised of 
managed care organizations or their representatives; and (3) its 
governing body has a broad and balanced representation of interests and 
acts without bias.
    Comment: One commenter asked whether we must act on an 
accreditation organization's application for approval within 210 days, 
as is the case with respect to fee-for-service accreditation.
    Response: The 210-day time frame that applies to accreditation 
under original Medicare is set forth in section 1865(b)(3) of the Act, 
and was not originally included by the Congress in section 1852(e)(4) 
of the Act. However, section 518 of the BBRA amended section 1852(e)(4) 
of the Act to add this requirement, and we are incorporating it into 
Sec. 422.158(e).
    In addition, because we are now required to make our decision on an 
accreditation organization's application within 210 days, we are 
revising Sec. 422.157(b)(1) to restructure the provisions concerning 
timing and content of the Federal Register notice that solicits public 
comments on accreditation organization applications to allow for a 
comment period that is concurrent with HCFA's review. This process, 
also used by original Medicare, will give the public a meaningful 
opportunity to comment on the applications.
    In the interim final rule, we modeled Sec. 422.157(b)(1) on the 
original Medicare deeming regulation at Sec. 488.8(b)(1). However, 
Sec. 488.8(b)(1) was written before section 1865(b)(3)(A) of the Act 
was amended to require 210-day turnaround on accreditation organization 
applications, and we are now in the process of revising Sec. 488.8 to 
conform with the Act. If we do not revise Sec. 422.157(b)(1) to follow 
original Medicare's model, we are concerned that our review of the 
accreditation organization's standards will be so time consuming, there 
will be little time left within the 210 days for the public comment 
period. Therefore, revised Sec. 422.157(b)(1) specifies that the 
Federal Register notice will announce our receipt of the accreditation 
organization's application for approval, describe the criteria we will 
use in evaluating the application, and provide at least a 30-day public 
comment period. Again, the timing and content of this notice are 
consistent with the way in which we solicit comments on accreditation 
organization applications in original Medicare deeming, pursuant to 
section 1865(b)(3)(A) of the Act.
    Comment: One commenter argued that it is not appropriate for us to 
take action against an accreditation

[[Page 40234]]

organization ``irrespective of the rate of disparity'' between 
certification by the accreditation organization and certification by us 
or our agent. The commenter agreed that accreditation organizations are 
``accountable to us and the public for the decisions they make and 
failure to properly assess the performance of the organizations they 
accredit should be grounds for action.'' However, the commenter 
complained that open-ended authority to withdraw an accreditation 
organization's approval regardless of the rate of disparity is 
inappropriate.
    Response: It is an approved accreditation organization's 
responsibility to ensure that accredited M+C organizations meet or 
exceed our standards. As per the regulation, if widespread or 
systematic problems are identified that indicate that an accreditation 
organization can no longer make that assurance, we reserve the right to 
take appropriate action, regardless of the disparity rate. However, we 
can assure the commenter that in Federal oversight of accreditation 
organizations, a variety of factors and measures are considered and 
utilized, only one of which is the disparity rate.
    In response to the commenter's concern, we are requiring that 
accreditation organizations provide us annually with summary data 
relating to their accreditation activities and observed trends. These 
data will assist us in making a comprehensive assessment of 
accreditation organization performance, and will help ensure that our 
oversight decisions are well-informed and appropriate. This change 
appears at Sec. 422.157(c)(6).
    Comment: One commenter requested that we clarify the term 
``enforces'' as it is used in Secs. 422.157(a)(1) and 
422.158(a)(3)(iii)(C).
    Response: An approved accreditation organization must apply and 
enforce standards that are at least as stringent as HCFA's 
requirements. By that, we mean that we expect the accreditation 
organization to assess compliance with the approved standards, and 
where it finds that an M+C organization is not in compliance, to ensure 
that corrective action is taken.
6. Procedures for Approval of Accreditation as a Basis for Deeming 
Compliance (Sec. 422.158)
    The requirements of Sec. 422.158, which pertain to required 
application materials, the mechanics of the approval process, and the 
reconsideration of an adverse determination, are essentially 
restatements of the original Medicare requirements under Sec. 488.4.
    Comment: One commenter disagreed with the provision that prohibits 
an accreditation organization that has requested reconsideration of a 
denial from filing a new application while the reconsideration is 
pending. The commenter believes that this provision will discourage 
accreditation organizations from challenging a denial and result in a 
denial of due process.
    Response: An accreditation organization may request a 
reconsideration if it receives a denial of its application. This may be 
done by submitting a request for reconsideration, the requisite 
supplemental information, and any necessary supporting documentation. 
In lieu of the reconsideration, an accreditation organization may 
select the option of submitting a new application that has been revised 
to address the deficient areas that led to the initial denial. 
Therefore, the prohibition against simultaneously submitting a request 
for reconsideration and a new application does not deprive an M+C 
organization of the right to submit a new application.

E. Relationships With Providers

    Part 422, subpart E of the M+C regulations focuses on requirements 
for relationships between M+C organizations and health care 
professionals with whom they contract to provide services to 
beneficiaries enrolled in an M+C plan. Many of these requirements stem 
from the rules regarding provider participation that are set forth in 
section 1852(j) of the Act. In our February 17, 1999 final rule, we 
addressed comments and made changes concerning several aspects of the 
provider participation requirements contained in subpart E, including 
the scope and applicability of the provider participation procedures. 
This final rule addresses comments on all other requirements in subpart 
E.
1. Provider Participation Procedures (Secs. 422.202(a) and 422.204(c))
    For the most part, we responded to comments on issues related to 
Secs. 422.202(a) and 422.204(c) of the regulations in our February 17, 
1999 final rule (64 FR 7975). In reviewing the comments on the interim 
final rule, however, we believe that additional clarification may be 
necessary on the applicability of the provider appeals procedures now 
set forth under Sec. 422.204(c).
    Comment: Several commenters objected to language in the preamble to 
the June 26, 1998 interim final rule that implied that health care 
professionals should have access to a formal appeals process when they 
viewed changes in an M+C organization's provider participation policies 
as having an adverse effect. The commenters pointed out that these 
policies should be subject to the consultation rules set forth under 
Sec. 422.204(b), but did not believe that changes in these policies 
warranted a formal appeals process.
    Response: As discussed in the February 1999 rule, the appeals 
procedures set forth under existing Sec. 422.204(c) apply only in cases 
of adverse participation decisions, that is, when an M+C organization 
suspends or terminates a physician's contract with the organization. We 
believe this policy is consistent with the intent of section 1852(j)(1) 
of the Act, which provides for a process for appealing ``adverse 
decisions'' relating to the ``participation of physicians'' under a 
plan. We did not intend to imply that a physician has a right to a 
formal hearing to appeal a participation policy adopted by the M+C 
organization, although we would expect physicians to have input on 
those polices through the consultation process required under 
Sec. 422.202(b). Clearly, however, an M+C organization ultimately is 
legally entitled to adopt the policies necessary to govern its 
operations, as approved by its board of directors, provided they are 
consistent with applicable Federal requirements. Please note that as 
part of a minor restructuring of the M+C provider participation 
provisions, and to help clarify that the appeals procedures apply only 
for adverse participation decisions, we are redesignating the provider 
appeals procedures from Sec. 422.204(c) to new Sec. 422.202(d).
    Comment: Two commenters objected to the requirement in existing 
Sec. 422.204(c)(3) that an M+C organization must notify the appropriate 
licensure or disciplinary bodies when it suspends or terminates a 
contract because of deficiencies in the quality of care. These 
commenters suggested that we leave State reporting requirements to the 
States. Another commenter recommended that the appeals hearing panels 
(under Sec. 422.202(c)(2)) be required to include physicians that did 
not contract with the M+C organization as a means of ensuring the 
``independence'' of the panel's review.
    Response: Existing statutes and regulations consistently establish 
the need for cooperation between Federal and State authorities in their 
administration of the Medicare program. A primary example is the 
requirement under section 1855(a)(1) of the Act that an M+C 
organization generally must be licensed under State law in order to 
qualify for participation in the M+C program. Thus, we believe it is 
wholly

[[Page 40235]]

appropriate to require in Federal regulations that the suspension or 
termination of a physician's contract with an M+C organization be 
reported to State licensing and disciplinary bodies.
    With regard to the membership of appeals panels, an M+C 
organization is free to enlist non-contracting physicians on these 
panels if it chooses to do so. However, section 1852(j)(1)(C) of the 
Act refers to an appeals process ``within the organization,'' and we do 
not believe it would be reasonable to require the participation of non-
contracting physicians.
    Comment: A commenter pointed out that at least one State has laws 
exempting an organization from the State's requirements for provider 
notification and review procedures in cases of imminent harm to a 
patient, determination of fraud, or final disciplinary action by a 
State licensing board. The commenter asked whether the notification and 
appeals provisions of subpart E would preclude exemption in these 
situations.
    Response: As discussed in further detail below, section 
1856(b)(3)(B) of the Act specifies that State ``requirements relating 
to inclusion or treatment of providers'' are superseded by the 
analogous Federal standards. Thus, State reporting exceptions to the 
M+C notification and appeals procedures are precluded under the 
existing M+C regulations. However, we do not believe that the general 
notice requirement under existing Sec. 422.204(c)(1) and (3), which do 
not include specific time frames for notification, should present a 
conflict with the State law mentioned by the commenter. We note that 
60-day time frame for termination notifications under 
Sec. 422.204(c)(4) applies only for terminations ``without cause,'' 
rather than in situations addressed by the law in question.
2. Consultation Requirements (Sec. 422.202(b))
    In accordance with section 1852(j)(2) of the Act, Sec. 422.202(b) 
specifies that an M+C organization must consult with physicians 
participating in its M+C plans regarding the organization's medical 
policies, quality assurance programs, and medical management 
procedures. Under the regulations set forth in our June 26, 1998 
interim final rule, these provisions were applied to other health care 
professionals as well as physicians. However, in response to comments 
on the interim rule, we revised this section in our February 1999 final 
rule to limit the applicability of these requirements to physicians. We 
also received a number of comments on other aspects of the consultation 
provisions, which are discussed below.
    Comment: Commenters generally supported the objectives of the 
consultation requirements contained in Sec. 422.202(b). However, 
several commenters representing physician groups suggested that the 
regulations should be expanded to establish a specific methodology for 
obtaining consultative input. For example, one commenter advocated 
requiring the establishment of a medical committee structure broken 
down into separate subcommittees focusing on various aspects of medical 
management policy (for example, professional relations, credentialing, 
quality improvement, etc.).
    Other commenters representing M+C organizations asked for 
confirmation that the use of physician committees to obtain 
consultation was an acceptable means of satisfying the consultation 
requirements. Two M+C organizations suggested that we define 
``consultation'' as ``soliciting and considering advice from 
participating professionals through committees established by the M+C 
organization.'' Another commenter noted that local medical review 
procedures (LMRP) should be part of the consultation process, and could 
in some instances substitute for the consultative process. One 
commenter indicated that the consultative requirements could be read to 
require consultation with hundreds of individual physicians and 
expressed concern that the consultative requirements would interfere 
with an individual physician's judgement in treating patients.
    Response: We agree that the most appropriate method for an M+C 
organization to consult with its contracting physicians is likely to be 
through the establishment of a committee structure. Rather than limit 
organizational flexibility by establishing a single model for 
consultation, however, we are revising Sec. 422.202(b) to state that an 
M+C organization must ``establish a formal mechanism'' for consulting 
with the physicians who provide services under plans offered by the 
organization. As we monitor the types of consultative arrangements 
implemented by M+C organizations, we will consider whether more 
specific regulatory guidance is necessary.
    Similarly, although we agree with the definition of consultation 
offered by the commenters, we believe that the term is sufficiently 
self-explanatory and that inserting a formal definition of the term 
into the regulations is unnecessary. We also agree that M+C 
organizations should take local medical review policies into 
consideration in establishing and updating their medical review 
policies. However, we believe that the regulations need not include 
that degree of specificity concerning the evidence-based guidelines an 
M+C organization must consider in adopting practice guidelines. We will 
consider adding such policies to the list of guidelines now described 
in the QISMC standards on this subject (QISMC Guideline 3.4.1.1).
    Finally, we do not agree that the consultation requirement 
infringes on the ability of an individual physician's judgement in the 
practice of medicine. As their name implies, practice ``guidelines'' 
are intended for general application rather than as procedures to be 
followed in every case independent of physician judgment.
3. Treatment of Subcontracted Networks (Sec. 422.202(c))
    Under Sec. 422.202(c), an M+C organization that uses subcontracted 
physician groups or other networks of health care professionals must 
provide M+C participation procedures that apply equally to these 
subcontracting groups.
    Comment: Many commenters raised questions concerning the meaning 
and implications of the requirement under Sec. 422.202(c), which states 
that when an M+C organization operates an M+C plan through 
subcontracted physician groups or other subcontracted networks, it must 
ensure that ``the participation procedures in this section apply 
equally to physicians and other health care professionals within those 
subcontracted groups.'' (Note that this provision was amended in our 
February 1999 final rule to limit its applicability to physicians.) 
Although some commenters supported this requirement as written, others 
were concerned that the requirement was too broad in scope. Several 
commenters suggested that we clarify that an M+C organization can 
comply with this provision by requiring subcontracting networks to have 
their own procedures for consultation and for participation appeals. 
They believe that it would be imposing ``unreasonable downstream 
responsibilities'' to require that the subcontractor's consultation and 
appeals procedures establish participation rights equivalent to those 
required under Sec. 422.202. Other commenters recommended that we 
require the subcontracts to include the same specific appeals 
procedures as required at the M+C organization level. Finally, several 
commenters asked whether appeal rights extend to all physicians in a 
terminated group practice or to individual physicians. They recommended 
that the

[[Page 40236]]

subcontracting group practice exercise appeal rights on behalf of its 
employees.
    Response: M+C organizations are contractually obligated to meet all 
requirements contained in the M+C regulations. They may meet these 
requirements either by directly providing the requisite health or 
administrative services or by entering into contracts for the provision 
of these services. Although we recognize the need for further 
clarification of how the provider participation rules and other 
provisions of the M+C requirements apply to subcontracting entities, 
the presence of a subcontract does not alter the underlying substance 
of those requirements. Note that Sec. 422.502(i) of the M+C regulations 
contains a great deal of general information regarding the delegation 
of responsibility under subcontracts as well as some specific 
requirements (for example, with respect to provider credentialing). 
Please see section II.K of this preamble for a further discussion of 
many related issues. In addition, readers may wish to consult OPL #77, 
released on December 8, 1998, which offers extensive guidance in this 
regard (available through the HCFA website at www.hcfa.gov).
    As spelled out under Sec. 422.502(i), under any type of 
subcontracting arrangement, the M+C organization retains ultimate 
responsibility for ensuring that its subcontractors achieve full 
compliance with all terms and conditions of the organization's contract 
with us. This includes ensuring that activities performed by its 
subcontractors are consistent and comply with the M+C organization's 
contractual obligations. For activities that are delegated to 
contractors (such as provider appeals), the contract must specify that 
the subcontractor must comply with all Medicare laws, regulations, and 
instructions. Thus, a physician who is employed by a group practice 
that contracts with an M+C organization would have the same fundamental 
consultation and appeal rights as a physician who contracts directly 
with the M+C organization. Whether that physician exercises those 
rights at the subcontractor level, or directly through the M+C 
organization, would be left to the discretion of the M+C organization 
and its subcontractors. For example, an M+C organization could enter 
into a contract with a physician group under which all individual 
appeals of adverse participation decisions were adjudicated at the 
subcontractor level. However, the subcontractor's appeals process would 
need to meet the requirements established under redesignated 
Sec. 422.202(d), as discussed above: all procedural rights established 
there would apply equally for the subcontracting physicians. For 
situations in which a subcontract with an entire group practice was 
terminated by an M+C organization, we would expect that the appeal 
rights would fall to the subcontracting group practice to exercise on 
its physicians' behalf.
    Similarly, with respect to the consultation requirements, we can 
envision various ways in which the requirements could be met under 
subcontracting arrangements, such as through direct representation for 
the subcontractor's providers on M+C organization committees, or 
through committees convened by the subcontractor, with its consultative 
input channeled to the M+C organization. In either case, though, the 
underlying requirement must be met that practice and utilization 
management guidelines be developed in consultation with contracting 
physicians.
    In general, our policy to date has been to afford extensive 
flexibility to M+C organizations in meeting subcontracting 
requirements. In 1999, for example, we required risk contractors that 
became M+C organizations to submit a plan demonstrating how they would 
work toward executing new or revised provider or administrative service 
contracts, with full compliance required by January 1, 2000. Again, for 
further information on the ways in which an organization can 
demonstrate compliance with provider contracting requirements, please 
see OPL 77.
4. Provider Antidiscrimination (Secs. 422.100(j), 422.204(b), new 
422.205)
    Sections 422.100(j) and 422.204(b) both relate to the provision set 
forth in section 1852(b)(2) of the Act that precludes M+C organizations 
from discriminating against providers based on their licensure or 
certification. Section 422.204(b), for the most part, simply 
incorporates the statutory prohibitions on discrimination based on 
provider licensure or certification, but also provides that these 
prohibitions do not preclude the ``use of different reimbursement 
amounts for different specialties.'' Section 422.100(j) states that if 
more than one type of practitioner is qualified to furnish a particular 
service, the M+C organization may select the type of practitioner to be 
used.
    Comment: Numerous commenters addressed the provider 
antidiscrimination provisions set forth at Secs. 422.100(j) and 
422.204(b). Commenters generally believed that additional guidance 
beyond that offered in the June 1998 interim final rule was necessary 
to clarify our interpretation of the antidiscrimination provisions of 
the statute (section 1852(b)(2) of the Act). Commenters differed in 
their views on how these provisions should be interpreted and 
implemented, however.
    In general, commenters representing M+C organizations supported the 
inclusion of the choice-of-practitioners provision (Sec. 422.100(j)); 
they believe that this provision establishes that M+C organizations are 
not required to adopt an ``any willing provider'' policy, but rather 
have the flexibility to choose the practitioners that participate in an 
organization's provider network. In contrast, commenters representing 
physicians and other health care professionals believe that the choice-
of-practitioners provision is unnecessary and confusing; they see the 
provision as undermining the antidiscrimination provisions of the 
statute and the M+C regulations. These commenters particularly objected 
to the wording in Sec. 422.100(j) that allows an M+C organization to 
select the ``type of practitioner'' to be used. These commenters 
offered various recommendations, including: (1) delete the provision in 
its entirety; (2) add a requirement that an M+C organization employ a 
``representative range of providers'' (comparable with the available 
range of providers under original Medicare); (3) amend the provision so 
that it would focus on the availability of all Medicare-covered 
``benefits'' (many of which can be furnished only by qualified 
practitioners), rather than ``services''.
    Commenters displayed similar perspectives with regard to the 
antidiscrimination prohibitions set forth under Sec. 422.204(b). As 
noted above, the only portion of this section that is not taken 
directly from the statute is the provision under existing 
Sec. 422.204(b)(2)(ii) that indicates that an M+C organization is not 
precluded from use of different reimbursement amounts for different 
specialties. Commenters representing M+C organizations generally 
supported the addition of this language, although one commenter 
believed that it unnecessarily restricted an M+C organization's ability 
to negotiate with physicians or other practitioners. This commenter 
stated that the regulations do not give an organization sufficient 
leeway to take into consideration the reputation, volume, or experience 
of a practitioner, or alternative payment methods, in establishing 
compensation.
    Other commenters representing various types of physicians and other 
health care professionals objected to this

[[Page 40237]]

provision because they believe that it confers too much authority on 
M+C organizations. They argued that permitting an M+C organization to 
pay different amounts for different specialties was inconsistent with 
legislative intent. They also contended that this language was 
inconsistent with the Supreme Court's decision in Bowen v. Michigan 
Academy of Family Physicians, 476 U.S. 667 (1986), which they 
characterized as requiring that Medicare ``reimburse similar services 
in an equal manner regardless of who performs the service.'' These 
commenters believed that we should require that payment rates be tied 
to the services provided, as under the fee schedules used in original 
Medicare. One commenter suggested that we revise Sec. 422.204(b)(2)(ii) 
to clarify that payment differences are permissible only if they 
``result from competition or other legitimate factors,'' rather than 
differences based solely on licensure or certification.
    Response: The statutory antidiscrimination provision is intended to 
ensure that health care providers are not arbitrarily excluded from 
participation under a managed care plan's provider network solely on 
the basis of their license or certification. We recognize that the 
existing regulations, which refer to this prohibition on discrimination 
in both Secs. 422.100(j) and 422.204(b), have created the potential for 
confusion.
    To assist in clarifying the relevant requirements, we believe it is 
appropriate to consolidate the regulations concerning 
antidiscrimination and choice of providers into a new, separate 
Sec. 422.205, Provider antidiscrimination. This section will begin with 
the general rule prohibiting discrimination based solely on licensure 
or certification, consistent with the law. We then will specify that in 
choosing its practitioners, an M+C organization must ensure that all 
Medicare-covered services must be available to a plan's enrollees. We 
are also incorporating under Sec. 422.205(a) a revised version of the 
existing provision regarding choice of practitioners that eliminates 
any reference to ``type of practitioners.'' Thus, the general rule will 
continue to permit M+C organizations the flexibility to choose their 
practitioners, consistent with the statute's antidiscrimination 
constraints, which are set forth under Sec. 422.205(b). At the same 
time, this provision will emphasize the mandatory availability of all 
Medicare-covered services (such as physical therapy or manual 
manipulation of the spine to correct a subluxation).
    Finally, we are adding at, Sec. 422.205, a requirement that when an 
M+C organization declines to include a given provider or group of 
providers in its network, it must notify the provider(s) of the reason 
for its decision. Although this provision does not impart any appeal 
rights, we believe it is both a reasonable business practice and a 
means of ensuring that such decisions are subject to our monitoring 
efforts.
    Our goal in implementing these changes is to strike a balance 
between our responsibility to ensure that M+C organizations are 
employing all the types of health care professionals needed to ensure 
that required Medicare-covered services are available to their 
enrollees, and our aversion to limiting organizations' flexibility in 
providing these services. Over the next few years, we intend to closely 
monitor organization compliance with the antidiscrimination provisions, 
including examining encounter data as it becomes available and tracking 
organizational participation decisions, to determine the degree to 
which all Medicare-covered services are made available under different 
plans.
    We believe that the statute is not intended to preclude an M+C 
organization from negotiating appropriate, market-based, payment rates 
with its providers. It is quite possible, for example, that the 
``market rate'' that must be paid to get a particular type of 
specialist to participate in an M+C organization's network may be 
higher or lower than that dictated by the market with respect to 
another type of practitioner. Section 1852(b)(2) of the Act expressly 
provides that its antidiscrimination rule ``shall not be construed to 
prohibit a plan from * * * measure[s] designed to * * * control costs. 
* * *'' Paying no more than the market rate for a given provider is 
clearly a component of cost control. We believe that establishing 
requirements concerning the comparative rates M+C organizations pay for 
contracting provider services would be inconsistent with the overall 
design of the M+C program, under which we pay a fixed amount to ensure 
that Medicare beneficiaries receive the services to which they are 
entitled, but M+C organizations have wide discretion in managing 
enrollee care and establishing provider networks. Inherent to this 
design is the premise that payment rates should be established through 
negotiated contracts rather than micro-managed by the Federal 
government. Thus, new Sec. 422.205(b) specifies that an organization 
may use different reimbursement amounts for different specialties, or 
different practitioners within the same specialty.
    Further, we do not agree with the commenter that the payment rules 
established under original Medicare's fee schedules necessarily 
represent the appropriate model for payment under the M+C program, or 
that it would be appropriate or feasible to establish a requirement 
that an M+C organization's provider network reflect the identical mix 
of providers participating in Medicare generally. Beneficiaries have 
the option of returning to original Medicare if they place a premium on 
being able to receive services from any provider they wish, or are not 
satisfied with being limited to a defined network established by an M+C 
organization.
    In addition to addressing measures designed to control costs, 
section 1852(b)(2) of the Act also makes clear that the 
antidiscrimination rule therein shall not be construed to prevent an 
M+C organization from taking measures to ``maintain quality'' of 
services. For example, we would not want to preclude higher payments to 
providers for demonstrating quality improvement, or preclude an M+C 
organization from imposing quality-related requirements, such as using 
only board-certified physicians.
    Finally, section 1852(b)(2) of the Act makes clear that its 
antidiscrimination provision ``shall not be construed to prohibit a 
plan from including providers only to the extent necessary to meet the 
needs of the plan's enrollees.'' If an M+C organization can provide all 
physicians' services through a doctor of medicine, it may not ``need'' 
to contract with another practitioner who can provide only a discrete 
subset of physicians' services (such as a podiatrist or a chiropractor 
who under section 1861(r) of the Act are considered physicians under 
Medicare only for specified purposes). As long as all Medicare-covered 
services are available in the plan, there may be no ``need'' to assume 
the additional administrative costs of contracting with another 
practitioner when an existing contractor is able to perform the 
services the additional practitioner would be providing. This would not 
constitute discrimination based ``solely'' on the basis of license or 
certification, but rather, not contracting with practitioners not 
``needed'' to provide the full Medicare range of benefits.
    With respect to the choice-of-practitioners provision, this right 
has always been inherent in the managed care model of health care 
delivery. While a practitioner is not to be discriminated against 
solely due to his or her license, we believe that M+C

[[Page 40238]]

organizations must have the flexibility to deliver services through the 
most cost-effective practitioner who is qualified to perform the 
service in question. Again, this is a ``cost control'' measure 
authorized under the last sentence in section 1852(b)(2) of the Act.
    We do not understand the commenter's reference to the Supreme 
Court's Michigan Academy decision, since this decision did not involve 
a ruling on the merits of any reimbursement issue. Rather, the issue in 
Michigan Academy was whether certain types of claims were subject to 
judicial review. Even if the decision did hold what the commenter 
suggested, rules that apply to payments under original fee-for-service 
Medicare do not apply to payments by M+C organizations to contracting 
providers.
    Comment: Commenters asked how we intended to enforce the 
antidiscrimination requirements, noting that strong enforcement was 
particularly necessary in view of the specific preemption of State laws 
dealing with the inclusion of providers. Several commenters asked how a 
provider would pursue an antidiscrimination claim, and they urged us to 
establish an administrative review process for investigating 
allegations of discrimination based on licensure or certification. To 
facilitate the reviews, these commenters suggested that the regulations 
require that notices of adverse participation decisions include a 
statement of the reasons for the determination.
    Response: Although we do not intend to establish a separate 
administrative review process for investigating allegations of 
discrimination against providers, we intend to place a strong emphasis 
on verifying that M+C organizations are in compliance with the 
antidiscrimination provisions. This will occur both through our 
scheduled monitoring activities and under our authority to conduct 
complaint investigations when we believe there is credible evidence of 
violations.
    In addition, as noted above, Sec. 422.205 will now incorporate the 
requirement that an M+C organization must state in writing its reasons 
for declining to include any given provider or group of providers in 
its provider network. This should enhance our ability to identify 
violations of the antidiscrimination requirements, for example, by 
detecting situations in which organizations exhibit a pattern of 
repeated refusal to contract with certain types of practitioners. If a 
prospective provider has evidence of discrimination on the basis of 
licensure, the appropriate avenue to raise this concern is the HCFA 
regional office in the relevant area.
    Comment: One commenter expressed concern that without further 
clarification, the choice-of-practitioners provision at existing 
Sec. 422.100 could be construed as giving an M+C organization complete 
and final authority over an enrollee's choice of health care provider. 
The commenter recommended that we clarify that an enrollee may appeal a 
plan's decision not to allow access to a specialist, or a specific 
provider, that the enrollee believes is necessary to furnish adequate 
services.
    Response: The regulations concerning choice of practitioners are 
not intended to limit in any way the appeal and grievance rights of 
enrollees under subpart M of the M+C regulations. If an enrollee is 
denied access to a specialist, the enrollee clearly has the right to a 
timely organization determination and, if necessary, a reconsideration 
of this determination. Situations involving whether a specific provider 
is necessary are more likely to be subject to either the organization's 
grievance procedures or possibly to external review by a PRO if quality 
issues are involved.
5. Provider Credentialing (Sec. 422.204(a))
    Ensuring that providers have the proper credentials for the 
services they are providing is a key component of an overall ``ongoing 
quality assurance program for health care services,'' as required under 
section 1852(e)(1) of the Act. Section 422.204(a) accordingly sets 
forth basic requirements that an M+C organization must follow with 
respect to the credentialing and recredentialing of the providers and 
suppliers with whom it enters into participation agreements. The M+C 
organization must ensure that providers and suppliers meet applicable 
State and Federal requirements. Basic benefits must be provided 
through, or payments must be made to, providers that meet applicable 
requirements of title XVIII and part A of title XI of the Act. Also, in 
the case of providers meeting the definition of ``provider of 
services'' in section 1861(u) of the Act, Sec. 422.204(a)(3)(i) 
specifies that basic benefits may only be provided through such 
providers if they have a provider agreement with us permitting them to 
provide services under original Medicare. An M+C organization may not 
employ or contract with providers excluded from participation in 
Medicare.
    Comment: Although commenters generally supported the flexibility 
built into the M+C credentialing provisions, several commenters 
suggested that the credentialing standards used by the NCQA be 
incorporated into the M+C regulations because these commenters believe 
that they are clear and adequate to protect M+C beneficiaries. Several 
commenters contended that many of the M+C credentialing standards were 
somewhat vague; one commenter identified as particularly unclear the 
requirement under Sec. 422.204(a)(2)(iii) to establish a process to 
``receive advice'' from contracting health care professionals with 
respect to credentialing criteria. Another commenter asked if, in 
general, an M+C organization that complies with NCQA credentialing 
standards would also be in compliance with the M+C requirements. The 
commenter asked for confirmation that, like under the NCQA standards, 
the following categories of practitioners are not subject to the 
credentialing requirements: (1) hospital-based practitioners that 
provide care for an M+C organization's enrollees only as a result of 
members being directed to the hospital, and (2) practitioners who 
provide care only under the direct supervision of a contracting 
physician. Another commenter asked for additional clarity as to what 
types of practitioners must be credentialed and suggested following 
NCQA standards. One commenter argued that the credentialing provisions 
should include substantive criteria governing which physicians will be 
credentialed in the network, which excluded, and on what grounds.
    Response: In view of these comments, we have reexamined the 
existing credentialing provisions and are making several changes. 
First, as discussed above, we have removed both the antidiscrimination 
and the provider appeals provisions from Sec. 422.204. Section 422.204 
will now be entitled ``Provider selection and credentialing'' and will 
include a new Sec. 422.204(a) to establish the general rule that an 
organization must have written policies and procedures for the 
selection and evaluation of providers. These policies and procedures 
must conform with the existing credentialing requirements, which will 
be redesignated as Sec. 422.204(b), as well as the antidiscrimination 
procedures now contained under new Sec. 422.205. These changes do not 
impose new substantive requirements on M+C organizations, but we 
believe they constitute both a necessary reorganization of the existing 
requirements, and a means of clarifying in the regulations the inherent 
purpose of the credentialing rules--the need for a systematic approach 
to provider selection. We note that both the NCQA standards and our 
QISMC standards

[[Page 40239]]

already incorporate the underlying concept that an organization's 
credentialing requirements are an integral component of its provider 
selection policies.
    This change in no way obviates our awareness that an organization's 
selection criteria, and thus its credentialing policies and procedures, 
should be tailored to take into account the individual characteristics 
of each M+C organization. The process of provider selection also should 
be integrated with the process of establishing and maintaining an 
adequate provider network to assure enrollee access to plan services. 
Thus, we do not intend to add to the regulations greater specificity 
concerning the procedures an M+C organization must follow for 
credentialing and recredentialing purposes, or establish detailed 
criteria as to what constitute adequate credentials. Instead, the 
regulations will continue to require that M+C organizations follow a 
``documented process'' for these activities that meets the relatively 
flexible existing standards.
    With respect to the question about whether meeting NCQA standards 
would constitute compliance with M+C requirements, we are currently 
evaluating this question in the context of the ``deeming'' provisions 
discussed in section II.D above. If we find that NCQA, or any other 
private accreditation organization, applies and enforces standards that 
are at least as stringent as those set forth in Sec. 422.204, then 
satisfying NCQA standards would constitute compliance with M+C 
requirements. Until we make such a determination, however, meeting NCQA 
credentialing standards does not necessarily achieve compliance with 
the M+C requirements. We note that we agree with NCQA that 
credentialing is not required for health care professionals who are 
permitted to furnish services only under the direct supervision of a 
physician or other provider, or for hospital-based health care 
professionals (such as an emergency room physician, anesthesiologist, 
or certified registered nurse anesthetist (CRNA)) who provide services 
to enrollees only incident to hospital services. (This exception does 
not apply if the practitioner contracts independently with the M+C 
organization or is promoted by the organization as being part of its 
provider network.)
    Finally, we agree that the requirement that an M+C organization's 
process include ``receiving advice'' from contracting health care 
professionals could be misconstrued. We are changing this requirement 
to indicate that the organization must have a process for consulting 
with its contracting health care professionals on its credentialing and 
recredentialing criteria.
    Comment: Several commenters suggested technical changes to the 
regulations in subpart E. For example, one commenter recommended that 
the credentialing provisions consistently refer to suppliers as well as 
providers, noting that the subpart E basis and scope section 
(Sec. 422.200) explicitly mentions both providers and suppliers, while 
Sec. 422.204(a)(3)(i) only refers to the furnishing of basic benefits 
through ``providers.'' The commenter also recommended that pharmacies 
be considered as providers. Another commenter suggested that we add 
``or certification'' to the licensure verification requirement under 
Sec. 422.204(a)(2)(i), and asked whether Joint Commission on 
Accreditation of Health Care Organizations/Community Health 
Accreditation Program or Medicaid certification of an HHA was 
sufficient to meet the provider credentialing requirements, as has been 
the case in the past for Medicare managed care.
    Response: The definition of providers that applies for purposes of 
the M+C program is found at Sec. 422.2 and includes both entities that 
would be considered providers and suppliers for other Medicare 
purposes. However, to avoid any possible confusion, we are adopting the 
commenter's recommendation that suppliers be explicitly mentioned under 
existing Sec. 422.204(a)(3)(i) (now redesignated as 
Sec. 422.204(b)(3)(i), as discussed above). Pharmacies, thus, are 
considered ``providers'' for purposes of the M+C program. We are also 
amending the regulations to indicate that initial credentialing should 
include verification of licensure or certification.
    Existing Sec. 422.204(a)(3)(i) requires that in the case of 
providers of services that meet the original Medicare definition of 
``providers'' under section 1861(u) of the Act (such as HHAs or SNFs), 
that provider must have a provider agreement with us in order to be 
permitted to furnish basic benefits under an M+C plan. Under this 
requirement, neither accreditation nor approval under the Medicaid 
program is necessarily sufficient to enable an HHA to furnish services 
under an M+C plan, unless the HHA is Medicare-certified. The objective 
of this policy is to ensure that M+C enrollees are guaranteed services 
of a quality level at least equal to that available to other Medicare 
beneficiaries. We continue to believe that the existence of a provider 
agreement with us is the best way to ensure that HHAs providing 
services to M+C enrollees meet uniform standards in all States and are 
subject to Federal enforcement authority. Thus, we believe it would be 
inappropriate to create an exception for HHAs to the general rule that 
``providers of services'' as defined under section 1861(u) of the Act 
must have a provider agreement that permits them to furnish services 
under original Medicare.
    Comment: One commenter stated that the credentialing requirements 
appeared to require individual credentialing for physicians in group 
practices. The commenter believed that this requirement is too 
inflexible and could delay a physician's inclusion in a network. 
Instead, the commenter recommended that an M+C organization have the 
option of credentialing a group practice as network participants, and 
then transferring the obligation to credential new members of the 
practice to the practice itself.
    Response: When an M+C organization contracts with a group practice, 
it has an obligation to ensure that all members of that practice meet 
its credentialing standards. Consistent with the discussion of 
subcontracting rules above (and with the subcontracting requirements of 
Sec. 422.502(i)(4)), subsequent credentialing may be carried out either 
by the M+C organization itself or be delegated to the subcontracting 
organization (that is, the group practice). If delegated, however, the 
M+C organization must review and approve the credentialing process, and 
audit the process on an ongoing basis.
    Comment: One commenter objected to several aspects of the 
credentialing requirements, and urged that they be modified to take 
into account the varying characteristics of M+C networks such as PPOs. 
The commenter recommended that the requirement for site visits be 
eliminated for PPOs, and that the requirement for recredentialing every 
2 years be modified in favor of permitting M+C organizations to 
determine when recredentialing was appropriate depending upon the size 
and stability of the provider network.
    Response: Under the existing regulations, site visits are required 
``as appropriate'' for initial credentialing; thus, sufficient 
flexibility already exists in this regard. We believe that 
recredentialing every 2 years is a reasonable time frame and note that 
it coincides with NCQA standards. We believe it would be inappropriate 
for each M+C organization to substitute its judgment for a national 
standard as to when it should recredential its practitioners. If the 
provider network is

[[Page 40240]]

small and stable, the administrative burden associated with the 
recredentialing process should be relatively small.
    Comment: One commenter noted that the prohibition on entering into 
contracts with providers that are excluded from participation in the 
Medicare program (under existing Sec. 422.204(a)(3)(ii)) is impossible 
to implement unless the HCFA website includes a Social Security number 
(SSN).
    Response: As noted in the interim final rule, M+C organizations are 
expected to consult the Office of Inspector General's (OIG) website 
(www.dhhs.gov/progorg/oig) to access the list of providers that are 
excluded from participation in the Medicare program. For privacy 
reasons, this listing does not include SSNs. However, we also maintain 
an internal excluded provider list (HCFA Publication 69) that includes 
unique identifying information for the providers in question. This 
publication generally is available to all of our contractors, including 
M+C organizations. We suggest that any M+C organization that needs this 
information contact either its regional or central office plan manager, 
or HCFA's Office of Issuances to obtain the latest version of 
Publication 69.
6. Prohibition on Interference With Health Care Professionals' 
Communication With Enrollees (Sec. 422.206)
    Consistent with section 1852(j)(3)(A) of the Act, Sec. 422.206(a) 
prohibits an M+C organization from interfering with the advice of a 
health care professional to an enrollee who is his or her patient. Thus 
the health professional may act within his or her scope of practice in 
advising the enrollee about his or her health status, all relevant 
medical or treatment options available regardless of whether care or 
treatment is provided under the plan. Section 422.206(b) incorporates 
the requirements of section 1852(j)(3)(B) of the Act. The regulations 
state that the prohibition against interference with the content of 
advice a health care provider has given to enrollees regarding medical 
treatment should not be construed as requiring counseling by a 
professional, if the M+C organization objects, based on moral or 
religious grounds, and fulfills certain notification requirements to 
prospective and current enrollees. The regulations incorporate the 
notification process and time frames included in the law and clarify 
that the plan must also notify us at the time of application and within 
10 days of submitting its ACR proposal. We received 12 comments 
addressing the provisions set forth under Sec. 422.206.
    Comment: The majority of the commenters simply expressed their 
support for this provision, which has been referred to as the ``anti-
gag rule.'' One commenter asserted that an M+C organization should not 
be forced to provide care that is not medically effective, approved by 
the Food and Drug Administration (FDA), or covered under the enrollee's 
plan. A commenter also suggested that M+C organizations be prohibited 
from requiring health care professionals to sign ``gag rule'' clauses 
that interfere with full disclosure of all treatment options, 
regardless of whether theses options are covered under a plan. Another 
commenter noted that Sec. 422.206(d) states that an M+C organization is 
subject to intermediate sanctions for violations of these provisions, 
and recommended that the regulations also specify that we will not 
renew the contract of an M+C organization that substantially violates 
the provisions in Sec. 422.206.
    Response: As indicated in the June 1998 interim final rule, a 
health care professional's freedom to inform an enrollee about 
available treatment options in no way implies that all of the possible 
treatment options (for example, experimental or noncovered 
alternatives) are covered under the enrollee's M+C plan. In other 
words, the prohibition on interference with provider-enrollee 
communications does not affect the M+C benefit and coverage 
requirements. Clearly, these rules prohibit an M+C organization from 
requiring health care professionals to sign a ``gag rule'' clause, such 
as that mentioned by the commenter. Finally, we note that under 
Sec. 422.506(b)(1)(iv) of the M+C contracting regulations, an M+C 
organization that commits any acts that can support the imposition of 
intermediate sanctions is also subject to nonrenewal of its contract.
    Comment: One commenter representing health insurance agents 
recommended that the regulations include a prohibition on physicians 
``advising seniors on M+C plans.'' The commenter asserted that only 
individuals with health insurance licenses should be permitted to 
proffer such advice.
    Response: Although we recognize that there are situations where it 
would be inappropriate for physicians or other health care 
professionals to ``steer'' beneficiaries to particular health care 
plans, we do not believe that prohibiting patients from seeking advice 
from physicians regarding insurance coverage choices is either 
necessary or practical. For example, a physician should be able to 
disclose to a patient the M+C plans in which he or she is a network 
provider. (For additional discussion of this issue, please see the 
portion of section II.B of this preamble that discusses M+C marketing 
requirements at Sec. 422.80.)
    Comment: Two commenters recommended that we either delete or 
clarify the requirement in Sec. 422.206(a)(2) that health care 
professionals provide information regarding treatment options in a 
``culturally competent manner.''
    Response: We recognize that the term ``culturally competent'' can 
be subject to various interpretations, as discussed in detail above in 
section II.C of this preamble concerning M+C access requirements. For 
the purposes of this provision, our intent is that M+C organizations 
establish and maintain effective communication with enrollees, 
including informing them of treatment options in a language they can 
understand.
    Comment: Two commenters raised concerns related to the conscience 
protection exceptions set forth in Sec. 422.206(b). One commenter 
strongly supported the provisions, but recommended that the final rule 
clarify that: (1) nothing in the conscience protection provisions be 
construed as limiting the range of services to which Medicare 
beneficiaries are entitled; (2) an enrollee may terminate enrollment 
and choose another M+C plan if he or she receives notification under 
this section that an M+C organization will not cover or pay for a 
particular counseling or referral service; and (3) like other 
disclosure requirements, notifications required under 
Sec. 422.206(b)(2) must be provided in a clear, accurate, and 
standardized form, consistent with the special needs of individual 
enrollees.
    Another commenter asserted that there was a potential conflict 
between the conscience protection provisions and the information 
disclosure rules in Sec. 422.111 and recommended that we establish an 
exception to the advance disclosure rules for ``duly adopted religious 
policies.'' The commenter noted that the conference agreement to the 
BBA indicates the Congress' intent that the Secretary not ``impose 
burdensome regulatory, legal, or stylistic requirements with respect to 
this notice requirement.'' (House Report, 105-217, pg. 607.)
    Response: As the commenter points out, the conscience protection 
provisions in no way diminish or otherwise affect the range of benefits 
or services to which Medicare beneficiaries are entitled. As discussed 
in section II.C

[[Page 40241]]

above, the conscience protection in section 1852(j)(3)(B) of the Act 
affects only obligations under section 1852(j)(3)(A), not obligations 
that arise elsewhere in the statute, such as the obligation under 
section 1852(a)(1) to provide all Medicare-covered services available 
in the area served by the M+C plan. To the extent that the operation of 
the right to advice and counseling under section 1852(j)(3)(A) would 
obligate an M+C organization to cover counseling or referral services 
that it would not otherwise be obligated to cover, section 
1852(j)(3)(B) allows the organization to decline to provide such 
service on conscience grounds if notice is provided to beneficiaries. 
However, if the service is one that the organization is obligated to 
provide independent of section 1852(j)(3)(A), it could not be affected 
by a provision that by its own terms affects only the way that 
``[s]ubparagraph (A) [of section 1852(j)(3)] shall * * * be 
construed.'' It in no way affects obligations that arise elsewhere in 
the statute. Therefore, an M+C organization could not rely upon section 
1852(j)(3)(B) or Sec. 422.206(b) in an attempt to avoid coverage of 
services that it is obligated under section 1852(a)(1) to cover. We 
note, however, that in the case of abortion-related services, the 
Congress has provided M+C organizations with certain conscience 
protections independent of that in section 1852(j)(3)(B) of the Act. 
Specifically, under section 216 of the fiscal year 1999 appropriations 
legislation (Pub. L. 105-277), we are prohibited from denying an M+C 
contract to an entity on the grounds that it refuses on conscience 
grounds to cover abortions. Beneficiaries, nevertheless, retain the 
right to such services, and Medicare must cover them. We are required, 
however, to make appropriate adjustments to such an entity's M+C 
capitation payments to cover our costs in providing Medicare-covered 
abortion services outside the M+C contract.
    We agree that the disclosure provisions under Sec. 422.206(b) 
should be read consistently with other disclosure provisions in the 
regulations, and thus M+C organizations must take into account the 
special needs of individuals who are blind, disabled, or cannot read or 
understand English. The notification requirements set forth in 
Sec. 422.206(b)(2) are not intended to result in an M+C organization 
being put in the position of being required to furnish counseling or 
referral services that violate a duly adopted religious policy. 
Experience indicates that neither changes in Medicare coverage policies 
nor in ``duly adopted'' religious policies take place so quickly as to 
preclude an M+C organization from providing advance notice to us, and 
then to enrollees, concerning service restrictions based on such policy 
changes. Thus, we believe that only very rarely, if ever, would a 
conflict exist between the advance disclosure requirement of 
Sec. 422.111(d) and the provision that permits an organization to 
implement a conscience exception, provided that it notifies its 
enrollees of such changes within 90 days after adopting the change. 
Consequently, we do not view the advance disclosure procedure as a 
burdensome requirement.
7. Physician Incentive Plans (Secs. 422.208 and 422.210)
    Sections 422.208 and 422.210 outline the limitations and disclosure 
rules for physician incentive plans. Specifically, Sec. 422.208 applies 
to an M+C organization and any of its subcontracting arrangements that 
use a physician incentive plan in their payment arrangements with 
individual physicians or physician groups. With the exception of the 
deletion of a requirement that information on expenditures of 
capitation payments be reported to us, the provisions in these sections 
are essentially the same as those that previously applied to Medicare 
risk plans under Sec. 417.479. We received several comments regarding 
physician incentive rules.
    Comment: A commenter contended that the 25 percent threshold for 
substantial financial risk is too high, noting that we have 
acknowledged that this represents an outlier approach, and that risk 
arrangements in the range of 10 to 15 percent are far more prevalent 
than those in excess of 25 percent. This commenter argued that the 25 
percent threshold may render the rule irrelevant as applied to the 
majority of M+C organizations. In addition, the commenter is concerned 
that because the exemption level is set so high, the effect of the 
exemption may be to discriminate against plans that are in the process 
of growth, thus giving the larger plans a competitive advantage.
    Response: As we indicated in the preamble to the physician 
incentive plan regulation published on March 27, 1996 (61 FR 13430), we 
believe that the 25 percent risk threshold is appropriate because of 
the outlier methodology that we used. The median withholds are in the 
10 to 20 percent range. This was the best methodology in formulating 
the risk threshold. Actuarial analyses also supported the 25 percent 
risk threshold. Furthermore, many physicians typically give discounts 
in the 25 percent range.
    The majority of arrangements that exceed the threshold are 
capitation arrangements, where 100 percent of the income is put at 
risk. For these arrangements, the precise amount at which we set the 
threshold will not make a difference, they will exceed any reasonable 
risk threshold.
    Comment: One commenter pointed out a conflict in the regulatory 
language. At Sec. 422.208(c)(2), the regulation specifies that the M+C 
organization provides stop-loss protection; while at Sec. 422.208(f), 
it specifies that the M+C organization must assure that all physicians 
and physician groups have stop-loss protection.
    Response: The commenter is correct and we are revising the 
incorrect language in Sec. 422.208(c)(2) to eliminate this discrepancy. 
We note that paragraph (f) incorporates the language from Sec. 417.479 
(the physician incentive regulation that applied to section 1876 
contracts) that we indicated in the preamble to the physician incentive 
regulation that we intended to adopt.
    Comment: One commenter contended that the physician incentive plan 
requirements are excessively detailed, prescriptive, and confusing. The 
commenter argued that the detailed stop-loss insurance requirements 
impose additional costs on the delivery of health care, costs that are 
increasingly borne by the physician practices, not M+C organizations. 
The commenter urged us to monitor the stop-loss insurance market 
carefully, and provide prior review of panel size, and deductible 
limits set forth in the rule to ensure that they are not necessarily 
restrictive.
    Response: In the preamble to the December 31, 1996 final rule (61 
FR 69034) containing the section 1876 physician incentive requirements 
upon which Secs. 422.208 and 422.210 were based, we presented a 
regulatory impact analysis. In that analysis, we concluded that only a 
small number of organizations and physician groups would need to 
increase their stop-loss protections, and that this increase would be 
small relative to the total amount of income. Furthermore, stop-loss 
insurance is required by statute where substantial financial risk is 
imposed, and it provides increased protection to physicians that helps 
reduce possible incentives to deny necessary care. These requirements 
have been in place for 3 years, and do not appear to have caused any 
significant problems for M+C organizations or their predecessors.
    Comment: A commenter requested that these rules should apply to 
Federally Qualified Health Centers

[[Page 40242]]

(FQHCs) and all associated health care providers. The commenter pointed 
out that these rules appear limited to individual physicians, physician 
groups, and intermediate entities acting as subcontractors.
    Response: If the FQHC is an intermediate entity, subcontractor, or 
a physician group as specified in these regulations, then the 
provisions apply.
    Comment: One commenter wanted to know if we review disclosures for 
both the Medicare and Medicaid programs.
    Response: The regulations require that M+C organizations that 
participate in the M+C program must disclose incentive plan 
arrangements to us, while managed care organizations that participate 
in the Medicaid program disclose incentive plan arrangements to the 
State Medicaid Agencies. We review the monitoring activities of State 
Medicaid Agencies.
    Comment: One commenter indicated support for the methodology for 
disclosing incentive plans, but requested that we make clear that we do 
not require the precise formula and payment amounts be disclosed.
    Response: Section 422.210(b) requires that an M+C organization must 
provide the following information to any Medicare beneficiary who 
requests it: (1) Whether the M+C organization uses a physician 
incentive plan that affects the use of referral services; (2) the type 
of incentive arrangement; (3) whether stop-loss protection is provided; 
and (4) if the M+C organization was required to conduct a survey, a 
summary of the survey results.
    As we indicated in guidance provided in December 1996 to section 
1876 contractors, M+C organizations do not have to disclose to 
beneficiaries the precise formula and payment amounts involved, nor do 
they have to provide incentive plan information for individual 
physicians or physician groups. Only summary information needs to be 
reported. However, the M+C organizations are required to report more 
detailed information to us or the State Medicaid Agencies.
8. Special Rules for Services Furnished by Noncontract Providers 
(Sec. 422.214)
    Consistent with sections 1852(k)(1) and 1866(a)(1)(O) of the Act, 
Sec. 422.214 requires that any health care provider that does not have 
in effect a contract establishing payment amounts for services 
furnished to a beneficiary enrolled in an M+C coordinated care plan 
must accept, as payment in full, the amounts that they could collect if 
the beneficiary were enrolled in original Medicare (less the amounts 
specified in Secs. 412.105(g) and 413.86(d) of the regulations on 
hospital graduate medical education payments, when applicable). Any 
statutory provisions (including penalty provisions) that apply to 
payment for services furnished to a beneficiary not enrolled in an M+C 
plan also apply to the payment described in Sec. 422.214(a)(1) of our 
regulations. We received three comments regarding this section.
    Comment: Several commenters suggested that we revise Sec. 422.214 
to provide that payment to a noncontracting provider must equal the 
amount that provider would be allowed to collect under original 
Medicare. These commenters believe that M+C organizations should only 
be permitted to pay the billed amount when this is the same amount that 
Medicare would pay under original Medicare.
    Response: Section 422.214 implements section 1866(a)(1)(O) of the 
Act, with respect to services furnished by a ``provider of services'' 
as defined in section 1861(u), and section 1852(k)(1), with respect to 
other services. Neither of these provisions requires an M+C 
organization to pay a provider more than the amount of the provider's 
bill, or even impose obligations on M+C organizations at all. Rather, 
these provisions serve as a limit on the amount the provider can 
collect from the M+C organization. Specifically, each of these 
provisions states that a provider ``shall accept as payment in full'' 
the amount (less the amounts specified in Secs. 412.105(g) and 
413.86(d) of the regulations) that it would receive under original 
Medicare, including cost sharing and permitted balance billing (``the 
Medicare payment amount''). While this means that under these 
provisions the provider cannot collect more than the Medicare payment 
amount if its billed amount is higher, this obligation to ``accept'' 
the Medicare amount as payment in full does not obligate the M+C 
organization to pay this amount if the provider's bill is lower. Thus, 
in the case of emergency services and certain other services referred 
to in section 1852(d)(1)(C) of the Act furnished to an enrollee in a 
coordinated care plan, the provider or providers must accept the 
Medicare payment amount for the services if their billed amount is 
higher, but would have no right under sections 1852(k)(1) or 
1866(a)(1)(O) to be paid more than the amount of their bill if the 
billed amount is lower than the Medicare payment amount.
    We note, however, that a provision in the BBA does give providers 
furnishing services to coordinated care plan enrollees the right to be 
paid the Medicare payment amount under certain circumstances. Section 
1852(a)(2) provides that where an M+C organization chooses to furnish 
services through providers that do not have contracts with the 
organization in order to meet its obligation under section 1852(a)(1) 
to make Medicare services available, it must provide for payment 
``equal to at least'' the Medicare payment amount. (Emphasis added.) 
This new provision, unlike section 1866(a)(1)(O) or section 1852(k)(1), 
establishes a ``floor'' for payment when it applies. This ``floor,'' 
combined with the ``ceilings'' under sections 1866(a)(1)(O) and 
1852(k)(1), essentially requires that the Medicare payment amount be 
paid where section 1852(a)(2) applies. Because section 1852(a)(2) 
refers to an M+C organization's furnishing services in fulfillment of 
its obligations under section 1852(a)(1), we are interpreting section 
1852(a)(2), in the coordinated care plan context, as providing M+C 
organizations with the opportunity to arrange to provide nonemergency 
services through noncontracting providers. Under this interpretation, 
the ``minimum payment'' requirement in section 1852(a)(2) would only 
apply where the M+C organization has arranged for the services in 
question to be provided by a noncontracting provider. In the 
coordinated care plan context, therefore, payment for emergency 
services and those services referred to in section 1852(d)(1)(C) would 
continue to be subject only to the rules in sections 1852(k)(1) and 
1866(a)(1)(O). In the private fee-for-service plan context, however, 
section 1852(k)(2)(B)(i) of the Act provides that all services 
furnished by noncontracting providers are subject to the ``minimum 
payment rate'' in section 1852(a)(2).
    To summarize our position, in the case of services arranged by an 
M+C organization to be furnished by a noncontracting provider to a 
coordinated care plan enrollee, or any services furnished by a 
noncontracting provider to a private fee-for-service plan enrollee, 
section 1852(a)(2) applies, and the M+C organization must pay the 
Medicare payment amount. In the case of emergency services (referred to 
in section 1852(d)(1)(E)), urgently needed services (referred to in 
section 1852(d)(1)(C)(i)), renal dialysis services provided out of the 
M+C plan's service area (referred to in section 1852(d)(1)(C)(ii)), and 
maintenance care or poststabilization services (referred to in section 
1852(d)(1)(C)(iii)) furnished to a coordinated care enrollee by a 
noncontracting provider, the provider is required to accept the 
Medicare

[[Page 40243]]

payment amount as payment in full, but the M+C organization is not 
required to pay more than the billed amount.
    Comment: One commenter suggested that we should clearly lay out the 
process and requirements for compliance with the provisions of 
Sec. 422.214. In order to implement the payment limits in Sec. 422.214 
and not overpay noncontracting providers, M+C organizations will have 
to develop a process that would apply applicable Medicare payment 
limits to charges for services furnished to enrollees by noncontracting 
providers. M+C organizations will need detailed information from us 
describing each of Medicare's payment limits, how each limit is 
applied, and which limits apply to which provider.
    Response: The comment addresses the need for a process to implement 
the payment limits contained in Sec. 422.214. We understand that any 
process used to apply Medicare payment limits will require a 
significant amount of data and will be relatively complex. However, we 
do not feel that the requirements for such a process should be set 
forth in regulation. Each M+C organization should be allowed to develop 
a process that will satisfy that organization's needs.
    As discussed in further detail in section II.Q of this preamble, we 
anticipate that the organizations offering M+C private fee-for-service 
(PFFS) plans may have a particular need for such a process, both to pay 
non-contracting providers who must be paid at least the amount they 
could collect under original Medicare, and to pay contracting and 
deemed contracting providers, assuming that the M+C organization 
offering the PFFS plan has chosen to meet access requirements by paying 
contracting providers ``no less than'' the amount paid under original 
Medicare. Therefore, we have decided to permit M+C organizations 
offering PFFS plans to establish ``proxies'' for use in paying services 
for which no Medicare prospective payment system or fee schedule 
exists, provided that the proxy methodology has been approved by us as 
not being less than the expected Medicare payment amount.
    We emphasize that the proxy methodologies will be designed to 
provide an accurate estimate of the Medicare payment amount, including 
possible beneficiary cost-sharing under original Medicare. In some 
cases (for example, for Medicare-certified hospitals, SNFs, or HHAs, or 
for Medicare-participating physicians), this is the amount that a 
noncontracting provider is required to accept as payment in full from 
the M+C organization. In other cases, the amount that a noncontracting 
provider may collect is not limited to the Medicare payment amount but 
could include allowable balance billing amounts under original 
Medicare. In such a case, the provider has a right to collect more from 
the M+C organization than the Medicare payment amount reflected in the 
proxy (and in the case of a non-contracting provider furnishing 
services to a PFFS plan enrollee, the M+C organization may have an 
obligation to pay more than the proxy amount).
    Comment: One commenter asked whether the statement in the preamble 
that ``the M+C organization must hold beneficiaries harmless against 
any such balanced billing'' means that an M+C organization must pay 
billed charges to noncontracting providers regardless of the Medicare 
fee schedule.
    Response: No. Section 422.214 clearly states that a noncontracting 
provider must accept as payment in full what the provider could collect 
under original Medicare (less any payments under Secs. 412.105(g) and 
413.86(d)). Please note that some providers may be entitled to receive 
an amount that is in excess of the Medicare fee schedules, but that 
does not exceed the limiting charge.
9. Exclusion of Services Furnished Under a Private Contract 
(Sec. 422.220)
    An M+C organization may not pay, directly or indirectly, on any 
basis, for services (other than emergency or urgently needed services 
as defined in Sec. 422.2) furnished to a Medicare enrollee by a 
physician (as defined in section 1861(r)(1) of the Act) or other 
practitioner (as defined in section 1842(b)(18)(C) of the Act) who has 
filed with the Medicare carrier an affidavit promising to furnish 
Medicare-covered services to Medicare beneficiaries only through 
private contracts with the beneficiary under section 1802(b) of the 
Act. An M+C organization must pay for emergency or urgently needed 
services furnished by a physician or practitioner who has not signed a 
private contract with the beneficiary.
    Comment: One commenter contended that it is difficult to exclude 
private contracting physicians and practitioners from payment because 
there is no central list of private contractors. This commenter 
believes that we should list these physicians and practitioners on our 
website, and include unique identifiers, like the physician or 
practitioner's SSN.
    Response: We recognize that it is difficult for M+C organizations 
to acquire timely and accurate information on ``opt out'' physicians 
with whom they do not have a contract, and we are working on a way of 
making this information available to them as soon as possible. M+C 
organizations offering coordinated care plans could seek this 
information from the provider or supplier before they authorize the use 
of a noncontracting physician or practitioner. Moreover, we do not 
anticipate that the absence of such knowledge would be a problem in 
cases of emergency or urgent care since in those cases, the services of 
the opt-out physician or practitioner are covered (unless the enrollee/
beneficiary has previously signed a private contract).
    As part of our effort to streamline the flow of information on opt-
out physicians and practitioners, we are also considering what 
information can be placed on a list or made available through a 
website. Some information such as the SSN cannot be disclosed under the 
Privacy Act.
    Currently, M+C plans should contact the Medicare carrier with 
jurisdiction over the payment of claims under original Medicare in 
their service area to work out a mutually agreeable means of receiving 
this information on a timely basis. Disputes should be referred to the 
HCFA regional office for resolution.
    With respect to contracting physicians, M+C organizations may, 
through their contracts, require contract providers to notify them 
immediately when they enter into private contracts under section 
1802(b). This will provide the information more timely than any process 
that might be arranged with Medicare carriers or through a listing 
prepared by us, and will permit the M+C organization to cease payment 
immediately to the contracting physician or practitioner who has opted 
out of Medicare.
    Comment: One commenter urged that we monitor the disease type and 
severity of diseases of beneficiaries who privately contract with 
physicians to determine what future program changes are appropriate.
    Response: We are required by section 4507 of the BBA to provide a 
report to the Congress by October 1, 2001 on the effect of private 
contracting and to provide recommendations for legislation in this 
regard. We are conducting a broad study of claims data that will be 
used to prepare that report.
    Comment: A commenter suggested that the private fee-for-service 
plan discussion of deemed and non-contracting providers be revised to 
indicate that these payment restrictions do not apply if the provider 
has opted out under Sec. 422.220.
    Response: We have included a clarification by cross reference.

[[Page 40244]]

    Comment: A commenter believes that beneficiaries need to be advised 
in both HCFA and M+C plan information that no payment can be made by 
the M+C organization for services provided under private contract with 
a physician who has entered into a contract under section 1802(b).
    Response: We agree that it is important that M+C plan enrollees 
know that no payment can be made under the M+C plan for services of 
physicians and practitioners who have entered into contracts under 
section 1802(b). Section 1802(b) and private contracting regulations at 
Sec. 405.400 both require that a private contracting physician or 
practitioner have the beneficiary (enrollee in the case of M+C plans) 
sign a private contract that notifies him or her that no Medicare 
payment will be made for the services of the opt-out physician or 
practitioner, and that he or she accepts full responsibility for 
payment of the opt-out physician or practitioner's services (except in 
cases of emergency medical condition or urgent care in which the 
physician or practitioner cannot ask the beneficiary to sign a private 
contract and Medicare will pay for the care). Hence, the plan enrollee 
should be specifically aware of the effect of receiving services from 
an opt-out physician or practitioner before he or she receives these 
services. We will, however, also consider adding a discussion of 
private contracting to the model evidence of plan coverage.
10. M+C Plans and the Physician Referral Prohibition
    The physician referral prohibition in section 1877 of the Act 
concerns M+C organizations, although the implementing regulations are 
located in subpart J of part 411 rather than in part 422. Under section 
1877, if a physician or a member of a physician's immediate family has 
a financial relationship with a health care entity (through an 
ownership interest or a compensation relationship), the physician may 
not refer Medicare patients to that entity for any of 11 designated 
health services, unless an exception applies. Under section 1877(b)(3) 
of the Act and Sec. 411.355(c) of the regulations, services furnished 
by section 1876 contractors to their enrollees were exempted from the 
physician referral prohibition. In the June 1998 interim final rule, we 
revised Sec. 411.355(c) to similarly exclude from the physician 
referral prohibition services furnished under an M+C coordinated care 
plan to an enrollee. We did not exclude services furnished by private 
fee-for-service plans or MSA plans from the physician referral 
prohibition. Subsequently, section 524 of the BBRA amended section 
1877(b)(3) of the Act by adding a new subparagraph (E) to exempt an M+C 
organization offering an M+C coordinated care plan from the physician 
referral prohibition. The comments and responses regarding this subject 
are discussed below.
    Comment: One commenter argued that services furnished under an MSA 
plan or private fee-for-service plan should also be excluded from the 
physician referral provisions. The commenter believed that while there 
are differences between these types of plans and coordinated care 
plans, patients who elect coverage under an MSA plan or a fee-for-
service plan do so knowing that their out-of-pocket liabilities are not 
controlled to the same degree as in a coordinated care plan. In the 
commenter's view, concerns about beneficiaries should be addressed in 
the context of disclosures by the M+C organization offering the MSA 
plan or private fee-for-service plan, prior to enrollment, rather than 
by the section 1877 provisions. At most, this commenter would require 
only that M+C organizations offering plans of these types disclose 
financial interests in entities that furnish designated health services 
in return for an exception from the prohibition in section 1877.
    Response: As we understand the argument, the commenter has 
suggested that we should exclude M+C private fee-for-service plans and 
M+C MSA plans from the prohibition on referrals under section 1877 
because the concerns addressed by section 1877, that, in general, a 
physician should not profit from his or her referrals for certain 
services, has already been accommodated. The commenter believes that 
beneficiaries already understand that in these plans their out-of-
pocket liabilities are not controlled to the same degree as in a 
coordinated care plan, and that any problems that still might exist can 
be addressed by more disclosure.
    We do not understand why a beneficiary's knowledge of the 
differences between coordinated care plans and private fee-for-service/
MSA plans addresses the concerns behind our decision not to exempt 
services furnished under the latter plans from the prohibition in 
section 1877. Under section 1877, we can create a new exception only if 
the Secretary determines, and specifies in regulations, that a 
financial relationship between a physician and an entity to which the 
physician refers does not pose a risk of program or patient abuse. 
Pursuant to this authority, we exempted services furnished under 
coordinated care plans because the Congress had already exempted the 
identical type of arrangement when it exempted services furnished under 
section 1876 contracts, (and likely inadvertently failed to make a 
conforming change to this exception when M+C contracts replaced section 
1876 contracts), and because we did not see a potential for program or 
patient abuse in the case of coordinated care plans. This latter 
conclusion was based on the facts that, as in the case of a section 
1876 risk contractor: (1) A physician working with an M+C organization 
offering a coordinated care plan has no incentive to order unnecessary 
care, since physicians are not paid for ordering additional services; 
(2) the organization has control over its network of providers, and 
provides incentives for its network providers to avoid unnecessary 
care; and (3) incentives to deny necessary care are addressed by 
physician incentive plan requirements limiting the risk that can be 
imposed on physicians. These are the same physician incentive plan 
requirements that are incorporated in a section 1877 provision 
permitting certain risk arrangements that would otherwise be subject to 
the referral prohibition. (See section 1877(e)(3)(B) of the Act.)
    In contrast, under M+C MSA plans or private fee-for-service plans, 
individual providers, including physicians, are paid on a fee-for-
service basis for services provided, and thus have the same kind of 
incentives to provide unnecessary services that gave rise to the 
enactment of section 1877. Although this would not result in more 
Medicare funds being expended during the year in question, it could 
harm beneficiaries in two ways. First, it could result in higher cost-
sharing paid by beneficiaries in the current year. Second, it could 
result in the M+C organization offering less in benefits the following 
year than it would otherwise be able to offer if its expenses were not 
as high. For these reasons, we do not believe that the exception from 
the physician referral prohibition that we have created for services 
furnished under coordinated care plans should apply to services under 
M+C private fee-for-service plans or MSA plans. We note that the 
Congress implicitly endorsed our position through the amendments to 
section 1877 included in section 524 of the BBRA. This section 
explicitly exempted M+C coordinated care plans from the physician 
referral prohibitions, but did not include any changes related to other 
types of plans.

[[Page 40245]]

F. Payments to M+C Organizations

1. General Provisions
    Part 422 Subpart F sets forth rules that govern payment to M+C 
organizations, including the methodology used to calculate M+C 
capitation rates. These rules are based primarily on section 1853 of 
the Act. (For a complete discussion of these requirements, see the June 
26, 1998 interim final rule at 62 FR 35004.)
    One of the more significant payment changes in section 1853 of the 
Act is a gradual transition from rates based on local Medicare costs to 
``blended'' rates based on a 50/50 mix of local and national costs. 
Under the Adjusted Average Per Capita Cost (AAPCC) payment methodology 
that applied to section 1876 risk contracts, payment was based on 
Medicare fee-for-service expenditures in the county in which the 
enrollee resided. These fee-for-service expenditures were adjusted for 
demographic factors (that is, age; sex; institutional, welfare, and 
employment status).
    The AAPCC was criticized for its wide range of payment rates among 
geographic regions: in some cases payment rates varied by over 20 
percent between adjacent counties. It was also criticized for its poor 
risk adjustment capabilities and inappropriate provision of graduate 
medical education funds to some Medicare risk plans. Moreover, the 
AAPCC was criticized for setting erratic annual payment updates, which 
often made it difficult for contracting health plans to engage in long-
term business planning. The BBA introduced a new payment methodology 
that addressed these and other concerns.
    ``Greatest of'' Payment Rate: Since January 1, 1998 (when the M+C 
payment methodology under section 1853 was made applicable to section 
1876 risk contractors pursuant to section 1876(k)(3) of the Act), the 
Medicare capitation rate for a given county has been the greatest of: 
(1) The above-referenced blended capitation rate; (2) a ``minimum 
amount'' rate established by statute; or (3) a minimum percentage 
increase. These county rates are then adjusted by demographic factors 
(and after 2000, by risk adjustment factors) to determine the actual 
payment amount.
    <bullet> The blended capitation rate is a blend of the area-
specific (local) rate and the national rate, with the latter adjusted 
for input prices. The blended capitation rate is then adjusted by a 
budget neutrality factor designed to ensure that payment is not higher 
than it would be under purely local rates.
    <bullet> The minimum amount rate was $367 per month per enrollee in 
1998 for all areas in the 50 States and the District of Columbia. 
Outside the 50 States and the District of Columbia, the rate was 
limited to 150 percent of the 1997 AAPCC for the area in question, if 
this amount was lower than $367. The minimum amount rate is adjusted 
each year using the update factors described in Sec. 422.254(b).
    <bullet> The minimum percentage increase is 2 percent. The minimum 
percentage increase rate for 1998 was 102 percent of the 1997 AAPCC. 
Thereafter, it is 102 percent of the prior year's capitation rate.
    With the exception of payments under M+C MSA plans, we pay M+C 
organizations monthly payments for each enrollee in an M+C plan they 
offer \1/12\th of the annual M+C capitation rate for the payment area 
described in Sec. 422.250(c). Except for ESRD enrollees, these payments 
are adjusted for such demographic risk factors as an individual's age, 
disability status, sex, institutional status, and other factors 
determined to be appropriate to ensure actuarial equivalence. Since 
January 1, 2000, these rates also have been adjusted for health status 
as provided in Sec. 422.256(c). For 2000, only 10 percent of the 
capitation payment will be risk adjusted, with the other 90 percent 
determined based on the 1999 methodology.
    Comment: Several commenters contended that section 1853(c) of the 
Act set forth artificial and arbitrary limits on capitation rate 
increases. Because the budget neutrality adjustment applies only to the 
``blended rate,'' and the final rate is based on the greatest of the 
three rates specified, it was not possible to achieve budget neutrality 
in 1998 or 1999. Once the blended rate was lowered below at least one 
of the other two rates in each county, no further savings could be 
achieved through a budget neutrality adjustment. As a result of the 
adjustments made in an attempt to achieve budget neutrality, however, 
capitation rates in 1998 and 1999 were all based either on the minimum 
percentage increase of 2 percent from the prior year, or the new 
minimum payment rate. The commenters argued that the effect of this 
would be that M+C organizations would withdraw from Medicare, either 
entirely or in low payment areas. These commenters suggested that we 
propose legislative changes to section 1853 of the Act in order to 
change the formula used to calculate the county payment rates.
    Response: The commenter's suggestions concerning changes in 
legislation are outside the scope of this rulemaking. In this 
rulemaking, we are charged with implementing the BBA as enacted (and in 
this final rule, as revised by the BBRA).
    However, passage of the BBRA may alleviate some concerns of the 
commenters. The BBRA requires several modifications to the payment 
calculations set forth in the BBA, including: lowering the reduction of 
the national per capita growth percentage defined in Sec. 422.254(b), 
offering bonus payments to eligible M+C organizations as described in 
Sec. 422.250(g), and revising our original schedule for transitioning 
to risk-adjusted payments to providing for an even more gradual 
introduction of risk adjustment. (See Section I.C for a full discussion 
of the BBRA provisions.)
    Comment: One commenter wanted to know if adjusted excess amounts 
(determined through the Adjusted Community Rate process identified in 
Sec. 422.312) affect the computation of the county payment rates if 
these amounts are placed in a stabilization fund, described in 
Sec. 422.252.
    Response: Amounts deposited in a stabilization fund reduce the 
payment to the M+C organization for the year in which the funds are 
deposited (the organization gives up that amount to use it for benefits 
in a future year), but do not affect the county payment rates.
    Comment: Some commenters argued that funding for the ESRD network 
(Sec. 422.250(a)(2)(B)) should not be taken from capitation payments to 
M+C organizations.
    Response: Section 422.250(a)(2)(B) implements section 1853(a)(1)(B) 
of the Act, which specifically requires this reduction in payment rates 
for enrollees with ESRD. We have, however, changed the wording of our 
regulations to ensure that the amount taken from the capitation 
payments remains consistent with the amount required under section 
1881(b)(7) of the Act. This does not change our current policy in any 
way; it merely allows that, if the amount mandated by changes in 
section 1881 of the Act changes for any reason, our regulations at 
Sec. 422.250(a)(2)(B) will remain consistent with such a change.
    Comment: One commenter requested clarification on the application 
of the budget neutrality adjustment contained in Sec. 422.250(e)(3).
    Response: Section 422.250(e)(1) allows a State's chief executive to 
request a geographic adjustment of the State's payment areas for the 
following calendar year. The chief executive may elect to change the 
area in which a uniform rate is paid from a county to one of the three 
alternative payment

[[Page 40246]]

areas identified in Sec. 422.250(e)(1). Specifically, the governor may 
choose to have--(1) a single Statewide M+C payment area, (2) a single 
non-metropolitan payment area, with a separate payment area including 
metropolitan areas defined in one of two ways, or (3) consolidation of 
non-contiguous counties. Section 422.250(e)(3) requires us to make a 
budget neutrality adjustment to all payment areas within that state 
regardless of which payment area designation is selected by the chief 
executive. The budget neutrality adjustment is designed to limit the 
aggregate Medicare payment for Medicare enrollees residing in that 
state to what would have been paid absent any geographic adjustment.
    Comment: One commenter proposed a statutory change that would 
permit a budget neutrality adjustment to be made to the final 
capitation rate, not just the ``blended rate,'' as currently provided. 
Such a change could result in lower payment rates.
    Response: The full impact of the BBA and the subsequent revisions 
included in the BBRA are not yet known; thus, it may be too soon to 
give Congress recommendations that would have a major effect on our 
payment to managed care organizations. Therefore, we are not pursuing 
such a statutory change at this time.
    Comment: One commenter suggested that we provide for increased 
payments to an M+C organization for Part B services provided by 
contract with federally qualified health centers, and require the 
increased payment be passed on these centers.
    Response: The statute does not authorize us to pay certain M+C 
organizations differently than others, other than the special rules 
that apply to determining payments made to an M+C organization offering 
an M+C MSA plan. Payment for services furnished by a contracting 
federally qualified health center is limited to the amount negotiated 
by the two entities.
    Comment: One commenter suggested that payment rates should be 
structured on a regional basis instead of a county by county basis.
    Response: Section 1853(d) of the Act defines what is considered an 
M+C payment area. For Medicare enrollees without ESRD, the payment area 
is a county. For Medicare enrollees with ESRD, the payment area is a 
State. The only exception to these rules would be a State that has 
exercised its right under section 1853(d)(3) of the Act to request an 
alternative payment area in accordance with Sec. 422.252(e).
    Comment: A commenter believes that it is important that M+C 
organizations have the opportunity to validate our calculations and 
methodology in calculating payment rates. The commenter accordingly 
suggested that we cooperate with interested parties by releasing 
sufficient data to allow those parties to validate our calculations.
    Response: We agree. We have complied, and will continue to comply, 
with all reasonable requests for all relevant and releasable data. M+C 
organizations must keep in mind that we use a significant amount of 
confidential data that cannot be released to the public.
2. Risk adjustment and encounter data (Secs. 422.256 through 422.258)
    Section 1853(a)(3) of the Act required implementation of risk 
adjustment for payment periods beginning on or after January 1, 2000. 
In the June 26, 1998 rule, we provided for such risk adjustment in 
Sec. 422.256(d). We also provided that, in the period prior to the 
implementation of risk adjustment, we would continue to apply the 
demographic adjustments used under the old AAPCC methodology.
    On September 8, 1998, we published a Federal Register notice 
describing our preliminary risk adjustment methodology and requesting 
public comments (53 FR 173, pp. 47506 et seq.). On January 15, 1999, we 
published an advance notice, as provided under Sec. 422.258(b) of the 
regulations, describing the risk adjustment methodology that we 
implemented for 2000. This advance notice included a detailed 
description of the new risk adjustment methodology that is in effect in 
2000, and information on how risk adjustment will be implemented, 
including an explanation of the transition method that would be 
employed. It also responded to comments received in response to the 
September 8, 1998 Federal Register notice. Briefly, the approach we 
used to meet the year 2000 mandate for risk adjusted payments was:
    (1) Based on inpatient data;
    (2) Applied individual enrollee risk scores in determining fully 
capitated payments;
    (3) Utilized a prospective PIP-DCG risk adjuster to estimate 
relative beneficiary risk scores;
    (4) Applied separate demographic-only factors to new Medicare 
enrollees for whom no diagnostic history is available;
    (5) Applied a rescaling factor to address inconsistencies between 
demographic factors in the rate book and the new risk adjusters;
    (6) Used 6-month-old diagnostic data to assign PIP-DCG categories 
(the ``time shift'' model, as opposed to using the most recent data and 
making retroactive adjustments of payment rates part way through the 
year);
    (7) Allowed for a reconciliation after the payment year to account 
for late submissions of encounter data;
    (8) Phased-in the effects of risk adjustment, beginning with a 
blend of 90 percent of the demographically-adjusted payment rate, and 
10 percent of the risk-adjusted payment rate in the first year (CY 
2000); and
    (9) Implemented processes to collect encounter data on additional 
services, and move to a full risk adjustment model as soon as is 
feasible.
    On March 1, 1999, we published the annual Announcement of Calendar 
Year (CY) 2000 Medicare+Choice Payment Rates, as provided under 
Sec. 422.266(a) of the regulations. In this announcement, we informed 
Medicare+Choice organizations of the county rates and factors that were 
employed for payment in calendar year 2000, including the rescaling 
factors for use with the risk adjusted portion of payment, and tables 
of risk and demographic adjustment factors. We also responded to 
questions and comments on the January 15 notice. (These notices are 
available on the HCFA Web site, at http://www.hcfa.gov/stats/hmorates/aapccpg.htm.)
    Section 1853(a)(3)(B) of the Act provided for the collection from 
M+C organizations, of encounter data needed to implement the risk 
adjustment methodology. The BBA required the collection of inpatient 
hospital data for discharges beginning on or after July 1, 1997, and 
allowed the collection of other data for periods beginning on or after 
July 1, 1998. We were prohibited from requiring the actual submission 
of data before January 1, 1998. This data submission requirement 
appeared in section 1853(a)(3) of the Act, which was titled 
``Establishment of Risk Adjustment Factors.'' (See Sec. 422.256(d).)
    Requirements concerning collection of encounter data apply to M+C 
organizations with respect to all M+C plans, including private fee-for-
service plans. Instructions for the collection of hospital encounter 
data were sent to M+C organizations in December 1997 (OPL 97.064) and 
May 1998 (OPL 98.71). Hospital discharges for the period July 1, 1997 
through June 30, 1998 have been collected and used for estimating the 
impact of risk adjustment at the contract level and in the aggregate. 
We announced in the January 15, 1999 notice of methodological changes 
that comprehensive risk adjustment would be implemented for

[[Page 40247]]

payments beginning on January 1, 2004. We will soon be providing M+C 
organizations with guidance concerning requirements for submission of 
outpatient, physician, and other non-inpatient encounter data.
    There are two different ways encounter data are used for risk-
adjustment purposes. To calculate payment rates, encounter data are 
necessary to tie payment to expected patient resource use using 
diagnosis codes. (The initial risk-adjusted payment will be based on 
inpatient hospital encounter data. However, we are developing a more 
comprehensive risk-adjustment methodology that uses diagnosis data from 
physician services and hospital outpatient department encounters.) 
Encounter data are also necessary to ``recalibrate'' any risk-adjusted 
payment model. Recalibration adjusts payment models for changes in 
resource requirements that derive from such factors as technological 
change and improved coding.
    While these are the primary purposes collecting the encounter data, 
we discussed other possible uses of these data in the June 1998 interim 
final rule. These other uses include identification of quality 
improvement targets and monitoring the care received by M+C enrollees 
through targeted special studies (such as an examination of post-acute 
care utilization patterns). Encounter data will also be useful for 
program integrity functions, both by providing additional utilization 
norms for original Medicare billing and by providing additional 
information regarding M+C organizations' behavior.
    As noted above, the notices of January 15, 1999, and March 1, 1999, 
contained detailed discussions of the risk adjustment methodology and 
responses to comments. Similar notices, reflecting BBRA changes, and 
our methodology and rates for 2001, were published in January and March 
of 2000. Here we respond formally to comments submitted on the June 26, 
1998 rule.
    Comment: A number of commenters recommended that we not adopt a 
risk adjustment system based solely on hospital encounter data. As a 
matter of public policy, the commenters objected that basing the 
initial risk adjustment methodology solely on inpatient data would 
create inappropriate incentives to hospitalize patients, skew payments 
toward plans with higher hospitalizations, and penalize plans that have 
appropriately reduced inpatient services by focusing on outpatient 
care. Other commenters requested a phase-in of the methodology to 
minimize the disruption on M+C organizations, and allow time to assess 
the impact of the new methodology.
    Response: We do not believe it would be desirable to delay 
implementation of risk adjustment until data other than inpatient data 
are available. We have analyzed the PIP-DCG system sufficiently to be 
confident that it represents an improvement over the current system of 
demographic-only adjustment, that it provides an appropriate interim 
step toward a comprehensive risk adjustment model, and that it provides 
appropriate levels of payment for different classes of beneficiaries. 
We believe that the blend transition methodology should relieve 
concerns about disruption of payments, especially since the initial 
blend percentage for the risk-adjusted portion is 10 percent.
    Even if we believed that delaying risk adjustment were desirable, 
we do not have the authority to do so. The Balanced Budget Act 
specifically required ``implementation of a risk adjustment methodology 
* * * no later than January 1, 2000.'' In order to meet that deadline, 
we were constrained to employ a model based on hospital encounter data 
alone in the interim until the data to implement a comprehensive risk 
adjustment methodology can be provided by all plans and processed by 
us. The Medicare+Choice legislation (section 1853(a)(3)(B) of the Act) 
provided for the collection of non-inpatient data for periods beginning 
on or after July 1, 1998, a full year later than the date for which 
inpatient data would be collected. This provision envisioned that a 
hospital-only system would be implemented initially, both because it 
seemed more feasible for M+C organizations to produce inpatient data 
only in the short term, and because the effect of a hospital-only 
system on payments would be smaller than a system based on 
comprehensive encounter data. (The Medicare+Choice regulations further 
provided that we would collect physician, outpatient hospital, SNF, or 
HHA data no earlier than October 1, 1999. See Sec. 422.257(b)(2)(i).) 
However, the statute grants us broad authority to develop a risk 
adjustment methodology, and does not prohibit us from including a 
transition or ``phase-in'' period as a component of the methodology we 
develop.
    We therefore included a transition period as a component of our 
risk adjustment methodology, initially using a blend of payment amounts 
under the current demographic system and the PIP-DCG risk adjustment 
methodology. Under a blend, payment amounts for each enrollee would be 
separately determined using the demographic and risk methodologies 
(that is, taking the separate demographic and risk rate books and 
applying the demographic and risk adjustments, respectively). Those 
payment amounts would then be blended according to the percentages for 
the transition year.
    In order to provide adequate safeguards against abrupt changes in 
payment, our transition mechanism initially provided for a low blend 
percentage of the risk-adjusted payment rate. Specifically, first year 
blend percentages will be 90 percent of the demographically adjusted 
rates, and 10 percent of the risk-adjusted payment rate. We are also 
contemplating a five-year transition, which would culminate in full 
implementation of comprehensive risk adjustment, using all encounter 
data, in the fifth year. Our initial transition schedule, announced in 
the January 5, 1999, Advance Notice of Methodological Changes for the 
CY 2000 Medicare+Choice Payment Rates was:

----------------------------------------------------------------------------------------------------------------
                                               Demographic method                       Risk method
----------------------------------------------------------------------------------------------------------------
CY 2000...............................  90 percent......................  10 percent.
CY 2001...............................  70 percent......................  30 percent.
CY 2002...............................  45 percent......................  55 percent.
CY 2003...............................  20 percent......................  80 percent.
CY 2004...............................  100 percent comprehensive risk
                                         adjustment (using encounter
                                         data from multiple sites of
                                         care).
----------------------------------------------------------------------------------------------------------------

Subsequently, passage of Section 511(a) of the BBRA has revised the 
original transition schedule, providing for an even more gradual 
introduction of risk adjustment. Specifically, the legislation provides 
that the blend percentages will be:

[[Page 40248]]



----------------------------------------------------------------------------------------------------------------
                                               Demographic method                       Risk method
----------------------------------------------------------------------------------------------------------------
CY 2000...............................  90 percent......................  10 percent.
CY 2001...............................  90 percent......................  10 percent.
CY 2002...............................  at least 80 percent.............  no more than 20 percent.
----------------------------------------------------------------------------------------------------------------

    In order to implement comprehensive risk adjustment in CY 2004, we 
will soon be providing M+C organizations with guidance concerning 
requirements for submission of outpatient, physician, and other non-
inpatient encounter data.
    Comment: Some commenters emphasized that implementation of risk 
adjustment could inject uncertainty and reduce the predictability of 
payments to M+C plans.
    Response: Our most recent estimate, based on the 285 organizations 
that were active in September, 1998, and that did not terminate their 
contracts with Medicare in 1999, (including 10 organizations that 
merged into other active M+C organizations as of January 1, 1999), was 
that aggregate payments would decrease 0.6 percent, taking into account 
the blend percentages in effect for 2000, (90 percent demographic 
adjusted amount, 10 percent risk adjusted amount). While the impact on 
specific organizations will vary, our analysis suggests that, except 
for highly unusual circumstances (for example, a high proportion of 
working aged enrollees), the maximum decrease in payment to any 
organization from risk adjustment alone will be less than 2 percent. 
The analysis did not suggest that smaller organizations, or any other 
specific category, would experience a disproportionate impact. We will, 
however, continue to monitor the impacts on organizations throughout 
the transition period. We believe that our transition mechanism should 
alleviate concerns about large and abrupt changes in payment.
    Comment: One commenter expressed concern about the effect on people 
with Alzheimer's disease of a risk adjustment methodology based solely 
on hospital encounter data. Because Alzheimer's and dementia are often 
not included in the recorded diagnoses of hospitalized beneficiaries, 
hospital data alone cannot support accurate conclusions about the cost 
of hospital care for these beneficiaries. Several other commenters 
expressed similar concerns about the implications of the initial risk 
adjustment methodology for beneficiaries with other chronic conditions.
    Response: Our validation tests on the PIP-DCG model actually show 
that this model offers a substantial improvement over the system of 
demographic-only adjustments that has been previously in use. One 
measure of a model's accuracy is its ability to predict mean 
expenditures for groups correctly. Health Economics Research (HER), 
which served as a contractor to HCFA in developing the PIP-DCG model, 
measured the predictive ratios, (that is, the ratio of mean predicted 
expenditures to mean actual expenditures), for groups of Medicare 
beneficiaries that are of policy or technical interest. Among the 
groups used in this validation analysis were chronic condition groups, 
defined by ambulatory as well as inpatient diagnoses. HER found that, 
while the PIP-DCG model underpredicted for many chronic disease groups, 
this model performed better than the demographic model. For example, 
the predictive performance for persons with dementia (which includes 
individuals diagnosed with Alzheimer's) increased from 0.91 under the 
demographic system to 1.07 under the PIP-DCG model. Further detail on 
the validation analyses can be found in our ``Report to Congress: 
Proposed Method of Incorporating Health Status Risk Adjusters into 
Medicare+Choice Payments,'' and in the HER report ``Principal Inpatient 
Diagnostic Cost Models for Medicare Risk Adjustment,'' which is 
appended to it. The reports can be found on our Web site (http://www.hcfa.gov/ord/rpt2cong.pdf).
    Comment: One commenter objected that the risk adjustment system 
does not account for secondary diagnoses. A patient with two acute 
diagnoses could be more ill and more costly than a patient with the 
same primary diagnosis, but a less severe secondary diagnosis. Another 
commenter supported the development of an initial risk adjustment 
methodology based on inpatient data alone, since inpatient costs 
represent the largest expense item of health plans. But this commenter 
recommended that such a methodology should account for both primary and 
secondary diagnoses, since secondary diagnoses are necessary to account 
for the higher costs of beneficiaries with multiple health problems and 
chronic conditions that are more expensive to treat.
    Response: The analysis conducted in the early stages of developing 
an inpatient-based risk adjustment model included consideration of 
incorporating secondary diagnoses. The analysis concluded that 
secondary diagnoses did not contribute significantly to predictive 
accuracy in the context of an inpatient model. As noted above, the 
inpatient hospital model represents a significant improvement in 
predictive accuracy over the demographic adjustments that have been in 
use. However, it is only an interim step toward a comprehensive risk 
adjustment system. We anticipate that the comprehensive risk adjustment 
model under development will base risk scores on multiple diagnoses 
from disparate sites of care.
    Comment: One commenter recommended that we develop the capability 
to use diagnosis data from all sites of care as quickly as possible in 
the risk adjustment system. Other commenters expressed concern about 
the costs and burdens of collecting the physician, outpatient hospital, 
skilled nursing facility, and home health agency encounter data that 
will be necessary for the implementation of comprehensive encounter 
data in 2004. Several commenters objected that the time frame 
contemplated for the submission of these data is too short to allow M+C 
organizations to procure and install the required systems. One 
commenter urged that, in preparing for submission of encounter data 
from physician offices, mechanisms should be established for the 
transition from paper claims to electronic bills for those practices 
that ``have not entered the electronic age.''
    Response: The PIP-DCG model represents a substantial improvement 
over the current system. Because it identifies a subset of seriously 
ill beneficiaries for increased payment and because the effect of a 
hospital-only system on payments is smaller than a system based on 
comprehensive encounter data, the PIP-DCG model is an appropriate 
interim step toward comprehensive risk adjustment. A comprehensive 
model is nevertheless preferable, and we plan to move toward 
implementing such a model as expeditiously as possible. However, 
implementation of the comprehensive risk adjustment model is not 
operationally feasible for 3 to 4 years, because of data constraints on 
both plans and on us. The transition plan announced in the January 15, 
1999

[[Page 40249]]

notice therefore provides for implementation of comprehensive risk 
adjustment in 2004, without ever reaching full payment under the PIP-
DCG system. In the interim, the PIP-DCG model offers a substantial 
improvement over the current system.
    In providing for payment under a comprehensive risk adjustment 
system in 2004, we have taken into account the costs and burdens 
necessary for organizations to develop the capacity for collecting and 
submitting physician, outpatient hospital, skilled nursing facility, 
and home health agency encounter data. This is the most ambitious 
schedule that we believe we can adopt consistent with allowing 
sufficient time for organizations and the agency to prepare.
    Comment: A number of commenters objected that the collection of 
encounter data is burdensome and expensive. Some commenters asserted 
that this requirement may deter new managed care contractors, 
especially smaller organizations, from participating in the M+C 
program. Several commenters observed that not all the data required for 
submission of encounter data are necessary for computing risk 
adjustment. Another commenter urged us to monitor the trade-off between 
risk adjustment accuracy and risk adjustment data-collection 
requirements, and seek opportunities to streamline the burdens of 
encounter data collection. One commenter recommended that we explore 
alternatives to collection of all encounter data, such as survey-based 
approaches.
    Response: We have made every effort to minimize the burden of 
collecting encounter data, and to assist M+C organizations with 
problems that have arisen in collecting and processing these data. In 
the initial stages of collecting encounter data, we are permitting 
organizations to use an abbreviated version of the standard UB-92 form 
employed in hospital billing. Data elements in the abbreviated UB-92 
form have been restricted to those items necessary to calculating risk 
scores and pricing the discharge, as well as some document 
identification items that are normally generated automatically in 
electronic processing. (As we discuss below, pricing of discharges is 
necessary to allow recalibration of the model.) Use of the abbreviated 
UB-92 form will be allowed for discharges at least through June 30, 
2001.
    The legislation mandating risk adjustment also provides for the 
collection of inpatient and other encounter data. The legislation 
therefore contemplates a risk adjustment system based on encounter data 
rather than surveys. We believe that the greater accuracy of a system 
based on full submission of encounter data justifies the additional 
burdens that this requirement entails.
    A range of problems in the submission of encounter data have 
arisen. These problems have included: not following the required UB-92 
format, difficulties in accurately tracking counts of discharges, 
failure to arrange hospital submission of encounter data, difficulties 
in understanding Fiscal Intermediary reports, and HCFA/FI and FSS 
processing problems. Plans themselves may have problematic data 
processing systems in-house. We have worked with Medicare+Choice 
organizations, managed care associations, and other parties to address 
many specific issues that have arisen concerning data transmission and 
processing, and we will continue to do so. We have taken a number of 
specific steps to facilitate and improve the encounter data submission 
process. These activities have included the following:
    <bullet> Encounter Data Reconciliation Analyses--We have shared 
with M+C organizations analyses of their individual M+C plan level 
data. The data have been successfully posted at our offices. We have 
further conducted analyses upon request at the provider level and by 
the different methods of submission to help explain discrepancies. We 
are in the process of sharing these analyses with the plans. The 
detailed provider level analyses are requiring additional time to 
conduct, and the results of these analyses will be shared with plans 
over the coming weeks.
    <bullet> Onsite Consultations--Our contractor conducted a series of 
onsite consultation visits to 20 M+C organizations in order to learn 
more about the process of data submission. The majority of the 20 
organizations selected for the visits were those that experienced 
problems with encounter data submission. The information gained during 
these visits will be used to assist plans to identify and resolve 
problems.
    <bullet> HCFA Data System Fixes--Processing problems have been 
identified that relate to beneficiaries who change from one M+C plan to 
another. The estimated number of affected encounters from all plans is 
less than 3,000. These problems will be fixed over the next 2 months, 
and they are not expected to impact the March 1 rate estimates, which, 
in any case, will not be used to make direct enrollee payments.
    <bullet> Communication with the FIs--We have shared data problems 
raised by M+C organizations with the FIs. Furthermore, discussions 
between us, FI's, and plans have been encouraged in order to address 
problems.
    Comment: Several commenters objected that we should not place the 
burden of collecting encounter data and assuring their accuracy solely 
on M+C organizations, but rather on the providers submitting the data 
to the organizations. Some of these commenters suggested imposition of 
a requirement on providers that they cooperate with M+C organizations 
in collecting encounter data.
    Response: We did not include requirements on providers in the 
interim final rule because we traditionally have tried to minimize the 
adoption of measures that would insert our requirements into the 
contractual relationships between managed care organizations and 
providers. We therefore suggested to M+C organizations that they modify 
their contracts with hospitals to ensure that managed care discharges 
are identified, and the appropriate records are provided to the 
organization by the hospital. We also have taken every opportunity to 
inform hospitals and hospital associations of the encounter data 
requirements and the importance of collecting complete and accurate 
encounter data to assure correct payment. Collection of encounter data 
for the ``start up'' year of July 1997 through June 1998, which was the 
basis for estimating the impacts of risk adjustment, was quite 
successful, and we have every reason to believe that collection of data 
for the next year, which will be used to determine actual risk 
adjustments in 2000, will go at least as well.
    However, M+C organizations have informed us that some providers are 
either failing to submit encounter data at all, or submitting data that 
do not conform to quality standards for submission to our systems (for 
example, that the coding often fails to meet standards required to pass 
the coding edits). To the extent usable data are not submitted, M+C 
organizations are denied the benefit of any risk adjustment that might 
be justified based on the costs in question. We are therefore proposing 
to make several changes to the rules that are designed to give M+C 
organizations greater leverage in obtaining adequate cooperation from 
providers to submit complete and accurate data.
    First, we will make explicit in Sec. 422.257 that M+C organizations 
are required to obtain from providers,

[[Page 40250]]

suppliers, physicians, or other practitioners information sufficient to 
submit the required encounter data. (Currently the regulation states 
that M+C organizations must submit encounter data, but leaves the 
requirement of obtaining the necessary information from providers and 
others to inference.)
    Second, we will specifically state in the rules that M+C 
organizations may include a requirement for submission of complete and 
accurate encounter data, conforming to the format used under original 
Medicare, in their contracts with providers, suppliers, physicians, and 
other practitioners. Contracts with providers and others may impose 
financial penalties, including withholding payment, for failure to 
submit complete and accurate data conforming to all requirements for 
submission. We have revised Sec. 422.257 of the regulations to reflect 
these two changes.
    Third, as discussed below in section K, we have modified the 
definition of ``clean claim'' in Sec. 422.500 to specify that a claim 
must include information necessary for purposes of encounter data 
requirements, and must conform to the requirements for a clean claim 
under original Medicare. This will exempt claims that do not, for 
example, meet accurate coding requirements from the application of the 
``prompt payment'' standard that applies to claims submitted by non-
contracting providers. This standard requires that ``clean claims'' 
submitted by non-contracting providers be paid within 30 days, or 
interest will be owed. M+C organizations will therefore be able to 
withhold payment in cases in which non-contracting providers submit 
claims with inadequate coding or other deficiencies that make the 
claims impossible to use for encounter data purposes.
    Fourth, we are providing a reconciliation process which will give 
M+C organizations additional time to submit encounter data before final 
payment determinations are made. M+C organizations have approximately 3 
months after the end of a data collection year to submit the encounter 
data that will be used to develop beneficiary risk scores to their 
fiscal intermediary. For example, M+C organizations must submit 
encounter data for the period July 1, 1998 through June 30, 1999 to 
their fiscal intermediary by September 17, 1999. If organizations 
submit encounters after this date, they will not be incorporated into 
payments for CY 2000. However, in response to concerns expressed by M+C 
organizations over this short time frame, we expect to institute a 
reconciliation process that will take into account late data 
submissions. M+C organizations should attempt to have all data in by 
the annual deadline of September 10. However, if organizations receive 
UB-92s from hospitals after this date, they may submit the encounter to 
their fiscal intermediary and the data will be processed. M+C 
organizations should note that the deadline for submission of all data 
from a payment year will be June 30 of the payment year for the period 
ending the previous June 30 (for example, the final deadline for the 
period of July 1, 1998 to June 30, 1999, which is used for payment in 
2000, will be June 30, 2000). After that date, the fiscal intermediary 
will no longer accept these data. After the payment year is completed, 
we will recalculate risk factors for individuals who have late 
encounters submitted. Then, we will determine any payment adjustments 
that are required. This reconciliation will be undertaken after the 
close of a payment year and will be a one-time only reconciliation for 
each payment year. We are adding Sec. 422.256(g) to provide for this 
reconciliation process.
    Comment: Some commenters expressed doubts about the completeness 
and accuracy of the encounter data submitted during the ``start up 
year,'' which was used to develop estimates of the impact of risk 
adjustment. Some expressed concern that systems problems have impeded 
the posting of complete and accurate data. Several commenters expressed 
doubts that sufficiently complete and accurate encounter data could be 
available in time to begin risk-adjusted payment on January 1, 2000.
    Response: Hospital encounter data were collected from managed care 
organizations for discharges between July 1, 1997 and June 30, 1998. 
Approximately 1.5 million encounters were submitted to us for over 5.7 
million beneficiaries. The volume of data received is sufficient to 
generate an estimate of the impact of risk adjustment, and to conduct 
other analysis in order to prepare for implementation of risk 
adjustment. Based on this experience, we are confident that sufficient 
data will be generated to calculate beneficiary risk scores and other 
information necessary for implementation of the PIP-DCG model.
    Comment: One commenter requested clarification of the statement in 
the preamble that encounter data may be used for purposes other than 
calculating risk adjustments.
    Response: We commonly use data collected in the course of 
calculating payments for other purposes. These purposes include 
monitoring program integrity, studying utilization patterns and quality 
of care, and a variety of research purposes. Our use of data is always 
governed by consideration of privacy concerns and confidentiality of 
business operations.
    Comment: Several commenters asked for further information 
concerning how we intend to recalibrate risk-adjusted payments to 
account for upcoding. Another commenter questioned whether use of the 
full UB-92 is necessary for this recalibration, and suggested that we 
consider other approaches.
    Response: As we discussed above, recalibration is necessary to 
adjust the payment models for changes in resource requirements that 
derive from such factors as technological change and improved coding. 
Upcoding may occur if plans improve coding of beneficiary diagnoses 
and, as a result, the average use of resources for enrollees in a 
particular category may be less than when the relative payment rates 
were determined. When this happens, the average actual expenditures per 
enrollee for these diagnoses may be less than the average expenditures 
used to assign the original payment weights. The result is overpayment 
for some diagnoses in the risk adjustment model. On the other hand, 
technological changes, which often result in more intensive use of 
resources for certain diagnoses, can lead to underpayment for certain 
diagnoses unless the model is recalibrated. Recalibration is a standard 
feature of well-established payment systems, such as the hospital 
prospective payment system. We have not yet developed a specific 
timetable for recalibrating the PIP-DCG model. We will not recalibrate 
the model until we have sufficient data from Medicare+Choice 
organizations to incorporate managed care practice patterns into the 
recalibration.
    Comment: Several commenters expressed concern about the 
attestations required of M+C organizations, with respect to the 
accuracy and completeness of encounter data. One of these commenters 
expressed the view that the requirement for an attestation that 
submitted encounter data are ``accurate, complete, and truthful'' is 
designed more as a legal trap for those that might innocently submit 
incomplete or inaccurate data, than as good public policy. Another 
commenter recommended that the attestation allow for honest mistakes 
and unavoidable margins of error.
    Response: Attestation of encounter data has been a contentious 
issue. Attestation of encounter data is essential for guaranteeing the 
accuracy and

[[Page 40251]]

completeness of data submitted for payment purposes, and to allow us to 
pursue penalties under the False Claim Act, where it can be proven that 
a plan knowingly submitted false data. However, in response to concerns 
from M+C organizations, we have restricted the attestation requirement 
to confirmation of the completeness of the data and the accuracy of 
coding. Since this is information that M+C organizations are, or should 
be, in the position to know, the attestation requirement is thus in no 
way a legal trap.
    Comment: One commenter recommended that we develop mechanisms, with 
the assistance of consumer representatives, to make encounter data 
available to Medicare beneficiaries and their representatives.
    Response: The commenter did not identify the ``beneficiary 
representatives'' to whom encounter data would be made available, nor 
the purposes for which the data would be used. We would consider 
specific requests for data in the light of privacy and other 
considerations which normally govern the use of data gathered for 
official purposes in the program.
    Comment: Several commenters expressed concern about the short time 
frame for submission of Adjusted Community Rate proposals after the 
release of county rates, rescaling factors, and risk adjustment impact 
estimates on March 1. The commenter urged disclosure of key information 
such as the rescaling factors earlier in order to give plans the 
opportunity to base their rate and benefit submissions on more complete 
financial information.
    Response: Section 516 of the BBRA extended the ACR deadline to July 
1, and applied that extension retroactively to 1999. Therefore, we have 
changed our regulations at Sec. 422.306(a)(1) to reflect this statutory 
change, which has addressed the commenter's concerns.
3. Special Rules for Hospice Care (Sec. 422.266)
    Comment: One commenter requested clarification on reporting 
institutionalized members who have elected hospice care, and how the 
M+C organizations will determine whether a new member is in hospice 
care.
    Response: Medicare enrollees who have elected hospice care should 
not be reported as institutionalized. Medicare beneficiaries that have 
elected hospice, and subsequently elect an M+C plan will be identified 
by our system.
    Comment: One commenter requested clarification of the M+C 
organization's responsibility in arranging for the provision of hospice 
care for those enrollees who have elected hospice care.
    Response: Section 422.266 requires the M+C organization to inform 
each Medicare enrollee eligible to elect hospice care about the 
availability of hospice care in the area or outside the area, if it is 
common practice to refer patients accordingly. An M+C organization is 
not required to arrange for hospice services when the hospice election 
has been made.
    Comment: One commenter requested further clarification on our 
payment for a Medicare enrollee when the enrollee elects hospice.
    Response: Our monthly capitation is reduced to the adjusted excess 
amount developed in the ACR. The amount of the reduction is the ACR 
value (less the actuarial value of Medicare's deductibles and co-
insurance) for Medicare-covered items and services. For Medicare-
covered items and services, the M+C organization or provider furnishing 
the service would bill us using Medicare's normal billing rules under 
original Medicare. Also, hospice services are billed under original 
Medicare rules.

G. Premiums and Cost-Sharing

1. General Provisions
    Part 422, subpart G is based on the provisions found in section 
1854 of the Act. These provisions were discussed in detail in the June 
26, 1998 interim final rule (63 FR 35007). This subpart addresses how 
limits on M+C plan enrollee premiums and other cost-sharing are 
established through the Adjusted Community Rate (ACR) approval process. 
The ACR process is applicable to all M+C plans except M+C MSA plans. 
M+C organizations offering an M+C MSA plan are not required to submit 
an ACR for that plan, but they are required to submit other information 
for our review using the ACR process.
    Section 422.300(b) provides that for contract periods beginning 
before January 1, 2002, M+C organizations may modify an M+C plan by 
adding benefits at no additional cost to the M+C plan enrollee; 
lowering the premiums approved through the ACR process; or lowering 
other cost-sharing amounts. Also prior to January 1, 2002, under 
Sec. 422.504(d), contracts may be for a longer period than 12 months, 
and may begin on a date other than January 1. In the case of such 
contracts, under Sec. 422.300(b)(2), ACRs must be submitted on the date 
specified by us. The transition rules for this period are found in 
Sec. 422.300(b).
    Comment: One commenter suggested a revision of the ACR form used to 
establish the pricing structure for an M+C plan. The commenter 
suggested that the new form produce more accurate information. The 
commenter urged that we monitor data submitted in the ACR form to 
determine whether established policies should be revisited.
    Response: We agree. We are developing various systems to capture 
ACR data for policy analysis. We intend to use the data to determine 
the effect of established policies so that we can examine policies that 
need revision.
    Comment: One commenter suggested that we consider alternatives to 
the ACR for private fee-for-service and MSA plans.
    Response: Under the June 1998 interim final rule, we do not review 
or approve premium amounts submitted for private fee-for-service plans 
or MSA plans. In addition, in the case of an MSA plan, an M+C 
organization does not complete those parts of the ACR form that request 
cost information. Thus, in essence, there is an ``alternative'' 
arrangement in place for these types of plans.
    Comment: One commenter suggested that we, in consultation with 
industry representatives, develop acceptable standards for cost 
accounting to be used by M+C organizations to complete its ACR form.
    Response: We agree that M+C organizations should be using uniform 
cost accounting standards to complete the ACR form. Therefore, we 
specified in Sec. 422.310(a)(5) that generally accepted accounting 
principles (GAAP) should be used instead of other accounting principles 
(for example, statutory). We have not ruled out the establishment of a 
standardized accounting system at this time. However, we feel that the 
existing accounting systems based on GAAP developed by M+C 
organizations should produce sufficiently accurate information for ACR 
purposes. We will monitor the accuracy of the ACR data produced by the 
M+C organizations' accounting systems through audit and other 
monitoring procedures.
    Comment: One commenter suggested that we should either allow M+C 
organizations to modify their M+C plan after the M+C plan has been 
approved, or make the transition period rules described in 
Sec. 422.300(b) permanent. The commenter felt this would benefit the 
Medicare beneficiary.
    Response: After 2002, Medicare beneficiaries will be ``locked in'' 
to their M+C plan choice for the last 9 months of the year (6 months in 
the case of 2002 only). The beneficiary will be locked in

[[Page 40252]]

for the entire year if he or she wants to remain in the M+C program, 
and no other M+C plan in the area is open during January, February, and 
March. The choice of an M+C plan during the annual November open 
enrollment period thus will be extremely significant, since, in most 
cases, it will determine enrollment for the entire following calendar 
year. We believe that under this program design, it is important that 
beneficiaries have complete information in November about what the 
benefits will be in each M+C plan in their area for the full following 
calendar year. If M+C organizations were permitted to change plan 
benefits mid-year, this could result in a beneficiary deciding that an 
M+C plan that is changing benefits would have been a better choice had 
he or she known in November that this change would be made, but it 
would be too late for the beneficiary to enroll in that plan after 
April 1.
    We accordingly believe that beginning in 2002, (when beneficiaries 
will be locked in for the last 6 months of the year), benefits for a 
given calendar year should be established in advance of the November 
open season. This will allow beneficiaries to make informed decisions 
about which M+C plan they will choose for the following calendar year. 
In order for this to happen, the benefits that will apply throughout 
the following calendar year must be included in the ACR submission 
filed with us, so that these benefits can be approved by us in time to 
provide reliable information to beneficiaries.
    Our decision to require uniform benefits throughout the calendar 
year after a transition period is further supported by the nature of 
the ACR process under M+C. As under the section 1876 risk program, the 
ACR process under the M+C program serves three important purposes. 
First, we are required to examine an M+C organization's ACR proposal 
for each M+C plan to determine if Medicare beneficiaries are entitled 
to receive additional benefits as a result of Medicare payments that 
are higher than the organization's charge (adjusted for differences in 
utilization characteristics of the Medicare population) to a non-
Medicare enrollee for a Medicare-covered benefit. Second, we are 
required to review ACR proposals to determine whether the pricing 
structure (premiums and cost-sharing charged to beneficiaries) is 
within the limits established by law as required under section 
1854(b)(1) of the Act, and is applied uniformly to all Medicare 
enrollees as required under section 1854(c) of the Act. Third, we 
review benefit package information to determine if the benefit package 
is in compliance with the requirements contained in subpart C. Once 
this process is complete, M+C organizations are allowed to market the 
M+C plan as approved.
    Under the M+C program, we focus on an entire calendar year in 
performing the above tasks. Our approval of the pricing structure of an 
M+C plan is based on the appropriate actuarial value of furnishing the 
items and services for the entire calendar year. Limits on the amount 
of premiums (section 1854(b) of the Act), and on the liability of the 
Medicare beneficiary (section 1854(e) of the Act), are based on a 12 
month period. In addition, the capitation payments that will be made to 
the M+C organization under section 1853(a) of the Act for the M+C plan 
is an integral part of establishing the value of additional benefits 
that must be offered under section 1854(f) of the Act. Capitation 
payments are based on the annual M+C capitation rate for the county 
(that is, the amount for the full calendar year), adjusted for various 
demographic and other risk factors. Section 1853(c)(1) of the Act 
clearly states that capitation rates are based on a contract year 
consisting of a calendar year. We believe that this entire scheme 
assumes that benefits will be the same over the 12 month period at 
issue. This is another reason why we believe our decision to eliminate 
mid-year changes after a transition period is appropriate.
2. Rules Governing Premiums and Cost-Sharing (Sec. 422.304)
    This section implements provisions of the BBA relating to premiums 
paid by or on behalf of beneficiaries. The beneficiary in an M+C plan, 
other than an M+C MSA plan offered by an M+C organization, pays the 
monthly basic premium plus the monthly supplemental premium, if any. In 
the case of an M+C MSA plan, the beneficiary must pay the monthly 
supplemental premium, if any. The M+C monthly basic beneficiary 
premium, the M+C monthly supplemental premium, and the monthly MSA 
premium may not vary among individuals in the M+C plan, unless the M+C 
organization offering the plan has elected to apply this rule to 
individual segments of a plan service area, as provided in section 515 
of the BBRA (See section I.C of this preamble). Also, the M+C 
organization cannot vary the level of cost-sharing (copayments, 
coinsurance, or deductibles) charged for the basic benefits or 
supplemental benefits, if any, among the individuals enrolled in the 
M+C plan, again unless the M+C organization has elected to apply this 
rule to segments of the plan service area, as provided in section 515 
of the BBRA.
    As discussed in section I.C above, under section 515, the premium 
and cost-sharing uniformity requirements may be applied only within 
segments of an M+C plan's service area, with premiums or cost-sharing 
varying between such segments, provided: (1) a separate, and complete 
ACR is filed for each such segment; and (2) each segment is composed of 
one or more M+C payment areas. We have revised Sec. 422.304(b) to add a 
new paragraph (b)(2) that provides for this option.
    Comment: A commenter noted that some M+C organizations offer 
enrollees economic incentives to use mail-order pharmacies by imposing 
a copayment on all prescriptions dispensed in the community pharmacies, 
but do not charge a copayment if the same prescription is mailed to the 
enrollee. The commenter wanted to know whether this practice is 
prohibited under the uniform cost-sharing rule in Sec. 422.304(b).
    Response: The practice the commenter has described is not 
prohibited, since all enrollees under the plan would pay the same cost-
sharing for drugs not ordered by mail, and the same cost-sharing for 
drugs ordered by mail. However, an M+C organization would not be 
permitted to impose a structure of cost-sharing that would have the 
effect of denying access, as described in section 1852(d) of the Act, 
to an item or service advertised by the organization as being available 
to the enrollee.
3. Submission Requirements for Proposed Premiums and Related 
Information (Sec. 422.306)
    This section reflects the original BBA version of section 
1854(a)(1) of the Act, which prior to the BBRA provided that each M+C 
organization, and any organization intending to contract as an M+C 
organization in the subsequent year, submit specified data for every 
plan it intends to offer no later than May 1 of each year.
    Comment: Many commenters recommended that the May 1 deadline for 
the submission of the ACR proposal be changed.
    Response: As discussed in section I.C above, section 516 of the 
BBRA extended the ACR deadline permanently to July 1, and applied that 
extension retroactively to 1999. Therefore, we have changed our 
regulations at Sec. 422.306(a)(1) to reflect this statutory change.

[[Page 40253]]

4. Limits on Premiums and Cost-Sharing Amounts (Sec. 422.308)
    Section 422.308(a) imposes a limit on the amount that an M+C 
organization can charge as a basic beneficiary premium for a 
coordinated care plan, or impose as cost-sharing under such a plan. 
Specifically, the basic premium (multiplied by 12), the actuarial value 
of any cost-sharing, or a combination of these two forms of beneficiary 
liability, may not exceed the annual actuarial value of the deductibles 
and coinsurance that would be applicable on average to beneficiaries 
entitled to Medicare Part A and enrolled in Part B if they were not 
enrollees of an M+C organization. For those M+C enrollees who are 
enrolled in Medicare Part B only, the monthly basic premium (multiplied 
by 12), plus the actuarial value of cost-sharing, may not exceed the 
annual actuarial value of the deductibles and coinsurance that would be 
applicable to beneficiaries enrolled in Medicare Part B if they were 
not enrollees of an M+C organization. With respect to supplemental 
benefits under coordinated care plans, the monthly supplemental 
beneficiary premium (multiplied by 12) charged, plus the actuarial 
value of its cost-sharing, cannot exceed the ACR for such services.
    In the case of a private fee-for-service plan, there is no limit on 
premium charges. However, under Sec. 422.308(b), the actuarial value of 
any cost-sharing imposed under the plan may not exceed the actuarial 
value that would apply to beneficiaries entitled to Medicare Part A and 
enrolled in Part B if they were not enrolled in an M+C plan as 
determined in the ACR. In the case of supplemental benefits, the 
actuarial value of cost-sharing may not exceed the ACR amounts for the 
benefits. Additionally, if inadequate data is available to determine 
actuarial value, we can make the determination with respect to all M+C 
eligible individuals in the same geographic area or State or in the 
United States on the basis of other appropriate data.
    Comment: One commenter suggested that the limits on premiums in 
Sec. 422.308 should not apply in the case of dual eligibles, to the 
extent that the Medicaid program is paying the premiums.
    Response: We do not agree. Section 422.308 limits the amount that 
can be charged to Medicare enrollees, or anyone on their behalf, for 
the M+C plan. However, we recognize that the Medicaid program may pay 
additional amounts for Medicaid-covered benefits not included in the 
M+C plan. Therefore, we have clarified our jurisdiction over Medicaid 
benefits for dual eligibles in Sec. 422.106. (See the discussion in 
section II.C of this preamble.)
    Comment: One commenter requested clarification of the limit on 
charges to a Part B-only member for Part A services.
    Response: If an M+C organization chooses to include in the B-only 
M+C plan an equivalent Part A benefit, it may do so as an additional, 
mandatory supplemental, or as an optional supplemental benefit. There 
is a limit on what is allowed to be charged for this benefit: the 
lesser of the ACR for the benefit, our payment amount, (or, in the case 
of a working individual (or spouse) for whom Medicare is secondary, the 
amount Medicare would pay if Medicare was not secondary), increased by 
the actuarial value of Medicare's Part A deductible and coinsurance, or 
the amount we charge for coverage of Part A services to those 
individuals that are not otherwise eligible for those services.
    Comment: One commenter requested clarification of Sec. 422.308, 
Limits on premiums and cost-sharing amounts, that the commenter 
believes to be a new provision. Another commenter asked about a limit 
on amounts actually collected in cost-sharing.
    Response: The limit on premium and cost-sharing charges in section 
1854(e) is not new, and in the case of coordinated care plans, is the 
same as the limit that applied in the case of section 1876 risk 
contracts. As discussed above, in the case of a coordinated care plan, 
section 1854 of the Act specifically limits the amount, regardless of 
source, a Medicare beneficiary may be charged for the M+C plan elected. 
This would include premiums and cost-sharing collected by the M+C 
organization or any provider (either contracting or non-contracting 
with the M+C organization) furnishing services covered by the plan. 
This limit is applied to the actuarial value of the cost-sharing 
provided for under the M+C plan. Specifically, in the case of a 
coordinated care plan, the premium and the actuarial value of cost-
sharing cannot exceed the actuarial value of original Medicare cost-
sharing. Thus, as noted above, in approving the ACR, we will not 
approve of beneficiary cost-sharing for Medicare covered services if 
the actuarial value of the cost-sharing exceeds the actuarial value of 
the deductible and coinsurance imposed under original Medicare.
    Once we have approved cost-sharing amounts specified in an ACR, 
however, an M+C organization is permitted to collect those amounts, 
even if the actual amount collected turns out to exceed the amount 
projected in the original estimate of the cost-sharing's actuarial 
value. While some of our guidance has indicated that a ``cap'' would be 
imposed on the aggregate cost-sharing amount actually collected, we 
have determined, in examining the language in section 1854(e)(1) of the 
Act in response to this comment, that the limit on cost-sharing was 
intended to limit the amount of cost-sharing that can be provided for 
under an M+C plan, not on the amount that is actually collected. The 
statute provides that the ``actuarial value'' of M+C plan cost-sharing 
(and any premium charged) cannot exceed the ``actuarial value'' of 
cost-sharing under original Medicare. Since we do not keep track of 
cost-sharing actually collected under original Medicare, but instead 
rely only on the ``actuarial value'' projected up front, we believe 
that the same approach should apply to the M+C plan side of the 
equation.
    We note that, as discussed above, in the case of private fee-for-
service plans, the limit on beneficiary liability applies only to cost-
sharing. The actuarial value of cost-sharing for Medicare services may 
not exceed the actuarial value of the deductible and coinsurance 
imposed under original Medicare.
    Comment: One commenter suggested that we set a limit on the amount 
that may be charged to low-income beneficiaries and beneficiaries with 
disabilities.
    Response: Section 1854(c) of the Act requires that premium charges 
be uniform for all enrollees in an M+C plan (or in a segment of a plan 
service area as provided for in section 515 of the BBRA). As a result, 
a separate limit for low income beneficiaries would not be permissible. 
The statute also specifies the overall limits on beneficiary liability, 
and we do not have the discretion to change them. We note, however, 
that M+C organizations may not design or market M+C plans in a manner 
that discriminates against low-income or disabled beneficiaries.
    Comment: One commenter suggested that we should prohibit the 
imposition of a deductible for Federally qualified health center (FQHC) 
services.
    Response: The actuarial value of the cost-sharing imposed by an M+C 
organization for Medicare-covered items and services cannot exceed the 
actuarial value of Medicare's deductible and coinsurance under original 
Medicare. We establish this amount using data on all Medicare 
beneficiaries that did not elect a managed care organization, 
regardless of where the beneficiary received the item or service. 
Therefore, data on items and services that do not have a deductible or 
coinsurance were taken into account, and M+C enrollees

[[Page 40254]]

already have received the benefit of the fact that there is no 
deductible for FQHC services.
5. Incorrect Collections of Premiums and Cost-Sharing Amounts 
(Sec. 422.309)
    Section 422.309 requires an M+C organization to refund all amounts 
incorrectly collected from its Medicare enrollees, or from others on 
behalf of the enrollees, and to pay any other amounts due the enrollees 
or others on their behalf. We further stated that amounts incorrectly 
collected include: (1) Exceeding the limits imposed by Sec. 422.308 
(that is, exceeding the amounts approved in the ACR as falling within 
these limits); (2) in the case of an M+C private fee-for-service plan, 
exceeding the M+C monthly basic premium or monthly supplemental 
premium; (3) in the case of an M+C MSA plan, exceeding the M+C monthly 
supplemental premium, or the deductible for basic benefits; and (4) 
amounts collected from an enrollee who was believed ineligible for 
Medicare benefits but was later found to be entitled. In addition, 
``other amounts due'' include amounts due for services that were 
considered an emergency, urgently needed, or other services obtained 
outside the M+C plan; or initially denied, but upon appeal, found to be 
services that the enrollee was entitled to have furnished by the M+C 
organization.
    Comment: A commenter believes that an M+C organization should be 
permitted to collect additional amounts if, as a result of utilization 
patterns, it collects less than the amount actuarially projected in its 
ACR. The commenter notes that if an M+C organization collects more than 
the amounts permitted in the M+C plan approved in the ACR process, it 
has to refund amounts to enrollees, and believed that this same 
principle should permit the organization to collect additional amounts 
if it collects less than the amount projected.
    Response: We do not agree. There is no indication in section 1854 
of the Act that the Congress intended to allow an M+C organization to 
collect additional amounts from Medicare enrollees when the amount it 
collects ends up being less than the amount projected in its ACR. An 
M+C organization, when it submits its ACR, should be providing its best 
estimate of its charges and collections within the confines of the 
statute. If we accept this estimate, the M+C organization should be 
held to the amounts estimated. As noted above, we agree that HCFA also 
should be held to an estimate we have approved in the ACR process, and 
will not attempt to limit the aggregate amount an M+C organization can 
actually collect as long as it collects only approved cost-sharing 
amounts from any given enrollee. We believe there is a distinction 
between the process of projecting enrollee liability for the purpose of 
establishing a premium and cost-sharing structure and the question of 
whether charges are made in excess of this established structure. Once 
the premium and cost-sharing structure is established, a charge in 
excess of the amounts provided for under this structure is 
impermissible, and grounds for sanction. A refund is appropriate. If 
the organization inadvertently charged less than the cost-sharing 
amounts approved in the ACR, it could collect the balance of the 
approved charge from the beneficiary. To the extent the commenter was 
referring to our earlier guidance discussing a limit on the aggregate 
amount that an organization can collect in premiums, as noted above, we 
have decided not to impose such a limit. This premise of the 
commenter's point accordingly is no longer valid.
6. ACR Approval Process (Sec. 422.310)
    The June 1998 interim final rule requires that, except M+C MSA 
plans, each M+C organization must compute a separate ACR for each 
coordinated care or private fee-for-service plan offered to Medicare 
beneficiaries. If an M+C organization opts to apply uniformity 
requirements to segments of an M+C plan service area, a separate ACR 
must also be submitted for each such segment. We also stated in the 
June 1998 interim final rule that, in computing the ACR for years 
beginning in 2000, the M+C organization calculates an initial rate 
according to the specifications in Sec. 422.310(b), that represents the 
``commercial premium'' that the M+C organization would charge its 
general non-Medicare enrollees for Medicare-covered benefits and any 
supplemental benefits covered by the M+C plan. The M+C organization 
would also calculate a separate ACR value for each optional 
supplemental benefit it offers under the plan. Then, the organization 
either adjusts the initial rate by the factors specified in 
Sec. 422.310(c), or requests that we adjust the rate.
    Section 422.310(b) dictates that the initial rate for each M+C plan 
is calculated on a 12-month basis for non-Medicare enrollees, using 
either a community rating system or a system approved by us, under 
which the M+C organization develops an aggregate premium for each M+C 
plan for all non-Medicare enrollees of that M+C plan that is weighted 
by the size of the various enrolled groups and individuals that compose 
the M+C's enrollment in that plan. Regardless of the method the M+C 
organization uses to calculate its initial rate, the rate must equal 
the premium that the M+C organization would charge its non-Medicare 
enrollees on a yearly basis for services included in the M+C plan.
    The June 1998 interim final rule also established special rules in 
Sec. 422.310(d) for M+C organizations that do not have non-Medicare 
enrollees or sufficient Medicare enrollment experience to sufficiently 
calculate ACR values. We have amended Sec. 422.310(d) because the 
interim final rule used incorrect citations in describing how such an 
M+C organization may estimate ACR values.
    Comment: One commenter suggested that we test the new ACR 
methodology before implementation.
    Response: We do not agree. The new ACR process requests data from 
organizations that should be readily available in an organization that 
has an adequate accounting system used to track the costs and revenues 
of the products it sells. In addition, we intend to develop a mechanism 
designed to identify unexpected problems. The form implementing the new 
ACR methodology allows M+C organizations to identify specific problems. 
We intend to gather information from our review, approval, and audit 
processes to develop manual instructions, clarify the ACR instructions, 
and modify the ACR form, if necessary.
    Comment: One commenter suggested that the component of the ACR 
formula attributable to revenues in excess of expenses (``the 
additional revenue component,'' or ``profit'' in the case of a for-
profit company) should be the same percentage of the Medicare ACR 
amount as it is in the case of the initial rate (the ``commercial 
premium'').
    Response: We do not agree. Each product an organization offers may 
have a different additional revenue or profit margin. This would 
include each of the non-Medicare products included in the base cost 
figures and the initial rate. To use the same percentage of additional 
revenue margin included in the initial rate for the ACR for Medicare 
enrollees would apply an ``average'' additional revenue margin for non-
Medicare enrollees to all Medicare enrollees. In addition, using a 
percentage method, as suggested, would increase the amount of the 
additional revenue margin for Medicare enrollees if Medicare health 
care costs were higher. (If costs are higher, the profit margin 
percentage can be lower while producing the same amount in profit.) We 
believe actual

[[Page 40255]]

additional revenues received in a prior period are the best measure of 
the amount of additional revenue an organization would expect in a 
future period, absent some changed circumstances or variables.
    While we do not agree with the commenter's specific proposal, in 
light of this comment, we have reconsidered the relative cost ratio 
formula contained in the regulations at Sec. 422.310(c)(3). Since 
additional revenues are produced when revenues exceed expenses, we 
believe the best way to project additional revenues for a benefit or 
group of benefits is to first project total revenues of that benefit or 
group of benefits and, then, subtract projected total expenses of that 
benefit or group of benefits. Therefore, we have modified the formula 
in Sec. 422.310(c)(3) to project total revenues using a relative cost 
ratio of revenues charged in a base period for Medicare enrollees 
compared to revenues charges to non-Medicare enrollees of the same 
period and, then, subtracting projected expenses. We have used the 
calendar year prior to the calendar year the ACR is submitted as the 
``base year'' for this purpose. If an M+C organization believes the 
computation produced under this formula does not adequately reflect the 
future period for an M+C plan, the organization may, with adequate 
justifying documentation, make an expected variation adjustment to the 
amount calculated.
    Comment: One commenter interpreted Sec. 422.310(c)(4) to provide 
that adjustments to additional revenues, after application of the 
relative ratios, are allowed to reduce the ACR value, but not increase 
the ACR value.
    Response: The language of Sec. 422.310(c)(4) was incorrect as 
published in our June 1998 interim final rule. On October 1, 1998, we 
published a technical revision to this section (63 FR 52614) to clarify 
that adjustments may increase or decrease the amount of additional 
revenue included in the ACR value of the service or services. These 
adjustments would be allowed as long as the organization submitted 
sufficient documentation to justify the need to increase or decrease 
the ACR values so calculated.
    Comment: One commenter suggested that we allow M+C organizations to 
use representative data to develop ACR values for an M+C plan.
    Response: The new ACR process requires M+C organizations to report 
the costs it incurs for an M+C plan using GAAP. Organizations in 
business routinely review the costs of each product it sells for 
various reasons, (for example, budget analysis, profitability). The new 
ACR method does not create a new process to determine those costs. We 
have designed the ACR process to require the least amount of 
information needed to price an M+C plan without creating a new 
accounting process. We are relying on GAAP since these principles are 
widely known and are in use by most M+C organizations. We feel M+C 
organizations should not encounter significant problems in capturing 
the costs of the Medicare and non-Medicare populations of a prior 
period using accounting systems already in use to track each of the 
products it sells. Using representative data would not be as accurate 
as using costs actually incurred.
    Comment: One commenter suggested that some group and staff model 
M+C organizations may not be able to provide cost data in the form and 
detail required in the ACR form.
    Response: We do not agree. The regulations and the ACR form used to 
implement those regulations allow for a significant amount of 
flexibility. The instructions are very clear that there are a limited 
number of line items that must be reported. Most of the remaining 
entries will be dependent on the accounting system of the organization. 
Staff and group models may need to use an apportionment strategy to 
segregate costs between Medicare and non-Medicare enrollees. These 
apportionment strategies should be based on the same statistics 
currently being submitted for the ACR form under section 1876 of the 
Act.
    Some organizations have argued that their accounting systems cannot 
segregate the revenues and cost of providing services to Medicare 
enrollees between different service areas and among various products 
sold. These organizations should discuss these matters with their HCFA-
assigned plan manager. Since the M+C ACR process is still relatively 
new, we expect to grant some flexibility to M+C organizations. M+C 
organizations unable to comply with ACR requirements would be required 
to submit a plan of action designed to bring the organization in 
compliance with the regulations.
7. Requirement for Additional Benefits (Sec. 422.312)
    Section 422.312(b) requires that the M+C organization provide 
additional benefits if there is an adjusted excess amount for the plan 
it offers. The actuarial value of these additional benefits, less the 
actuarial value of any cost-sharing associated with the benefit, must 
at least equal the adjusted excess amounts. We received no comments on 
this provision, but are making a technical change to Sec. 422.312(b) to 
use the term ``cost-sharing'' rather than copayment or coinsurance 
because the term cost-sharing has been previously defined in Sec. 422.2 
to include copayments and coinsurance.

H. Provider-Sponsored Organizations (Subpart H)

    Among the new options available to Medicare beneficiaries is 
enrollment in a provider-sponsored organization (PSO). A PSO is 
described in section 1855(d) of the Act as a public or private entity--
    <bullet> That is established or organized, and operated, by a 
health care provider or group of affiliated health care providers;
    <bullet> That provides a substantial portion of the health care 
items and services directly through the provider or affiliated group of 
providers; and
    <bullet> With respect to which the affiliated providers share, 
directly or indirectly, substantial financial risk for the provision of 
these items and services, and have at least a majority financial 
interest in the entity.
    The PSO regulations at Secs. 422.350 through 422.390 include 
definitions, solvency standards (developed through negotiated rule 
making), and waiver requirements that have been established through 
three previous Federal Register publications. On April 14, 1999, we 
published an interim final rule with comment, titled ``Definition of 
Provider-Sponsored Organization and Related Requirements'' (63 FR 
18124), setting forth the PSO definition, clarifying certain terms, and 
establishing related requirements. On May 7, 1998, we published an 
interim final rule with comment, titled ``Waiver Requirements and 
Solvency Standards for Provider Sponsored Organizations'' (63 FR 
25360), establishing solvency requirements that apply to PSOs that 
obtain a waiver of the M+C State licensure requirements, and setting 
forth procedures and standards that apply to requests for the waivers. 
The solvency portion of the PSO regulation was based on the work of the 
PSO negotiated rulemaking committee, as required at section 1856(a) of 
the Act. On December 22, 1999, we published a final rule titled 
``Solvency Standards for Provider-Sponsored Organizations'' (64 FR 
71673), that addressed the comments we received on the PSO solvency 
standards and waiver requirements. In this final rule, we are 
responding to comments on the April 14, 1998 PSO definitions interim 
final rule.
    Comment: A commenter believes that the interim final rule did not 
sufficiently ensure that a PSO is actually

[[Page 40256]]

controlled by providers. Another commenter thinks that effective 
control is defined too loosely in the regulation.
    Response: We believe that the existing regulatory requirements are 
sufficient to ensure that PSOs are organizations that are owned and 
controlled by health care providers. Among the basic requirements for 
PSOs at Sec. 422.352(a)(3) is the requirement that to be considered a 
PSO for purposes of the Medicare+Choice program, an organization must 
be controlled by a health care provider or, in the case of a group, by 
one or more of the affiliated providers that established and operate 
the PSO. Under the definitions at Sec. 422.350(b), we define control as 
meaning ``that an individual, group of individuals, or entity has the 
power, directly or indirectly, to direct or influence significantly the 
actions or policies of an organization or institution.'' This 
definition is essentially the same as the long-standing definition of 
control that is used for purposes of providers in the Medicare fee-for-
service program (see Sec. 413.17). We believe that the general 
definition for control we have adopted, which will result in case-by-
case determinations by us, will ensure that PSOs are controlled by 
providers.
    Comment: A commenter requested that we exempt PSOs formed by 
community health centers from the requirement in Sec. 422.352(b)(1) 
that a non-rural PSO must deliver 70 percent of the health care 
services and items through the provider or affiliated providers 
responsible for running the PSO.
    Response: We do not believe that a special exemption from 
Sec. 422.352(b)(1) for community health centers is warranted. As we 
will note below, we do allow a lower percentage of health care services 
delivery for rural PSOs as compared to non-rural PSOs. However, because 
the percentage of health services delivery is in part designed to 
ensure that the PSO will remain solvent, we believe it would not be 
prudent to reduce the percentage for different types of organizations 
such as community health centers. To put our response in perspective, 
we will briefly discuss the PSO requirement that the PSO providers 
deliver a substantial proportion of health care services, and the 
reasons we have selected 70 percent for non-rural PSOs and 60 percent 
for rural PSOs.
    The M+C regulations at Sec. 422.352(b) specify that a PSO must 
deliver a substantial proportion of the health care items and services 
through the provider or affiliated group of providers responsible for 
operating the PSO. We have concluded that setting the substantial 
proportion requirement at 70 percent for a non-rural PSOs and 60 
percent for rural PSOs balances two key interests. These interests are, 
specifically: (1) That we not set the proportion of services so high as 
to prevent participation by all but the most sophisticated provider 
organizations; and (2) that the substantial proportion threshold be 
sufficient to ensure that a PSO have a well-developed capacity to 
deliver services, thus meeting the financial stability objective 
explicit in the statute, and increasing the prospects for successful 
development and solvent operation of a PSO. There is no indication in 
the PSO provisions in Part C that the Congress intended that a 
different standard be applied to community health centers, or any other 
entity. We see no basis for doing so.
    Comment: A commenter recommends that we measure substantial 
proportion based on encounters rather than expenditures.
    Response: As discussed in the previous response, Sec. 422.352(b) 
requires that a PSO deliver a substantial proportion of the health care 
items and services through the providers or affiliated providers 
responsible for operating the PSO. In calculating the substantial 
proportion percentage, we considered what would be the best method for 
comparing the proportion of items and services furnished by a PSO-
affiliated provider with the overall amount of items and services 
furnished through the PSO. The two possible approaches we identified 
involved either the use of Medicare encounter data or Medicare 
expenditure data. Based on discussions with the health care industry, 
we learned that using expenditure data generally would not be 
burdensome for PSOs, because it is already commonly collected for 
management purposes. Furthermore, expenditure data may also produce a 
measurement more in line with the intent of the substantial proportion 
requirement. For example, the expenditures associated with an acute 
hospital visit would reflect a higher draw upon the PSO's resources 
than a physician office visit. Likewise, with expenditure data, the 
dollar amounts associated with each physician office visit, home care 
visit, etc., will reflect resource use and the ability of PSO providers 
to manage medical utilization. Therefore, based upon its immediate 
availability and arguably greater relevance and significance, we have 
concluded that use of expenditure data is the better approach for 
determining compliance with the substantial proportion requirement.
    Comment: A commenter recommended changing the language in 
Sec. 422.376 from ``the waiver is effective for 36 months, or through 
the end of the calendar year in which the 36 months period ends'' to 
``the waiver is effective for 36 months.''
    Response: We do not believe it is appropriate, as suggested by the 
commenter, to change Sec. 422.376(b) so that it reads, ``the waiver is 
effective for 36 months.'' The reason we have chosen to allow a waiver 
to remain in effect until the end of the calendar year in which the 36 
month period ends is that this ensures that the PSO's Medicare contract 
also remains in effect through the calendar year. To do otherwise could 
require a mid-year contract termination with significant disruption for 
beneficiaries enrolled in the PSO.

I. Organization Compliance with State Law and Preemption of Federal Law

1. State Licensure and Scope of Licensure (Sec. 422.400)
    Section 1855 of the Act requires that a potential M+C organization 
be organized and licensed under State law as a risk-bearing entity 
eligible to offer health insurance or health benefits in every State in 
which it wishes to offer an M+C plan. (An exception to the licensure 
requirement is made for PSOs, as provided for in part 422, subpart H.) 
Section 1855(b) of the Act specifies that, with limited exceptions, an 
M+C organization must assume full financial risk for the cost of the 
health services it provides under its contract. Thus, the licensure 
requirement is a two-pronged requirement, and any potential M+C 
organization must meet both prongs, such that it is licensed, and is 
assuming the appropriate risk level for its license.
    To establish the licensure status of potential M+C organizations, 
and in particular to determine compliance with the requirement that the 
organization's M+C contract falls within the scope of its licensure, we 
require that new M+C applicants supply documentation from the 
appropriate State regulatory authorities that the organization meets 
both the licensure and scope of licensure requirements. In the case of 
noncommercially licensed entities, Sec. 422.400(b) requires that they 
obtain a certification from the State that they meet appropriate 
solvency standards.
    Comment: With regard to the scope of licensure requirements, one 
commenter has asked for clarification as to whether managed care 
organizations with enrollment limited to Medicaid beneficiaries are 
eligible for M+C contracts. Another is concerned about States licensing 
organizations to offer

[[Page 40257]]

more than one M+C plan, noting that States may not have the resources 
to monitor multiple plans from multiple organizations. Other commenters 
have asked for clarification as to what happens if a State does not 
license insurers to offer high-deductible MSA plans, or does not 
license preferred provider organizations (PPOs). These commenters wish 
to know how MSA and PPO plans would be available in States which do not 
authorize these types of options. A commenter also asked whether States 
may require, for licensure purposes, that M+C organizations offer only 
products with ``gatekeepers.'' The commenter believes that these 
requirements should be preempted in order to permit managed care 
organizations to offer more choices to Medicare beneficiaries.
    Response: Section 1855(a)(1) of the Act requires that an M+C 
organization be organized and licensed under State law as a risk-
bearing entity eligible to offer health insurance or health benefits in 
any State in which it offers an M+C plan. As discussed in detail in the 
interim final rule (63 FR 35011), an entity does not have to have a 
commercial license to offer the type of M+C plan it seeks to offer 
under the M+C program. Rather, the entity must demonstrate that it is 
authorized by the State to assume the risk involved in offering the 
type of plan it wishes to offer. Thus, in the case of an organization 
that is authorized by the State to assume risk under a Medicaid 
contract, but is not commercially licensed, the State in which the 
organization wishes to offer an M+C plan would have to certify that the 
organization has authority to assume the risk involved in offering the 
M+C plan in question (e.g., by meeting State solvency requirements). In 
some States, Medicaid-contracting managed care organizations are 
operated under the authority of the State Medicaid agency, and the 
State may take the position that this authority is limited to assuming 
risk for Medicaid beneficiaries. Since the statute requires that M+C 
organizations (with the exception of PSOs) be licensed by the State, 
the State has the discretion to make this decision.
    With regard to State monitoring of M+C organizations that they 
license, we do not have the authority to second guess a State's 
judgment concerning the sufficiency of its resources to monitor M+C 
plans for which it has given authorization. The States have the sole 
authority for licensure of M+C organizations, and can set their own 
standards for monitoring conditions of licensure.
    The question of availability of MSA plans in States that do not 
approve high-deductible plans again goes back to the question of 
licensure. An organization wishing to offer an MSA plan must be 
licensed as a risk-bearing entity eligible to offer health insurance or 
health benefits in the State in question. If the organization wishes to 
offer a high-deductible policy as part of an MSA plan, the organization 
must be authorized by the State to assume risk, and under 
Sec. 422.400(c)(1), must demonstrate that it is authorized to offer a 
high-deductible policy to Medicare beneficiaries under an M+C contract. 
This does not mean that it must be authorized by the State to offer 
such a policy commercially in the State.
    With regard to the availability of PPOs in States that do not have 
a category of licensure into which PPOs would fit, the organization 
again would have to demonstrate that it was licensed as a risk-bearing 
entity or otherwise authorized to assume risk, and that it was 
authorized by the State to offer a PPO product to Medicare enrollees. 
(We note that under new section 1852(e)(2)(D), for purposes of the 
applicability of certain quality assurance requirements, a PPO is 
defined as an entity that is not licensed as an HMO.) If a State does 
not have a category for a PPO product, an organization may not offer a 
PPO product in that State unless it is able to demonstrate that the 
State has authorized it to do so in the context of an M+C contract. 
This same analysis applies to the question of whether a State may only 
allow products with ``gatekeepers.'' If the State only has licensure 
categories for ``gatekeeper'' products, then only those products may be 
offered in the State, absent State authorization of an alternative 
product in the M+C context.
    The only exception to the above requirements that the State 
authorize the M+C organization to offer the type of plan at issue is 
the exception provided by Congress for PSOs that are unable to obtain a 
State license.
2. Federal Preemption of State Law (Sec. 422.402)

a. General Preemption (Sec. 422.402(a))

    Section 1856(b)(3)(A) of the Act reflects the general principle 
that under the supremacy clause of the constitution, State laws are 
``preempted'' when they conflict with applicable Federal laws. 
Specifically, section 1856(b)(3)(A) of the Act provides that ``any 
State law or regulation'' with respect to M+C plans is superseded ``to 
the extent such law or regulation is inconsistent'' with M+C standards. 
This general preemption authority does not extend to non-M+C enrollees 
or non-M+C lines of business or activities. We apply this provision in 
the same manner that Executive Order 12612 on Federalism was applied to 
managed care organizations with contracts under section 1876 of the Act 
prior to the BBA. Under that Executive Order (recently superseded by 
Executive Order 13132; see section VI.1 below), the requirements of 
section 1876 of the Act did not preempt a State law or standard unless 
the law or standard was in direct conflict with Federal law. Put 
another way, if a State law required a managed care organization to do 
something that it would be permitted to do under section 1876 of the 
Act, there was no preemption. As discussed below, new Executive Order 
13132 (64 FR 43255) contains this same standard for general preemption. 
The general preemption rule in section 1856(b)(3)(A) of the Act is 
implemented in Sec. 422.402(a).
    Comment: A commenter asked whether State laws that are more 
restrictive than Federal laws are preempted under our general 
preemption authority at Sec. 422.402(a).
    Response: In its description of the House bill's provision for 
preemption of State laws ``inconsistent with'' the new BBA standards, 
the BBA Conference Report (H. Rept. 105-217, page 637) makes clear that 
this provision (which was retained in the conference agreement) 
``should not be construed as superseding a state law or regulation * * 
* that provides consumer protections in addition to, or more stringent 
than, those provided under [the BBA].'' We thus believe it is clear 
that Congress expected the States, in some cases, to have more rigorous 
or more comprehensive standards for quality and consumer protection 
that would enhance, rather than be subsumed under, the M+C standards 
for quality and consumer protection. Except when one of the ``specific 
preemptions'' discussed below applies, State laws or standards that are 
more strict than the M+C standards would not be preempted unless they 
are in conflict with (for example, would preclude compliance with) M+C 
requirements.
    Comment: One commenter representing many plans argues that our 
interpretation of general preemption is too narrow, and that it should 
be broadened to encompass State laws that the commenter believes serve 
as obstacles to the purposes and objectives of the M+C program. This 
commenter suggests that there are situations in which compliance with 
both a Federal

[[Page 40258]]

law and a State law is theoretically possible, but the administrative 
burdens associated with dual compliance would be tremendous, making 
compliance counterproductive in terms of meeting the goals of the M+C 
program. In these situations, the commenter believes that the State 
requirements should be preempted, thus relieving the burden of dual 
compliance.
    Response: As just noted above, the legislative history of section 
1856(b)(3)(A) of the Act makes clear that Congress contemplated that 
M+C organizations would be subject to State requirements that were 
``more stringent'' than M+C standards. We believe that Congress 
intended in section 1856(b)(3)(A) of the Act to incorporate the basic 
principles of Federalism, as applied to section 1876 contractors at the 
time the BBA was passed. We do not believe that the fact that a burden 
may be involved in complying with State laws makes those laws 
``inconsistent'' with Federal requirements. We therefore believe that 
under section 1856(b)(3)(A) of the Act, only State standards that 
prevent compliance with Federal standards are preempted under this 
general preemption provision. As noted earlier, this position is also 
consistent with new Executive Order 13132.
    Comment: Many commenters sought clarification of the basic 
principles of general preemption, and asked whether specific issues are 
covered under the general preemption authority of section 1856 of the 
Act. Some of these commenters suggested that consumer protection 
standards should be left to the States. For example, a commenter 
representing many States believes that the following types of standards 
are not subject to general preemption: Market conduct evaluation; 
complaint handling (except to the extent specifically preempted by the 
BBA as discussed below); enforcement of unfair claim settlement 
practice standards (except to the extent specifically preempted by 
BBA); enforcement actions generally; filing and review of policy forms 
and rate filings; filing and review of advertising and marketing 
materials; provider access standards; credentialing standards; filing 
and review of provider contracts; utilization review programs and 
standards; quality assurance programs; supplemental benefits and cost-
sharing arrangements; network adequacy; enforcement of loss ratio 
standards; standards and enforcement of commission limitations; and 
provider licensing and regulation. In addition, other commenters have 
asked for clarification as to whether or to what extent Medicare 
Secondary Payer mental health parity requirements are preempted. 
Another commenter suggested that we interpret general preemption as 
covering all State laws except for financial solvency standards.
    Response: We agree that the areas mentioned by the commenter would 
not be preempted under the general preemption rule in section 
1852(b)(3)(A) of the Act, as long as the State law did not conflict 
with an M+C requirement. In most of the areas mentioned, if an M+C 
organization could comply with State law without compliance resulting 
in a violation of an M+C requirement, there would be no preemption. 
While the commenter has recognized that some of the above-referenced 
areas of State regulation are subject to the specific preemption 
provision discussed below (see the second and third items in the above 
list), there are other areas among those identified by the commenter 
that are subject to specific preemption as well. For example, State 
regulation of supplemental benefits would be preempted under the 
specific preemption of State laws relating to benefits. In addition, 
some ``provider regulation'' could be preempted under the specific 
preemption of laws relating to the inclusion or treatment of providers. 
Thus, while we agree with the commenter that laws in the specified 
areas would not be preempted under section 1856(b)(3)(A) of the Act 
absent a conflict with M+C standards, the commenter should consult the 
discussion below concerning specific preemption of State laws in the 
areas referenced in section 1856(b)(3)(B) of the Act. With respect to 
the comment that all areas should be subject to general preemption 
except solvency, we disagree with this comment. As noted above, we 
believe that general preemption would only apply in the case of a 
specific conflict with M+C requirements.
    Comment: A commenter asked for clarification as to whether and how 
State M+C laws apply to employee groups.
    Response: As noted in the preamble to the June 26, 1998 M+C interim 
final rule (63 FR 35013), there is neither general nor specific Federal 
preemption of State requirements that apply to arrangements between 
employers and M+C organizations for the provision of negotiated group 
benefits not covered under an M+C plan. These are purely private 
benefits that fall outside the scope of the M+C program and the ACR 
process. Thus, if there are applicable State laws not preempted by the 
Employee Retirement Income Security Act of 1974, these State laws could 
apply to employer group benefits, and would not be preempted by M+C 
standards. M+C standards apply only to M+C plan benefits, including: 
(1) Medicare-covered benefits; (2) additional benefits paid for with 
Medicare payments; and (3) both optional and mandatory supplemental 
benefits for which a premium is charged.
    Comment: A commenter asked whether State confidentiality laws are 
preempted.
    Response: General preemption applies to confidentiality 
requirements. Thus, just as with other consumer protection standards, 
State requirements that are more stringent than the new M+C standards 
would not be preempted, unless compliance with the State 
confidentiality requirements made compliance with the Federal 
requirements impossible.

b. Specific Preemption (Sec. 422.402(b))

    There are three areas in which section 1856(b)(3) of the Act 
provides for specific (rather than general) Federal preemption of State 
law: benefit requirements; requirements relating to treatment and 
inclusion of providers; and coverage determinations (including related 
appeals and grievance processes.) In the BBA Conference Report (H. 
Rept. 105-217, page 638), the conferees noted that benefit 
requirements, provider participation requirements, and coverage 
determinations (and related appeals mechanisms) are governed 
exclusively by Medicare standards under original Medicare, and 
expressed their view that this should be the case under the M+C program 
as well. That is, under original Medicare, States cannot specify what 
must be included as a Medicare benefit; States do not specify the 
conditions of participation for Medicare providers (though they license 
providers and practitioners and determine their scope of practice); 
States may not specify how a coverage determination is made with 
respect to whether or not the Medicare program covers a benefit; and 
States do not determine the type of appeal mechanism that is used to 
appeal a coverage decision made by a Medicare carrier or intermediary 
with respect to a Medicare benefit. In the specific preemption 
provisions in section 1856(b)(3)(B) of the Act, Congress provided that 
States similarly cannot regulate M+C plans in these areas. As in the 
case of general preemption, these specific preemption provisions do not 
extend to non-M+C enrollees, activities, or lines of business of the 
managed care organization.
    In the interim final rule (63 FR 35012), we stated our intention to 
adopt a narrow interpretation of the

[[Page 40259]]

applicability of the three areas of specific preemption, thus giving 
States maximum flexibility within the parameters of the statutory 
language. (As discussed below, this view is consistent with new 
Executive Order 13132 on Federalism.) We identified the following 
examples of areas in which State standards would be preempted:
    <bullet> Benefit mandates (note that we did not interpret a limit 
on cost-sharing to be a ``benefit'').
    <bullet> Appeals and grievances with respect to M+C coverage 
determinations.
    <bullet> Requirements relating to the inclusion of providers (such 
as ``any willing provider'' laws or requirements to included specific 
types of providers within a plan's provider network). We note that 
State laws providing enrollees with a right to directly access 
providers are considered to provide a ``benefit'' to enrollees, and to 
affect the ``inclusion'' and the ``treatment of'' providers, and thus 
also are specifically preempted.
    Comment: In the interim final rule, we solicited comments on 
whether the specific preemption of benefits should be extended to cost-
sharing requirements, and if there were particular types of cost-
sharing that should, or should not, be included under the benefits 
preemption. We received many comments on this issue. Most industry 
commenters recommended that we include all State cost-sharing standards 
within the benefit preemption. They believe that cost-sharing is an 
integral part of a benefit; that the cost to a beneficiary for a 
particular service weighs on how much of a benefit he or she is 
actually receiving; and that the cost-sharing formula is what gives a 
benefit its market value. Commenters also argued that preempting State 
cost-sharing requirements would reduce variation in benefit packages, 
thus making comparison easier for beneficiaries, and easing the 
administrative burden on organizations that offer plans across State 
lines. They asserted that not preempting State cost-sharing standards 
would severely impede M+C organization's efforts to offer national 
plans. Another commenter wrote that it was unclear whether a State 
could continue to apply some of its benefit-related provisions, such as 
limits on copayments, State coordination of benefits and subrogation 
rules, and required benefit differentials for PPOs.
    In contrast, commenters representing the States and beneficiary 
advocacy groups recommended that we continue to construe the benefit 
preemption as narrowly as possible, and thus not change our policy to 
consider cost-sharing a part of a benefit for preemption purposes. They 
supported our existing policy of generally not preempting State cost-
sharing requirements. One commenter believed that even benefit 
requirements should not be preempted, however, arguing that if States 
cannot mandate certain benefits, then beneficiaries in M+C plans might 
have different, lesser benefits than beneficiaries with original 
Medicare and a Medigap policy.
    Response: In the interim final rule, we stated that the specific 
preemption of benefit requirements does not extend to State cost-
sharing standards (63 FR 35013). As discussed in detail in that rule, 
our position was that a State law establishing limits on cost-sharing 
generally, or limits on cost-sharing that can be imposed for a 
particular benefit, would not fall under the benefit preemption as we 
have defined the term ``benefit.'' We recognize that this is a narrow 
interpretation of the term ``benefit,'' and that we could have 
interpreted ``benefit requirements'' to extend to limits on cost-
sharing. However, we wanted to minimize the extent to which beneficiary 
protections enacted by a State were preempted by Federal law. This 
decision is consistent with our support for beneficiary rights, as well 
as new Executive Order 13132 on Federalism, which calls for granting 
States the maximum flexibility permitted under Federal law. If the 
benefit to which State cost-sharing limits apply is not a Medicare-
covered benefit, the State standard would apply only if the M+C 
organization chooses to offer the benefit, since any State mandate that 
the benefit be offered would be specifically preempted. Thus, to the 
extent that limits on cost-sharing are linked to a benefit mandate, the 
State cost-sharing limits could be seen to be ``indirectly'' preempted, 
in that the obligation to provide the benefit to which they apply is 
preempted. To the extent that an M+C organization offers the benefit to 
which State cost-sharing limits apply (whether as part of the package 
of Medicare-covered services, or as an additional or supplemental 
benefit), State cost-sharing standards would remain in effect unless 
they would be preempted under the general preemption authority 
discussed above.
    Comment: Several commenters representing the State of Massachusetts 
wrote to request that we reconsider our position that the BBA prohibits 
State-mandated benefit laws, particularly when such a benefit is 
neither required by, nor funded by, the Federal government. These 
commenters believe that where Federal money is not involved, there is 
no preemption of State law, and that the M+C regulations should be 
modified accordingly. These commenters were particularly concerned 
about the effect of Federal preemption on Massachusetts' mandated 
prescription drug benefit, and pointed out that M+C enrollees in the 
State will not have access to a comprehensive prescription drug benefit 
in the absence of the State mandate. The commenters noted both that 
there is no Federal prescription drug benefit, and that the cost of the 
Massachusetts benefit is borne in no way by the Federal government.
    Response: Throughout the development of the interim final rule and 
during the summer of 1998, we discussed in depth with Massachusetts 
officials the effect that Federal preemption would have on the 
prescription drug benefit in Massachusetts. Although we recognized the 
State's concerns, we did not believe that the statute permitted any 
discretion on the issue, absent a legislative amendment. We believe 
that the reference to ``benefit requirements'' must refer to non-
Medicare benefits like those at issue in Massachusetts, since, as noted 
above, States have never been permitted to mandate what is covered by 
Medicare. In September of 1998, the Massachusetts Association of Health 
Plans sued the Commonwealth of Massachusetts, in an attempt to resolve 
the apparent conflict between the State and Federal regulatory 
approaches. A Federal court ruled that the specific preemption in 
section 1856(b)(3)(B) of the Act did apply to the Massachusetts drug 
benefit. The State appealed, and on October 8, 1999, the ruling was 
affirmed by the United States Court of Appeals for the First Circuit. 
Massachusetts Assn. of HMOs v. Ruthardt, 194 F.3d 176 (1st Cir., Oct. 
8, 1999). The Court found that the M+C regulations ``dominate these 
particular fields, leaving no room therein for State standard-setting'' 
for benefit requirements (194 F.3d, at 183). We agree with the Court's 
conclusions.
    Comment: Several commenters have asked us to revise Sec. 422.402 to 
exempt State ``return home'' laws from preemption under sections 
1856(b)(3)(B)(i) or (ii) of the Act. These laws generally allow a 
hospitalized beneficiary, who lived in a retirement home that includes 
a Medicare-approved nursing facility, to return to this ``home'' 
facility for post-hospitalization skilled nursing services, even if 
that facility is not part of his/her managed care plan's network. 
Commenters argued that these types of provisions are not benefits 
requirements and are not related to treatment and

[[Page 40260]]

inclusion of providers, but rather are consumer protection 
requirements.
    Response: As discussed above, section 1856(b)(3)(B)(ii) of the Act 
clearly establishes Federal preemption for requirements relating to the 
inclusion or treatment of providers. We believe that a law granting an 
enrollee the right to coverage from a particular provider would 
certainly have to be considered a requirement ``relating to the 
inclusion or treatment of providers,'' since it requires that the 
provider in question be ``included'' in the network of providers 
through which covered services may be obtained.
    As a matter of policy, we believe that return home laws have value 
for beneficiaries, families, and communities, and we encourage M+C 
organizations to offer a return home option where it would not 
adversely affect quality or continuity of care, and does not pose an 
unreasonable administrative burden. However, absent legislative change, 
we do not believe that the statutory preemption provisions permit any 
alternative interpretation that would allow enforcement of these State 
laws for M+C enrollees. We are exploring developing a legislative 
proposal to establish a limited exception to the M+C preemption 
provisions to accommodate State return home laws.
    Comment: Several commenters offered differing opinions of our 
interpretation that section 1856(b)(3)(B) of the Act preempts direct 
access laws. Again, some commenters believe that these requirements are 
contract or consumer protection laws, and should not be subject to 
specific preemption; other commenters believe that direct access laws 
are clearly and specifically preempted. One commenter asked for 
clarification on the specific preemption of State standards related to 
the ``treatment and inclusion of providers and suppliers.'' 
Specifically, this commenter asked for clarification on the following 
situations: (1) Whether the preemption applies to State standards on 
how providers are paid; (2) whether State standards that are more 
stringent than the M+C provider antidiscrimination provisions in 
existing Sec. 422.204(b) are preempted; (3) whether State requirements 
that certain categories of health professionals must be treated the 
same as other providers by an HMO or insurer are preempted.
    Another commenter asserted that ``any willing provider laws,'' 
specific benefit requirements, and requirements for the inclusion of 
specific types of providers should not be preempted. This commenter 
believes that if State standards are more stringent than Federal 
standards and not inconsistent with them, they should not be preempted, 
regardless of whether these standards relate to the areas specifically 
preempted by Congress.
    Response: In the interim final rule, we indicated that direct 
access laws and any willing provider laws were illustrative of the 
types of laws that we believe Congress intended to preempt through the 
BBA's specific preemption provisions. Although we recognize that these 
types of State standards may be viewed as consumer protections, we 
believe that such standards clearly also involve both plan benefits and 
the treatment and inclusion of providers, and therefore are 
specifically preempted. With regard to the specific questions raised by 
the commenter, these standards all appear to involve the inclusion or 
treatment of providers. In order to make a final determination, 
however, we would have to review the specific State law in question.
    Comment: A commenter asked for clarification regarding whether 
certain aspects of State law, such as State definitions of medical 
necessity, and requirements that subscribers be notified of the right 
to file complaints with State regulators, would be preempted under 
Sec. 422.402(b)(3), which preempts State requirements for coverage 
determinations, including appeals and related grievances.
    Response: For the purposes of coverage determinations, a State 
definition of ``medical necessity'' is preempted under 
Sec. 422.402(b)(3) because any such definition is integral to the 
determination of coverage. A State's general complaint process, as 
distinct from a process for appealing coverage decisions, would be 
subject only to general preemption under Sec. 422.402(a), not specific 
preemption under Sec. 422.402(b)(3). The State should indicate, 
however, that its process is separate, and that if the complaint 
involves a coverage determination, the sole mechanism for resolution is 
the Federal appeals process outlined in subpart M of part 422. For more 
information on this issue, please see guidelines issued by the National 
Association of Insurance Commissioners (NAIC).
    Comment: A commenter who was generally supportive of Federal 
preemption argued that the regulations fail to clarify the 
ramifications of such preemption at the State level. The commenter 
requested that we ``formalize the process'' with the relevant State 
entities, so that managed care organizations are not held liable by a 
State for noncompliance with a State mandate when the organization is 
acting in accordance with Federal regulations.
    Response: The NAIC and our staff have developed guidelines for use 
by the States in developing and implementing their managed care 
regulations and operational policies. We believe that these guidelines 
should address the commenter's concerns about formalized guidance for 
States.
    Comment: Many commenters support a broader interpretation of 
Federal preemption such that State law related to grievance procedures 
would be preempted. Other commenters believe that Congress intended to 
specifically preempt State grievance procedures.
    Response: The statute says only that grievances related to coverage 
determinations are subject to specific preemption; therefore, we do not 
believe that Congress intended to preempt all State grievance 
procedures. We believe that Congress recognizes that many States use 
the term ``grievance'' to describe a complaint or define a process that 
constitutes an ``appeal'' under Medicare. Thus, we believe that the 
intent of the statute was to specifically preempt State requirements 
for grievances related only to coverage determinations, and to apply 
general preemption to State requirements for all other types of 
grievances. Thus, the State requirement would stand so long as it is 
not inconsistent with a Federal requirement, as discussed in detail 
above.
    Since enrollees may have complaints that involve matters unrelated 
to coverage determinations, there needs to be a mechanism in place to 
address other types of complaints involving the manner in which 
enrollees receive care. Therefore, M+C organizations are required to 
have a grievance process in place to handle complaints unrelated to 
coverage determinations.
    The preamble to the interim final rule alerted the public that we 
would establish a grievance procedure through proposed rulemaking, and 
sought comments on ways to make it meaningful. Until publication of 
that proposed rule, M+C organizations should look to State requirements 
for resolving complaints unrelated to coverage determinations.
    Comment: A commenter asked for clarification as to whether a State 
law requiring the external review of all coverage determinations where 
the independent reviewer's decision would be binding on the M+C 
organization would be preempted under the specific preemption rules.
    Response: Specific preemption would apply in that situation. The 
M+C appeals process is the only method that can result in a binding 
decision on the M+C organization. A State may choose

[[Page 40261]]

to require external review of coverage determinations for monitoring or 
licensure purposes, but the requirement would be preempted to the 
extent that it requires a decision by any entity other than one 
prescribed under the M+C appeals process.
    Comment: A commenter asked that we revisit our position that State 
tort or contract remedies may be available to beneficiaries whose 
coverage determination dispute goes through the Medicare appeals 
process. This commenter believes that coverage determination cases are 
contract disputes, and therefore should be the sole province of the 
Medicare appeals process.
    Response: In some cases, a case that is cast as a State contract 
claim may amount to a claim that services are covered under an 
organization's M+C contract. We agree with the commenter that in that 
case, the claim would be pre-empted. However, there are other tort or 
State contract law, or consumer protection-based claims that would be 
entirely independent of the issue of whether services are required 
under M+C provisions. For example, a State consumer protection law may 
provide that certain claims made by an HMO in advertising give rise to 
particular obligations under State law, that exist independent of the 
question of what the HMO's M+C contract requires. In other cases, a 
tort action may exist independent of the question of whether services 
are covered under an M+C contract. We believe that under principles of 
Federalism, and Executive Order 13132 on Federalism, which requires us 
to construe preemption narrowly, a beneficiary should still have State 
remedies available in cases in which the legal issue before the court 
is something other than the question of whether services are covered 
under the terms of an M+C contract.
3. Prohibition on State Premium Taxes (Sec. 422.404)
    Section 1854(g) of the Act provides that ``no State may impose a 
premium tax or similar tax with respect to payments to M+C 
organizations under section 1853.'' This prohibition does not apply to 
enrollee premium payments made to M+C plans, which are authorized under 
section 1854 of the Act. Section 402.404(a) sets forth the statutory 
provision, and specifies that the term ``State'' includes any political 
subdivision or other governmental authority within a State.
    Section 422.404(b) clarifies the scope of what constitutes a 
prohibited premium tax, establishing that the prohibition generally 
does not apply to a generally applicable tax on the net income or 
profits of any business. As noted in the preamble to the interim final 
rule, if the tax applies to premium revenue specifically, there is no 
exception to the prohibition of such a tax, based on the purpose of the 
tax.
    Comment: One commenter agreed with our interpretation that the term 
``State'' should include all political subdivisions, and recommended 
that we retain the regulatory language prohibiting State-levied taxes 
on payments made by Medicare to M+C organizations.
    Response: We agree with the commenter. Since counties and other 
political subdivisions of a State derive their powers from the State, 
we believe this broad interpretation of the term ``State'' is the 
intended and necessary interpretation of the statutory provision. Thus, 
any prohibitions of State actions contained in Federal statute should 
be interpreted as prohibitions on actions at any level of State 
government or any State or local governmental body within the State.
    Comment: One commenter noted that section 1854(g) of the Act 
prohibits only a ``premium tax or other similar tax,'' and argued that 
this does not support our inclusion of ``fees and other similar 
assessments'' in the regulatory language at Sec. 422.404(a). The 
commenter argued that assessments to fund State high risk pools should 
be permitted.
    Response: We believe that any mandatory fee or assessment imposed 
on premium revenues clearly would fall within the reference to a 
premium tax or ``other similar tax.'' As noted in the preamble to the 
interim final rule, we considered whether to exempt an assessment that 
is used for purposes of an insolvency insurance pool, but determined 
that if the assessment was mandatory, it amounted to a tax. We noted, 
however, that an M+C organization that wished to rely on the proceeds 
from such a pool as part of its plan for insolvency protection could 
voluntarily contribute to such a pool.
    Comment: A commenter objected to statements in the preamble to the 
interim final rule (63 FR 35014) suggesting that an M+C organization 
may participate in a ``guaranty fund'' by paying premium taxes 
voluntarily. The commenter pointed out that the NAIC Life and Health 
Insurance Guaranty Association Model Act excludes managed care 
organizations from its definition of a ``membered insurer.'' The 
commenter recommended that we clarify that State life and health 
insurance guaranty associations are excepted from the preamble 
discussion of ``guaranty funds,'' or at least note that under many 
States' life and health guaranty association laws, M+C organizations 
would not be considered member insurers.
    Response: To the extent the commenter is referring to a guaranty 
fund operated by a private association, the prohibition on premium 
taxes would not apply. Our reference in the preamble to voluntary 
contribution to a guaranty fund involved a State mandated insurance 
pool established and operated by the government. In this case, the 
mandate to contribute premium revenue would be preempted, but an M+C 
organization could voluntarily participate.
4. Medigap
    Section 1882 of the Act governs the sale of Medicare supplemental 
(``Medigap'') policies, private health insurance policies that are 
designed to cover certain out-of-pocket costs incurred by Medicare 
beneficiaries. With minor exceptions, a Medigap policy cannot be sold 
in any State unless it conforms to one of ten standardized benefit 
packages, labeled plans ``A'' through ``J''.
    Before enactment of the BBA, Federal law provided for only one 
opportunity for a Medicare beneficiary to purchase a Medicare 
supplemental (``Medigap'') policy on a ``guaranteed issue'' basis. 
(Generally, this term means that the Medigap insurer cannot deny the 
application, delay the issuance or effective date of the policy, or 
charge an additional amount based on the individual's health status.) 
This opportunity occurs only during the 6-month period beginning with 
the date the beneficiary is both age 65 or older and enrolled in 
Medicare Part B.
    Section 4031 of the BBA amended section 1882(s) of the Social 
Security Act to specify additional situations in which beneficiaries 
are able, as of July 1, 1998, to buy specific types of Medigap policies 
on a guaranteed issue basis, if they apply within 63 days of losing 
certain other types of health coverage, and if they submit evidence of 
the date that the prior coverage terminated. The law also requires that 
the entity that provided the prior coverage advise the beneficiary of 
these rights. While the M+C regulations do not implement the Medigap 
provisions of the BBA or the BBRA, it is important to understand the 
implications for M+C organizations, since some situations addressed by 
the Medigap provisions involve beneficiaries who leave M+C plans and 
return to original Medicare.
    The situations that give rise to the obligation to notify the 
beneficiary include, for example, termination of

[[Page 40262]]

coverage by an M+C plan, reduction in an M+C plan's service area, 
termination of the M+C plan's contract by us, or loss of coverage under 
an M+C plan due to a change in the beneficiary's place of residence. As 
mentioned previously, section 501(a) of the BBRA amended section 
1882(s)(3) of the Act to allow an individual to choose between two 
options: (1) Voluntarily disenrolling before coverage under the M+C 
plan is terminated involuntarily, and applying for a Medigap policy no 
later than 63 days after being notified by the M+C organization of the 
impending termination or service area reduction; or (2) waiting and 
applying no later than 63 days following the date of the involuntary 
termination or service area reduction. In these instances, the 
beneficiary is guaranteed the right to buy Medigap plans A, B, C, or F, 
subject to availability of those policies from insurers selling in the 
State.
    With regard to availability, we note that not all 10 standardized 
Medigap plans may be available in all States, and all plans available 
in a State might not be offered by every insurer. Wisconsin, Minnesota, 
and Massachusetts have alternative forms of standardized policies under 
a waiver granted them by the Omnibus Budget Reconciliation Act of 1990 
(OBRA). Federal law does not generally require sale of Medigap policies 
to beneficiaries under age 65 (eligible for Medicare by reason of 
disability or ESRD). However, State law may require insurers to sell to 
these populations under certain circumstances. Also, some insurers 
voluntarily sell policies to the disabled, usually on an underwritten 
basis. Where an insurer has filed in a State to sell to the under 65 
population, these policies are subject to the BBA guaranteed issue 
protections.
    The beneficiary may also have the right to guaranteed issue of a 
broader selection of Medigap policies if he or she either: (1) Directly 
enrolls in an M+C plan upon first becoming entitled to Medicare at age 
65; or (2) enrolls for the first time in an M+C plan after previously 
having been covered under a Medigap policy, and, in both instances, 
later disenrolls from the M+C plan within 12 months of the effective 
date of the M+C enrollment. Beneficiaries who were previously enrolled 
in original Medicare and who purchased a Medigap policy, who disenroll 
from the M+C plan before the 12-month ``trial'' period has expired, are 
guaranteed the right to return to their old Medigap policy, if it is 
still available from their former insurer; (otherwise they have the 
choice of plans A, B, C, or F from any insurer). Alternatively, if an 
M+C plan was their first choice as newly entitled Medicare 
beneficiaries at age 65, and they disenroll during the first 12 months 
after enrolling, they have their choice of all 10 Medigap plans, 
including plans H, I, and J, which provide some outpatient prescription 
drug coverage. This broader array of choices for beneficiaries who 
elected an M+C plan when they first became entitled to Medicare at 65, 
in effect, compensates them for having forgone their 6-month Medigap 
open enrollment opportunity, which began when they reached age 65.
    In all these cases of voluntary or involuntary terminations from an 
M+C plan, beneficiaries must apply for the Medigap policy of their 
choice, from among the options available to them, within 63 days. If 
they fail to act within this time period, they lose both their 
guaranteed issue right to purchase the policy of their choice at the 
standard premium rate, and their protection from pre-existing exclusion 
periods. Outside of this guaranty issue period, they may be able to 
find some Medigap insurers who are willing to sell to them, but they 
may not be able to purchase the policy they want. Additionally, the 
insurer can apply a pre-existing condition exclusion period of up to 6 
months and/or charge them an additional amount based on their health 
status.
    Because the Medigap provisions establish specific deadlines for 
beneficiaries who wish to take advantage of these new rights, prompt 
action by the M+C organizations to notify beneficiaries of their 
rights, or by us to provide accurate evidence of recently terminated 
coverage, is essential. We are committed to providing beneficiaries 
whose M+C coverage is terminated with timely and accurate evidence of 
the recently terminated coverage. To this end, we will provide M+C 
plans with, among other things, a model final termination letter that 
must be sent 90 days prior to termination of a contract. This letter 
will contain detailed information about beneficiaries' rights to 
Medigap under BBA and the BBRA.
    We urge M+C organizations to keep in mind that they are obligated 
to notify beneficiaries whose coverage terminates of their rights under 
the Medigap provisions. Those provisions are complex, and beneficiaries 
will be entitled to guaranteed issue of Medigap policies at standard 
premium rates and with no preexisting condition exclusion periods only 
under certain circumstances. As noted above, their choice of Medigap 
policies will depend on the precise reason for, and timing of, the 
termination of their coverage under the M+C plan. It also matters 
whether they disenroll voluntarily or wait to be involuntarily 
disenrolled. However, if their initial 12-month trial period will 
expire before the M+C plan's contract will terminate, they have the 
option of disenrolling before the 12-month period has expired if they 
wish to obtain the broader selection of Medigap policies that may be 
available to them.
    Further guidance is available to beneficiaries from their State 
Health Insurance Assistance Program (SHIP) or State insurance 
department.
    Comment: A commenter has asked whether Medigap coverage is still 
applicable when a beneficiary chooses to privately contract for health 
services.
    Response: Medigap policies cover two basic types of costs. The 
first includes costs such as deductibles and coinsurance that apply 
with respect to services covered by Medicare. The second includes costs 
of non-covered items and services such as outpatient prescription 
drugs. Medigap insurers are only required to make payment for the first 
type of services if a bill is submitted to and processed by Medicare. 
When a beneficiary privately contracts with a physician or practitioner 
under section 1802(b) of the Act to receive services that would 
otherwise be covered under Medicare, the services are excluded from 
Medicare payment under section 1862(a)(19) of the Act, and the 
beneficiary agrees not to submit a bill. As the beneficiary 
acknowledges in the private contract, as required by section 
1802(b)(2)(B)(iv) of the Act, the Medigap policy will not pay for costs 
related to these services.
    The policy may, however, be required to make payment with respect 
to the types of costs that are not otherwise covered by Medicare.
    Comment: Commenters asked for clarification of the effective date 
of the BBA guaranteed issue requirements for Medigap A, B, C, and F 
plans, and for clarification of the rights of disabled beneficiaries 
with regard to guaranteed issue.
    Response: As discussed above (and in greater detail in the Federal 
Register on December 4, 1998 and February 17, 1999, 63 FR 67078 and 64 
FR 7968, respectively), the BBA's guaranteed issue provision took 
effect for all insurers on July 1, 1998. In addition, as noted 
previously, any Medigap policy that is available to beneficiaries under 
age 65 under any other circumstances must be offered to beneficiaries 
under age 65 who meet the criteria for BBA guaranteed issue 
protections.
    Comment: One commenter was concerned about the wide variation in 
premiums of the 10 Medigap plans, and

[[Page 40263]]

was worried about beneficiaries being overcharged.
    Response: It is true that there is wide variation in the premiums 
charged for the 10 standardized Medigap policies, both within States 
and from State to State. Regulation of Medigap insurance rates is 
ultimately within the discretion of the States, although federal 
Medigap law imposes some general requirements. In particular, Medigap 
policies must meet certain loss-ratio standards that are intended to 
ensure that policies provide refunds or credits if aggregate premiums 
exceed aggregate benefits by too high a margin. In addition, during the 
initial open enrollment period, and when the BBA guaranteed issue 
situations are in effect for a beneficiary, the insurer cannot increase 
the premium based on the beneficiary's health status.
    Comment: Commenters voiced concern over the possibility of a 
beneficiary being penalized when a health plan terminates without 
timely enough notice for the beneficiary to find the appropriate 
Medigap insurance. Commenters also believe that we should provide plans 
with information as to which States have Medigap policies without pre-
existing condition limitations as of January 1, 1999, and in general 
that plans need more information on Medigap.
    Response: We have developed a clear termination policy and systems 
to provide for timely beneficiary notification, so that beneficiaries 
will be aware of their rights and protections if a plan terminates. In 
addition to developing internal processes, we are working with the 
States and M+C organizations to develop model language that will 
clearly and timely inform beneficiaries of their rights and 
protections.
    In addition, we are working with the NAIC and the States to develop 
the Medigap Compare database, which will identify available Medigap 
policies and allow beneficiaries to compare costs and benefits. 
Beneficiaries and M+C plans will be able to access this database to 
gain the appropriate information a beneficiary needs when seeking 
Medigap insurance.

J. Subpart J, Part 422

    Subpart J of part 422 has been reserved for future use.

K. Contracts with M+C Organizations (Subpart K)

    Subpart K sets forth provisions relating to the contracts that are 
entered into by M+C organizations, including a description of terms 
that must be included in the contract, the duration of contracts, 
provisions regarding the nonrenewal or termination of a contract, and 
minimum enrollment, reporting, and prompt payment requirements.
1. Definitions (Sec. 422.500)
    Comment: As discussed above in section II.F.2, we received comments 
suggesting that we impose requirements on providers to cooperate with 
M+C organizations in their collection of encounter data to be used in 
implementing risk adjustment.
    Response: As discussed in section II.F.2, in response to this 
comment, we have taken several steps to facilitate the cooperation of 
providers in supplying valid data that can be used by M+C organizations 
to comply with encounter data requirements. In the case of contracting 
providers, we have specified under Sec. 422.257 that M+C organizations 
may include in their provider contracts provisions requiring submission 
of valid data. Therefore, an M+C organization could provide in its 
contract that it will not make payment if claims do not meet the 
standards specified. In the case of noncontracting providers, however, 
Sec. 422.520 requires M+C organizations to pay 95 percent of ``clean 
claims'' within 30 days, or pay interest on the amount. Also, based on 
the existing definition of ``clean claims,'' an M+C organization could 
not withhold payment based on a failure to submit a claim in the form 
required for use in complying with encounter data requirements. As 
noted in section II.F.2, we are revising the definition of ``clean 
claim'' in Sec. 422.500 to require that clean claims include the 
substantiating documentation needed to meet the requirements for 
encounter data submission, and meet the original Medicare ``clean 
claim'' requirements. This change will, in effect, also require 
noncontracting providers submitting claims to an M+C organization to 
provide the organization with the information it needs to be able to 
use the claim in encounter data submissions, by exempting claims that 
do not meet these requirements from application of the 30-day ``prompt 
payment'' standards articulated at Sec. 422.520. M+C organizations will 
therefore be able to withhold payment longer than the 30-day prompt 
payment standard in cases where noncontracting providers submit claims 
that do not contain substantiating documentation necessary for 
encounter data submissions or have other deficiencies (for example, 
inadequate coding). We believe that this clarification of the clean 
claim definition at Sec. 422.500 is consistent with section 1957(f)(1) 
of the Act, which incorporates the Medicare fee-for-service prompt 
payment provisions in sections 1816(c)(2)(B) and 1842(c)(2)(B) of the 
Act, and simply fleshes out the concept in the existing definition that 
a claim is not clean if it lacks ``any required substantiating 
documentation.'' Providers should note that submission of claims with 
complete and accurate encounter data is ultimately in their best 
interest, since M+C organizations must submit complete and accurate 
encounter data in order to get the full payment to which they are 
entitled under the risk adjustment system. While HCFA does not regulate 
payments to providers by M+C organizations, we believe that M+C 
organizations should share appropriately with providers any gains under 
the risk adjustment system.
2. National Contracting
    The BBA does not specifically define or directly address the issue 
of national contracting. It facilitated such contracting, however, when 
it provided in section 1857(a) of the Act that an M+C contract ``may 
cover more than 1 Medicare+Choice plan,'' and, in section 1851(h)(3) of 
the Act, provided that marketing material need only be approved once to 
the extent it is consistent from area to area. While we are interested 
in national contracting, we similarly have not expressly provided for 
it in the regulations. One national contracting approach we would be 
willing to consider would permit an M+C applicant to request that we 
enter into a national contract with the applicant if the applicant 
holds license as a risk-bearing entity in each State where it intends 
to operate. The applicant would have the option of adopting a single 
M+C plan across the country, with one service area and a national ACR 
proposal, or offering different M+C plans in different areas under the 
same national contract.
    While we have not at this time entered into a national contract 
with any M+C organization, HCFA has entered into national 
``agreements'' with national chain organizations that hold M+C 
contracts. These arrangements apply to those chain organizations that 
enter into separate contracts in multiple States. These agreements 
allow a chain organization to establish a uniform policy across all of 
its States as to marketing, quality assurance, utilization review, 
claims processing, etc. HCFA pre-approves these national policy 
procedures. We continue to contract separately with individual, albeit 
related, M+C organizations affiliated through common ownership or 
control. We likewise continue to monitor operational activities for 
each organization in each State, but, having approved national policy, 
the need for

[[Page 40264]]

review at the State and local level is reduced.
    Nine commenters addressed national contracting for M+C 
organizations. While most of the public comments favored extending the 
option of national contracting to M+C organizations and applicant 
organizations, commenters generally linked their support for the 
concept to a request that we provide additional information on the 
specifics of any national contracting policy.
    Comment: While several commenters that supported national 
contracting raised individual concerns, (in most instances related to 
the need for HCFA to provide additional information), one commenter 
raised concerns that national contracting would undermine our ability 
to adequately monitor the performance of M+C organizations. Another 
commenter raised concerns that national contracting would provide M+C 
organizations the ability to bypass existing limits pertaining to the 
provision of cross-state and national radiology services.
    Response: We continue to believe that national contracting has 
potential advantages for Medicare beneficiaries, M+C organizations, and 
HCFA. Indeed, we have already observed the benefits of allowing M+C 
organizations that operate in many markets throughout the county to 
establish uniform operational functions in the areas of marketing, 
quality assurance and claims processing. However, some issues 
pertaining to national contracting, (for example, monitoring and 
oversight, enforcement actions, etc.), require additional study. While 
HCFA continues to explore these issues, we are not able to provide 
detailed guidance. At such time as additional guidance is developed, we 
anticipate notifying the public through an operational policy letter.
3. Compliance Plan (Sec. 422.501(b)(3)(vi))
    As a condition for entering into an M+C contract with HCFA, 
applicant organizations must demonstrate that they have certain 
administrative and management arrangements in place. There are six 
specific administration and management requirements at 
Sec. 422.501(b)(3). One of these requirements is that M+C organizations 
have in place a compliance plan for meeting all applicable Federal and 
State standards. The regulations list the required elements of the 
compliance plan, which generally follow the standards applied under the 
U.S. Sentencing Commission's Federal Sentencing Guidelines in 
determining whether the existence of a compliance plan should mitigate 
penalties. We received nine public comments on the M+C compliance plan 
requirement.
    Comment: Although some commenters agreed with the spirit of the 
compliance plan requirement, most objected to its mandatory nature, 
especially in light of OIG guidance on compliance plans for M+C 
organizations.
    Response: We believe that the unique financial incentives and 
health care delivery systems of M+C organizations justify the 
compliance plan requirement. Medicare beneficiaries who enroll in plans 
are essentially ``locked in'' to that plan's benefit structure and 
provider network and may not obtain services under original Medicare. 
M+C organizations are responsible for a significantly broader range of 
program activities than original Medicare providers, including 
marketing, enrollment, appeals and grievances, utilization management, 
and claims payment. Each of these activities presents the potential for 
noncompliance that could directly and adversely affect a beneficiary's 
rights under the Medicare program. For example, an M+C organization's 
failure to report enrollment data properly to HCFA may result in 
incorrect payments to that organization.
    While HCFA and the OIG conduct ongoing M+C program monitoring and 
enforcement activities, the number and variety of M+C operational 
requirements presents a significant regulatory challenge to both of 
these agencies. As a result, we believe that the additional level of 
scrutiny imposed by a compliance plan is a reasonable requirement.
    While the OIG stated in its November 1999 guidance that the 
document was intended only to provide assistance for M+C organizations, 
the OIG did note that it ``believes an effective compliance program 
provides a mechanism that brings the public and private sectors 
together to reach mutual goals of reducing fraud and abuse, improving 
operational quality, and ensuring the provision of high-quality cost-
effective care.'' The OIG also stated that a compliance plan is a tool 
for an M+C organization ``to ensure that it is not submitting false or 
inaccurate information to the Government or providing substandard care 
to Medicare beneficiaries * * *.'' We agree with the OIG's judgement 
with respect to the utility of the compliance plan tool and have 
adopted this requirement to protect the integrity of the M+C program.
    Comment: Several commenters asked when M+C organizations are 
responsible for meeting the compliance plan requirements stated at 
Sec. 422.501(b)(3)(vi), and noted that no detailed guidance on 
compliance has been issued by HCFA in connection with the interim final 
rule.
    Response: The requirements in Sec. 422.501(b)(3)(vi), as revised in 
this final rule, are in effect and must be met by M+C applicants and 
M+C organizations. Pending any further guidance, M+C organizations are 
free to reasonably interpret the provisions in Sec. 422.501(b)(3)(vi), 
and should be prepared to demonstrate, upon request, how the 
organization meets each compliance plan element, as specified at 
Sec. 422.501(b)(3)(vi), et seq.
    Comment: Many commenters addressed the requirement at 
Sec. 422.501(b)(3)(vi)(H) that M+C organizations develop ``an adhered-
to process for reporting to HCFA and/or the OIG credible information of 
violations of law by the M+C organization, plan, subcontractor, or 
enrollee for determination as to whether criminal, civil, or 
administrative action may be appropriate.'' Commenters generally stated 
that this requirement was too vague, and should be more clearly defined 
to enable organizations to demonstrate compliance to HCFA. Several 
commenters requested that we specify what ``credible information'' 
means within the context of requiring M+C organizations to submit 
information to HCFA and/or the OIG. Commenters also requested that we 
specify: (1) Exactly what information must be self-reported; (2) to 
which agency; and (3) pursuant to violations of which laws. Commenters 
also noted that while paragraphs (A) through (G) correspond to 
provisions found in the Federal Sentencing Guidelines, paragraph (H) 
appears to be an M+C requirement only. These commenters believe that it 
is unfair to subject M+C organizations to a self-reporting requirement 
that does not apply to other sectors of the health care industry.
    Response: Commenters correctly point out that the first seven 
elements of the mandated compliance plan guidance at 
Sec. 422.501(b)(3)(vi) et seq. reflect the areas identified in the U.S. 
Federal Sentencing Guidelines. We previously added the eighth element 
in an attempt to ensure an enhanced level of program safeguard through 
self-reporting. We recognize, however, that it is arguably unfair to 
impose a self-reporting requirement on M+C organizations but not on 
other types of health care providers and suppliers participating in the 
Medicare program, and we have eliminated any requirement of self-
reporting.

[[Page 40265]]

    Nevertheless, we believe that the existence of voluntary self-
reporting procedures of potential misconduct is an appropriate part of 
an M+C organization's compliance program. While this rule does not make 
any type of self-reporting mandatory, M+C organizations may wish to 
consider the following suggestions, as a matter of voluntary good 
business practice. These suggestions are not mandatory. Where the M+C 
organization discovers evidence of misconduct related to payment or 
delivery of health care items or services under the M+C contract, the 
M+C organization may conduct a timely, reasonable inquiry into the 
misconduct. After the reasonable inquiry, if the organization has 
determined that the misconduct resulted in an overpayment, the M+C 
organization is encouraged voluntarily to report the overpayment to 
HCFA. If the M+C organization has determined that the misconduct may 
violate the statutes of direct concern to the HHS Office of Inspector 
General, it is encouraged voluntarily to report the existence of the 
misconduct to that office. Finally, the M+C organization is encouraged 
voluntarily to initiate and implement appropriate corrective actions to 
ensure the problem does not recur.
    While we are withdrawing all requirements for self-reporting in 
this rule, we believe that the required reporting of overpayments is an 
effective tool for promoting Medicare program integrity generally. 
Accordingly, HCFA intends to develop policies through separate notice 
and comment rulemaking in cooperation with the HHS Office of Inspector 
General that would require all Medicare providers, suppliers and 
contractors to report overpayments to HCFA.
    Comment: Some commenters considered the M+C compliance plan 
requirements at Sec. 422.501(b)(3)(vi) to be overly prescriptive, and 
asserted that they would result in M+C organizations being forced to 
``reinvent the wheel,'' even though they may have existing compliance 
structures in place that meet the intent of the regulations. Many of 
these same commenters questioned our authority to prescribe these 
requirements in the M+C final rules.
    Response: It is not our intent through these rules to require M+C 
organizations with effective compliance plans in place to make major 
changes. We believe that the requirements in Sec. 422.501(a)(3)(vi) 
based on the Federal Sentencing Guidelines are sufficiently broad and 
general in nature that an effective compliance plan currently in place 
should satisfy M+C requirements. However, we do want some assurances 
that M+C organizations will have procedures in place to ensure 
compliance with Federal laws and requirements. We believe that our 
compliance plan requirements include the basic framework required for 
organizations to prevent and detect activities that will render the 
organization out of compliance. Moreover, the elements of the Federal 
Sentencing Guidelines from which these requirements are drawn are 
present in other guidances issued by the OIG over the last several 
years and should be familiar to most M+C compliance officials.
    M+C organizations and contract applicants have broad discretion 
under Sec. 422.501(b)(3)(vi) to design their compliance plan structure 
to meet the unique aspects of each organization. We recognize that 
there is no one best way for an organization to take steps to ensure 
that it is operating in compliance with all applicable regulations and 
requirements. Thus, we intend to work with M+C organizations and 
contract applicants to apply a flexible standard in reviewing M+C 
compliance plans, while still ensuring that these compliance plans 
serve their intended purpose: to detect and prevent compliance 
problems, in addition to identifying aspects of the organization that 
may be vulnerable to such problems.
    We believe that one way for us to determine if an organization's 
corporate compliance plan is effective is to evaluate and audit the 
performance of the organization according to the M+C requirements 
articulated in the M+C contract and regulations. Since we have an 
established monitoring process for M+C organizations, we believe that 
the infrastructure is already established that may assist HCFA in its 
efforts to assess the effectiveness of organizations' compliance plans 
based in part on the results of our monitoring efforts.
4. Access to Facilities and Records (Sec. 422.502(e))
    Under Sec. 422.502(e) of the regulations, an M+C organization must 
agree to allow access to HHS or the Comptroller General to evaluate the 
quality, appropriateness, and timeliness of services furnished to 
Medicare enrollees under the contract; the facilities of the M+C 
organization; and the enrollment and disenrollment records for the 
current contract period, and 6 prior contract years. We received two 
comments regarding access to M+C organization records.
    Comment: A commenter asked what an M+C organization's obligations 
are in relation to information concerning nonplan providers, with whom 
an M+C organization has no contract. The commenter questioned how M+C 
organizations could be expected to provide access to governmental 
entities for nonplan provider records in order to meet the requirements 
of Sec. 422.502(e).
    Response: We recognize that HHS, the Comptroller General or their 
designees can require only M+C organizations and their subcontractors 
to make available their facilities and records. If an M+C organization 
does not have a contract or other suitable written arrangement with a 
provider, it cannot compel the provider to provide the same access that 
an M+C organization or its subcontractors must provide under the terms 
of their M+C contract with HCFA. In order for HHS or the Comptroller 
General to gain access to the facilities and records of noncontracting 
providers, these agencies would be required to resort to other 
available legal remedies, such as subpoenas.
    We would add, however, that as a general principle, if Federal 
funds are going to a provider of Medicare or Medicaid services, 
appropriate Federal officials have a right to review that provider's 
facility or books as a condition of receipt of those Federal funds.
    Comment: A commenter suggested that the 6-year time period for 
which data must be retained under the regulations should be tied to the 
end of the year in question, and not the date of the completion of the 
audit, as provided in Sec. 422.502(e)(4).
    Response: The 6-year period specified for retention of records was 
established in reliance on the 6-year ``statute of limitations'' that 
generally governs the initiation of a civil action by the Government, 
either under the False Claims Act (FCA) or the Civil Monetary Penalties 
Law (CMPL). A statute of limitations specifies the time period during 
which the Government may initiate an action. Generally, a statute of 
limitations begins to run on the date that an audit was completed. For 
this reason, we are requesting that books and records be kept for at 
least 6 years from either the end of a contract or the completion of an 
audit, whichever is later.
    For purposes of clarity, we also point out that the 6-year record 
retention requirement requires M+C organizations to keep a specific 
year's records for 6 years, after which the organization is free to 
dispose of any records they deem appropriate. This is to clarify one 
misconception that M+C organizations must maintain 6 years of records 
for an additional 6-year period. We instead

[[Page 40266]]

envision the obligation for M+C organizations to retain records to 
expire on a rolling basis, with M+C organizations having the right to 
discard each year the records from more than 6 years earlier. For 
example, in 2000, M+C organizations could discard records from 1993 or 
earlier. In 2001, M+C organizations could discard records from 1994, 
etc. Under this system of record retention, if the Government has not 
audited or determined any wrongdoing within a 6-year period following 
the year when records were developed, the Government would be otherwise 
precluded under law from taking any action against an M+C organization.
5. Disclosure of Information (Sec. 422.502(f)(2)(v))
    Pursuant to authority at section 1851(d) of the Act, 
Sec. 422.502(f)(2) describes the information that M+C organizations 
must submit to HCFA. We specify that this information is necessary for 
us to fulfill our responsibilities in evaluating and administering the 
program. Our dissemination of some of this information to current and 
prospective Medicare beneficiaries enables them to exercise informed 
choice in obtaining Medicare services. We received one comment on this 
section of the interim final rule.
    Comment: One individual commented on the requirement in 
Sec. 422.502(f)(2)(v) that M+C organizations submit to us information 
about beneficiary appeals and their disposition. The commenter 
recommended that we amend this section of the regulations to include 
the additional requirement that M+C organizations disclose to HCFA 
information regarding beneficiary grievances and their disposition.
    Response: Consistent with section 1852(c)(2)(c) of the Act, 
Sec. 422.111(c)(3) of the regulations distinguishes between information 
that an M+C organization must provide to a Medicare enrollee annually, 
and information that the M+C organization must disclose to any M+C 
eligible individual upon request. The requirement states that M+C 
organizations must disclose to M+C eligible individuals, upon request, 
the aggregate number of disputes, and their disposition, including both 
grievances and appeals. Thus, Medicare beneficiaries have access to 
information on M+C organization grievances.
    Also, pursuant to both sections 1851(d)(3) and 1852(c)(2)(C) of the 
Act, Sec. 422.502(f) requires that M+C organizations disclose to us the 
appeal data that they are required to disclose upon request to 
beneficiaries. We believe that this is necessary so that we can begin 
to capture important baseline data on the appeals process. Our 
contractor (the Center for Health Disputes Resolution) is responsible 
for making reconsideration decisions when an enrollee files an appeal, 
and these decisions are appealed to HHS administrative law judges and 
the Departmental Appeals Board. In addition, HCFA enforces decisions 
made by these entities, which necessarily involve the critical question 
of whether services will be covered by the M+C organization.
    While the regulations provide for beneficiary access to information 
on an M+C organization's grievance process, we do not at this time 
believe that it is necessary for HCFA to collect this information for 
administrative purposes. We would advise M+C organizations, however, 
that while we are not requiring that M+C organizations disclose 
grievance data to us at this time, we intend to propose additional 
requirements pertaining to M+C grievances, including quality of care 
grievances, in a notice of proposed rulemaking to be published later 
this year. Thus, we anticipate that M+C organizations may be required 
to report grievance data in the future.
6. Beneficiary Financial Protection (Sec. 422.502(g))
    In the interim final rule, we addressed enrollee financial 
protection provisions at Sec. 422.502(g). These provisions are designed 
to protect enrollees from incurring liability for payment of any fee 
for which M+C organizations are legally obligated. Section 422.502(g) 
incorporates enrollee financial protections that were in place before 
the BBA in Sec. 417.122(a)(1), which applies to all section 1876 
contractors under Sec. 417.407(f). Section 422.502(g)(1) is intended to 
protect enrollees from being held financially responsible for fees for 
which the M+C organization is legally liable; Sec. 422.502(g)(2) 
addresses M+C organizations' obligation to provide for continued 
coverage of health care benefits, and Sec. 422.502(g)(3) sets forth the 
mechanisms M+C organizations can employ to provide the required 
enrollee protections. We received three comments regarding 
Sec. 422.502(g).
    Comment: A commenter suggested that we provide appropriate ``hold 
harmless'' language for inclusion in M+C organizations' contracts 
because different States have different requirements regarding hold 
harmless language. (By ``hold harmless'' language, the commenter is 
referring to language included in an M+C organization's contract with a 
provider that protects enrollees from being charged for services, 
(other than pursuant to M+C plan provisions that allow for cost-
sharing), furnished by the provider, even if the provider has not 
received payment from the M+C organization for the services.)
    Response: Implicit in the commenter's request is recognition that 
many States have adopted hold harmless contract language requirements 
for managed care organizations operating within a given State. We 
generally recommend that M+C organizations adopt the National 
Association of Insurance Commissioners' (NAIC) model hold harmless 
language. However, given the wide variety of individual State 
requirements loosely categorized under member or enrollee protections, 
we do not believe that it is prudent to require M+C organizations to 
adopt the NAIC model language, because that requirement may well place 
some M+C organizations at odds with State provisions. The NAIC-approved 
language is available through most State insurance commissioners' 
offices, or by contacting the NAIC directly.
    Comment: One commenter recommended that we strengthen the 
beneficiary protection provisions in subpart K by explicitly 
prohibiting providers from bringing ``collection actions'' against M+C 
enrollees, as a means of preventing providers from billing 
beneficiaries enrolled in M+C plans for fees that are the legal 
obligation of the M+C organization. The commenter also suggested that 
we define the word ``fees'' for purposes of this section of the 
regulations.
    Response: Section 422.502(g)(1) is designed to ensure that 
beneficiaries are not held liable for fees for which the M+C 
organization is legally responsible. As discussed above, under 
Sec. 422.502(g)(1)(i), contracts with M+C plan providers must contain 
language that prohibits these providers from holding beneficiary 
enrollees liable for payment of fees that are the obligation of the M+C 
organization. (This language is commonly referred to as ``hold 
harmless'' language.) Under Sec. 422.502(g)(1)(ii), M+C organizations 
are responsible for indemnifying enrollees for payment of any fees that 
are the legal obligation of the M+C organization to pay when services 
are furnished by providers that do not have a contract or other 
acceptable written arrangement with the M+C organization. We believe 
that these two provisions generally are adequate to ensure that M+C 
enrollees are not held responsible for fees for which an M+C 
organization is liable.

[[Page 40267]]

    In instances where providers do bill M+C enrollees for amounts 
beyond those approved in an M+C plan, we believe that it is the 
responsibility of the M+C organization to take appropriate steps, such 
as recovering these amounts from the providers, to see that beneficiary 
enrollees are made financially whole. If they fail to do so, we would 
take appropriate action against the M+C organization. We believe it 
would be inappropriate for us to engage in activities directed at 
individual providers.
    We note, however, that even in situations, (such as insolvency or 
other financial difficulties), where an M+C organization fails to 
satisfy its responsibility to pay a provider for services furnished to 
an M+C enrollee, the principle that the beneficiary is protected still 
applies. Although we believe this principle is inherent in the existing 
regulations, to clarify this point, we are revising Sec. 422.502(g)(1) 
to indicate that the applicable beneficiary financial protections apply 
in situations such as insolvency or other financial difficulties.
    We believe that the term ``fee'' is commonly understood, and does 
not need a special definition. In this context, the term refers to the 
fees charged by a provider (for example, a physician's fee for services 
provided). M+C organizations are responsible for payment of such fees, 
except for applicable enrollee cost-sharing amounts specified under the 
M+C plan, which are the obligation of the Medicare enrollee.
    Comment: A commenter contended that there is an inconsistency in 
the language in Secs. 422.502(g)(2), (g)(3), and (i)(3)(i)(B). Section 
422.502(g)(3) gives M+C organizations several options for meeting 
requirements in Sec. 422.502(g) (other than the ``hold harmless'' 
requirement in Sec. 422.502(g)(1)(i)), including the options of 
providing for continuation of benefits through contractual 
arrangements, insurance, financial reserves, or other arrangements 
acceptable to HCFA. Section 422.502(i)(3)(i)(B), however, effectively 
requires that continuation of benefits be provided for in contract 
language.
    Response: We agree with the commenter that the language in these 
sections is inconsistent. Accordingly, we are revising 
Secs. 422.502(i)(3)(i) to eliminate the requirement that the 
continuation of benefits protection be addressed through contractual 
arrangements. In conjunction with this technical change, we also are 
revising Sec. 422.502(g)(3) to clarify that the alternative 
arrangements spelled out there are linked only to the indemnification 
provision in Sec. 422.502(g)(1)(ii) and to the continuation of benefits 
provision in Sec. 422.502(g)(2).
7. Requirements of Other Laws and Regulations (Sec. 422.502(h))
    Section 422.502(h) requires that contracts reflect the M+C 
organization's obligations under other laws, specifically, the Civil 
Rights Act of 1964, the Age Discrimination Act of 1975, the Americans 
with Disabilities Act, other laws applicable to recipients of Federal 
funds, and all other applicable laws and rules.
    Comment: Several commenters wanted us to define ``other laws 
applicable to recipients of Federal funds'' and ``other applicable laws 
and rules'' as used in Sec. 422.502(h).
    Response: These references are intentionally broad and all-
encompassing. We have already identified various specific laws. These 
references are intended to encompass laws that may be enacted in the 
future, or current laws that we might inadvertently omit if we were to 
attempt to be more specific in this regulation. It is important to 
note, however, that these references only apply to laws that are, by 
definition and by their own terms, ``applicable'' to an M+C 
organization. Thus, these provisions of the regulations do not result 
in an organization being required to comply with any laws that do not 
already apply to them. Rather, they simply call for a commitment to 
comply with these laws.
8. Contracting/Subcontracting Issues (Sec. 422.502(i))
    The requirements found at Sec. 422.502(i)(3) pertaining to M+C 
contracting requirements with providers, suppliers, and administrative 
service entities were developed pursuant to our authority under section 
1856(b)(1) of the Act to ``establish'' M+C ``standards.'' We developed 
these rules in recognition of the fact that managed care organizations 
commonly enter business relationships with entities that they place 
under contract to perform certain functions that would otherwise be the 
responsibility of the M+C organization. Section 422.502(i)(3) 
establishes these requirements in three broad categories: enrollee 
protection provisions, accountability provisions, and a provision that 
assures that services performed by other entities are carried out in a 
manner that complies with the M+C organization's contractual 
obligations to us. We received three comments concerning the 
subcontracting issues addressed in Sec. 422.502(i)(3).
    Comment: Two commenters believe that HCFA should provide additional 
guidance on its contracting/subcontracting requirements; they suggested 
that HCFA apply a flexible standard in holding M+C organizations 
accountable for meeting these requirements in a timely manner. A third 
commenter wanted to know if our subcontracting guidance would compel 
entities with whom M+C organizations contract to comply with HCFA's Y2K 
systems compliance requirements.
    Response: We are cognizant of the importance of providing detailed 
contracting guidance to M+C organizations, and to individuals and 
entities that might choose to contract with them. We have issued 
significant guidance in the past and intend to continue doing so as 
needed in the future. For example, in OPL 98.077 we addressed two major 
issues. First, we clarified the contracting requirements that affect 
M+C organizations, applicant organizations, contractors, and 
subcontractors. Second, we addressed implementation guidance for 
organizations that wished to begin operation as an M+C-contracting 
organization. We believe that this OPL sufficiently addresses concerns 
raised by the managed care industry concerning the need for a higher 
degree of specificity regarding contracting and subcontracting 
requirements. We likewise believe that OPL 98.077 established flexible 
implementation standards in recognition of the labor-intensive nature 
inherent in activities aimed at amending or otherwise establishing 
contracts and subcontracts that follow the standards specified in the 
M+C regulations and elsewhere in OPL 98.077. Commenters and other 
interested parties may access OPL 98.077 on the Internet at http://www.hcfa.gov.
    Regarding the question on Y2K requirements, this issue is moot, 
since all contracting M+C organizations appear to have succeeded in 
avoiding related problems. We would note, however, that to the extent 
an M+C organization provided services through subcontractors, it was 
responsible for ensuring the Y2K compliance of those subcontractors to 
the extent necessary to ensure overall Y2K compliance.
    Comment: Some commenters expressed confusion regarding use of the 
terms ``related entities, contractors, and subcontractors'' in 
Sec. 422.502(i)(1), and the applicability of these terms. Some have 
pointed out that although the term ``related entity'' is defined at 
Sec. 422.500, the terms ``contractor'' and ``subcontractor'' are not 
defined.

[[Page 40268]]

    Response: In response to the confusion suggested by this comment, 
we now recognize that the terms ``contractor'' and ``subcontractor'' 
are somewhat amorphous, and could mean different things to different 
parties. For instance, a contract between an M+C organization and 
members of an IPA might be considered a ``contract'' by one party and a 
``subcontract'' by another party. Likewise, organizations or 
individuals might sometimes call a contract between the IPA and its 
member physicians a ``subcontract,'' while in other instances call it a 
``provider participation agreement.'' We have consulted with the 
managed care industry about terms that may be universally recognized, 
and have also considered developing new terminology with clear 
definitions.
    As a result, and in response to the comment, we have added two 
terms--``first tier'' and ``downstream''--to the list of definitions at 
Sec. 422.500. We believe these definitions will clarify the types of 
entities to which the M+C contracting requirements described at 
Sec. 422.502(i) apply. We began using the terms ``first tier'' and 
``downstream'' in OPL 98.077, and believe that both terms 
satisfactorily enhance the description of entities or individuals that 
are the intended audience for satisfying the requirements found at 
Sec. 422.502(i).
9. Certification of Data That Determine Payment/Certification of the 
Accuracy of ACR Information (Sec. 422.502(l))
    Under Sec. 422.502(l), M+C organizations must certify to the 
accuracy, completeness, and truthfulness of the data used to calculate 
payments to the organizations. These data include enrollment 
information, encounter data, and the information included in an M+C 
organization's ACR proposal. In the preamble to the interim final rule, 
we noted that in submitting these data, M+C organizations are making a 
``claim'' for payment from HCFA, since this information directly 
affects the calculation of payment rates and amounts. We stated that 
the certifications would help ensure accurate data submissions and 
assist us in maintaining the integrity of the Medicare program.
    Comment: Several commenters suggested that the certification 
requirement should include a ``good faith'' standard. Given the 
significance of the penalties that HCFA, OIG, and the Department of 
Justice (DoJ) may potentially impose in the case of a ``false claim,'' 
and the complexity of the data required, these commenters believe that 
it would be unfair and unrealistic to hold M+C organizations to a ``100 
percent accuracy'' certification standard.
    Response: We first addressed this issue during the drafting of the 
1999 M+C coordinated care plan contract. In developing the 
certification forms M+C organizations would use to meet the payment 
data certification requirement, we consulted with OIG and DoJ in 
drafting language that requires the M+C organization to certify the 
accuracy, completeness, and truthfulness of this data based on ``best 
knowledge, information, and belief.'' This language was included in the 
1999 contract forms in recognition of the fact that M+C organizations 
cannot reasonably be expected to know that every piece of data is 
correct, nor is that the standard that HCFA, the OIG, and DoJ believe 
is reasonable to enforce.
    In presentations to industry, HHS representatives have emphasized 
that simple mistakes will not result in sanctions. Generally, the 
Federal government can bring an action only when one of three states of 
mind exists: (1) Actual knowledge of falsity of a claim or information; 
(2) reckless disregard; or (3) deliberate ignorance of information 
supporting the truth or falsity of a claim or other information (42 CFR 
1003.101). However, no specific intent to defraud is required. The 
``best knowledge, information, and belief'' standard of the M+C 
contract certification forms is consistent with these standards.
    It is appropriate that the M+C regulations be consistent with the 
standard of knowledge reflected in Federal fraud statutes. Therefore, 
we are modifying Sec. 422.502(l) as needed to reflect the ``best 
knowledge, information, and belief'' certification standard.
    Comment: Several commenters suggested that the signatory authority 
for payment certifications should not be limited to the chief executive 
officer (CEO) and chief financial officer (CFO) of an M+C organization. 
The commenters noted that as a practical matter, it is difficult to 
obtain a CEO or CFO signature on a monthly basis, given the workload 
and travel obligations of these officers. Therefore, the regulations 
should permit a CEO or CFO to designate another individual in the M+C 
organization to sign the certifications.
    Response: We agree that the CEO/CFO signature requirement can 
create operational difficulties for M+C organizations in their efforts 
to comply with the payment certification requirements of 
Sec. 422.502(l). However, we believe that it is important that 
certifications be made by a high level individual who has authority to 
obligate the M+C organization, or someone who has been delegated the 
authority of such an individual. Therefore, we are modifying 
Sec. 422.502(l) to require the ``CEO, CFO, or an individual delegated 
with the authority to sign on behalf of one of these officers, and who 
reports directly to such an officer,'' to certify the M+C 
organization's enrollment data, encounter data, and ACR proposal 
information.
    Comment: A commenter contended that M+C organizations should not be 
required to certify the accuracy of the encounter data they receive 
from third parties. Rather, this commenter believes that organizations 
should be required to certify only that they have not altered the data, 
and that they have transmitted it to HCFA as they received it from the 
provider. The commenter asserted that M+C organizations do not control 
the operations of those providing encounter data, and that the volume 
of data is such that no M+C organization has the resources to verify 
the accuracy of these submissions.
    Response: Under the M+C program, encounter data will be used as a 
factor in calculating payments to M+C organizations. Therefore, 
encounter data submissions, like enrollment data and ACR information, 
represent a ``claim'' for payment. As such, M+C organizations have an 
obligation to take steps to ensure the accuracy, completeness, and 
truthfulness of the encounter data.
    We acknowledge that encounter data come into M+C organizations in 
great volume and from a number of sources, presenting significant 
verification challenges for the organizations. However, we believe that 
M+C organizations have an obligation to undertake ``due diligence'' to 
ensure the accuracy, completeness, and truthfulness of encounter data 
submitted to HCFA. Therefore, they will be held to a ``best knowledge, 
information, and belief'' standard. Therefore, M+C organizations will 
be held responsible for making good faith efforts to certify the 
accuracy, completeness, and truthfulness of encounter data submitted.
10. Effective Date and Term of Contract (Sec. 422.504)
    Section 1857(c)(3) of the Act provides that the effective date of 
an M+C contract is to be specified in the M+C contract, and section 
1857(c)(1) requires that contracts be for a term of at least one year. 
The Secretary was provided the discretion under section 1857(c)(1) to 
provide for contracts to be ``automatically'' renewable in the absence 
of notice.

[[Page 40269]]

    Section 1857(c)(2) of the Act authorizes us to terminate an M+C 
contract if we determine that an M+C organization substantially fails 
to carry out its M+C contract, carries out the contract in a manner 
that is inconsistent with the effective and efficient administration of 
the M+C program, or fails to continue to meet the M+C requirements.
    Section 422.504 of the June 1998 interim final rule implements 
section 1857(c)(1) and (3) of the Act. Section 422.504(b) provides that 
contracts generally are for a 12-month period beginning January 1 and 
ending December 31. Section 422.504(d) provides for a limited exception 
to this rule, permitting HCFA the discretion, prior to January 1, 2002, 
to approve a contract for longer than 12 months beginning on a date 
other than January 1. This decision permits us to accept M+C 
applications on a continuous ``flow'' basis until the beginning of the 
lock-in periods contemplated under the BBA starting in 2002. We 
received one comment pertaining to the effective date and term of the 
M+C contract.
    Comment: A commenter expressed concerns regarding the effect of 
open enrollment requirements on our requirements governing the 
effective date and term of M+C contracts. In particular, the commenter 
had concerns about the elimination of the right to disenroll (and 
enroll) in an M+C plan at any time. The commenter believes that this 
shift in enrollment policy contributed to our decision no longer to 
approve contract applications on a continuous ``flow'' basis after 
2002, since most Medicare beneficiaries, (excluding newly eligible 
beneficiaries and those beneficiaries eligible to make an election 
based upon a special enrollment period), would not otherwise be able to 
enroll in the new M+C organization until the beginning of the next 
annual open enrollment period. The commenter suggested that M+C 
organizations retain the ability to enroll Medicare beneficiaries on an 
ongoing basis without regard to the annual lock-in periods contemplated 
by the BBA at section 1851(e).
    Response: This comment raises two related issues. The first 
pertains to enrollment and disenrollment policies, and the second 
pertains to HCFA's rationale for considering a policy that would 
establish a cutoff date for making contracts effective on a date other 
than January 1. We believe the statute clearly indicates that 
continuous open enrollment and disenrollment may continue only through 
the end of 2001. Currently, M+C organizations are only required to be 
open for enrollment in November of each year, to newly Medicare-
eligible individuals, and during specified ``special election 
periods.'' (See Sec. 422.60(a).) Thus, it is not necessarily the case 
even now that there is ``continuous'' open enrollment, though the right 
to disenroll exists all year. During the first 6 months of the 
transition year of 2000, a beneficiary will be able to disenroll 
without cause, and enroll in any M+C plan open for enrollment, with a 
limit of one change in enrollment status during this period. This same 
situation will apply to the first 3 months of every year after 2002, 
with a limit of one change in elections during this 3-month period. 
Other than this, beneficiaries will only be permitted to enroll or 
disenroll during the annual November open enrollment period, a special 
election period, or upon first becoming eligible for Medicare (with the 
exception of institutionalized individuals, consistent with section 501 
of the BBRA). These enrollment limitations will, in effect, limit the 
number of Medicare beneficiaries that an M+C organization can enroll 
mid-year. Yet, after considering the comments, we do not believe that 
the enrollment policies pursuant to the BBA necessarily preclude us 
from entering into contracts on dates other than January 1 beginning 
2002. While we recognize the inherent enrollment limitations for M+C 
organizations that will result from a mid-year enrollment eligibility 
pool that will be comprised largely of individuals that become newly 
eligible for Medicare, we nevertheless believe that enrollment and the 
term of an M+C contract are distinct issues that can be considered 
independent of each other. Regarding the term of an M+C contract, we 
further believe that the statute permits us to continue to approve mid-
year contracts post-2002. Since section 1857(c)(1) requires that 
contracts be for a term of at least one year, HCFA may continue to 
enter contracts that may begin on dates other than January 1 for terms 
longer than 12 months. We have modified Sec. 422.504 to reflect this 
policy.
11. Nonrenewal of M+C Contracts (Sec. 422.506)
    Section 422.506 specifies the process that M+C organizations and 
HCFA must use should HCFA decide not to renew the organization's 
contract, or should the organization give HCFA notice that it does not 
want its contract to be renewed. We received four comments addressing 
our M+C contract renewal policy.
    Comment: Some commenters believe that requiring M+C organizations 
to notify HCFA of their intent to nonrenew their M+C contract(s) by May 
1 does not provide enough time for organizations to conduct the 
requisite analysis necessary to decide whether the organization should 
remain in the M+C program.
    Response: We agree with the commenter that the May 1 deadline does 
not provide organizations enough time to decide whether to remain in 
the M+C program. We recognize that the May 1 deadline affords 
organizations only 60 days from the date such organizations received 
the upcoming year's M+C payment rates to make business decisions 
affecting their participation in the M+C program. Congress recently 
recognized this problem when it amended section 1854(a)(1) of the Act 
to change the deadline for submitting an ACR from May 1 to July 1. (See 
section 516 of the BBRA and section I.C of this preamble.) In light of 
the commenter's concern, and the change in the ACR deadline enacted by 
Congress, we are revising Sec. 422.506(a)(2)(i) to permit an M+C 
organization until July 1 to notify us of its intent not to renew its 
M+C contract for the upcoming contract year. An M+C organization that 
does not signify its intent not to renew its M+C contract by July 1, 
and that has not otherwise been notified by HCFA of our intent not to 
renew the M+C organization's contract by May 1, will be obligated to 
contract for the upcoming contract year.
    Comment: One commenter questioned our authority under 
Sec. 422.506(b)(ii) to decide not to renew M+C contracts based on our 
assessment that an M+C organization's level of enrollment or growth in 
enrollment threatens the viability of the organization under the M+C 
program. This commenter likewise questioned the authority under which 
we could decide not to renew a contract based upon our assessment that 
lack of enrollment could be viewed as an implied measure of 
dissatisfaction with a particular M+C organization.
    Response: We believe that HCFA should be a prudent purchaser of 
health care services on behalf of Medicare beneficiaries. This entails 
a fiduciary responsibility to Medicare beneficiaries and tax payers to 
maintain contracts with organizations that display a sustained and 
ongoing commitment toward meeting the highest quality standards, and 
that offer a product attractive enough to attract Medicare 
beneficiaries to enroll. In promulgating Sec. 422.506(b)(1)(ii), we 
determined that it might not be worth the costs associated with 
contracting with an M+C organization if that organization fails to 
attract or keep at least some level of Medicare enrollment.

[[Page 40270]]

    However, in response to the commenter's concern, we have determined 
that the standard outlined at Sec. 422.506(b)(1)(ii) for declining to 
renew an M+C contract may be too vague to enforce; therefore, we are 
deleting Sec. 422.506(b)(1)(ii).
12. Provider Prior Notification and Disclosure (Secs. 422.506(a), 
422.508, 422.510(b), and 422.512)
    We address M+C contract determinations in several sections 
throughout subparts K and N of the M+C regulations. As noted above, 
Sec. 422.506 contains provisions governing our decisions and M+C 
organization decisions concerning whether to renew an M+C contract. 
Section 422.508 specifies that HCFA and an M+C organization may 
together elect, upon mutual consent, to modify an M+C contract. 
Sections 422.510 and 422.512 describe M+C contract termination 
procedures when initiated by either HCFA or an M+C organization. When 
M+C contract determinations occur, either the organization initiating 
the determination, or the organization impacted by the determination, 
must meet certain notification requirements described in Secs. 422.506, 
422.508, 422.510, and 422.512. The notice requirements compel either 
HCFA or the M+C organization to notify: (1) The party affected by the 
contract determination (for example, if HCFA elects to terminate a 
contract, HCFA must notify the M+C organization of our determination); 
(2) the Medicare beneficiaries from the affected M+C organization's M+C 
plans; and (3) the general public.
    Comment: Several commenters suggested that we consider developing a 
requirement that would compel HCFA and/or an M+C organization to notify 
providers affected by M+C contract determinations about the contract 
determination, regardless of which party initiates the contract 
determination action. The commenters contended that the notice is 
necessary to grant providers sufficient time to react to contract 
determinations that may adversely affect them. (A related section of 
regulations that the commenters did not reference, but would logically 
be affected by the recommendations of the commenters, is Sec. 422.641 
of subpart N.)
    Response: We believe there are several reasons why separate 
provider disclosure and notification is unnecessary. First, we do not 
believe that notifying an M+C organization's network providers of an 
M+C contract determination is feasible for HCFA, since we do not 
routinely maintain this information at a level of specificity that 
would be necessary to provide such notice. Further, we do not believe 
that it is necessary to require M+C organizations to provide such 
notice, since we believe that they would necessarily have to notify 
affected providers that their contracts were being nonrenewed.
    In any event, since M+C organizations and/or HCFA are already 
required to disclose specified information to the general public, a 
subset of which are the M+C organization's providers, pursuant to an 
M+C contract determination, we believe that any additional notification 
requirements may be duplicative and unnecessary.
13. Mutual Termination of a Contract (Sec. 422.508)
    Section 422.508 provides that M+C organizations and HCFA may 
mutually agree to modify or terminate an M+C contract. When a contract 
is terminated by mutual consent, M+C organizations must provide notice 
to affected Medicare enrollees and the general public. If the contract 
terminated by mutual consent is replaced on the following day by a new 
M+C contract, the notice requirements do not apply.
    Comment: One commenter expressed concerns that our policy, as 
outlined at Sec. 422.508, does not provide enough beneficiary 
protection, and may potentially compromise beneficiary continuity of 
care. Further, the commenter recommended that mutual contract 
termination should automatically trigger a special enrollment period 
for affected Medicare beneficiaries, as outlined at Sec. 422.62(b).
    Response: We believe that Sec. 422.508 provides Medicare 
beneficiaries affected by mutual consent contract termination with the 
protections necessary for affected beneficiaries to choose new Medicare 
health service delivery options. In particular, the requirement that 
M+C organizations provide Medicare beneficiaries and the general public 
with a notice of termination to conform to the 60-day notice 
requirement in Secs. 422.512(b)(2) and (3) should enable affected 
Medicare beneficiaries to arrange for alternative health care coverage, 
such as returning to original Medicare, or choosing a different M+C 
plan before the effective date of termination.
    We agree with the commenter that a termination (and not 
modification) of an M+C contract by mutual consent should trigger a 
special election period as described at Sec. 422.62(b), and we believe 
that the existing language at Sec. 422.62(b)(1) supports this position. 
In stating ``HCFA has terminated * * * or the organization has 
terminated * * * the [M+C] plan in the service area or continuation 
area in which the [Medicare eligible] individual resides * * *,'' we 
believe that termination of a contract by mutual consent of the two 
aforementioned parties is consistent with the intent of the provision 
at Sec. 422.62(b)(1). Thus, we believe that any change to the 
regulation language at Sec. 422.508 or Sec. 422.62(b)(1) is 
unnecessary.
14. Termination of Contract by HCFA (Sec. 422.510)
    Section 422.510 implements the provisions in section 1857(c)(2) of 
the Act pertaining to our authority to terminate an M+C organization's 
contract if we determine that the organization: (1) Fails to 
substantially carry out the contract; (2) is carrying out the contract 
in a manner inconsistent with the efficient and effective 
administration of Medicare Part C; and/or (3) no longer substantially 
meets the applicable conditions of Part C. In Sec. 422.510(a), we set 
forth the above standards, as well as several specific circumstances 
that we believe constitute a substantial failure to carry out the 
contract, justifying termination. The procedures under which we would 
take action to terminate an M+C contract are described in section 
1857(h) of the Act. In general, we may terminate an M+C contract after: 
(1) We provide the M+C organization with an opportunity to correct 
identified deficiencies; and (2) we provide the organization with 
notice and opportunity for a hearing, including the right to an appeal 
of an initial decision.
    We received three comments on Sec. 422.510. One commenter requested 
further explanation regarding the termination process, for which we 
refer the commenter to subpart N of the regulations. The other comments 
are addressed below.
    Comment: Two commenters requested that we define what we mean by 
the term ``substantially fails to comply,'' as used throughout 
Sec. 422.510(a).
    Response: In the June 1998 interim final rule, and at 
Sec. 422.510(a)(4) through (11), we identify circumstances that we 
believe constitute examples of what the statute identifies as 
substantially failing to carry out an M+C contract. They are: the M+C 
organization commits or participates in fraudulent or abusive 
activities affecting the Medicare program; the M+C organization 
substantially fails to comply with requirements in subpart M relating 
to grievances and appeals; the M+C organization fails to provide us 
with valid encounter data as required under Sec. 422.257; the M+C 
organization fails to

[[Page 40271]]

implement an acceptable quality assessment and performance improvement 
program as required under subpart D; the M+C organization substantially 
fails to comply with the prompt payment requirements in Sec. 422.520; 
the M+C organization substantially fails to comply with the service 
access requirements in Secs. 422.112 or 422.114; or the M+C 
organization fails to comply with the requirements of Sec. 422.208 
regarding physician incentive plans.
    We have longstanding compliance standards for Medicare managed care 
contractors. In addition to those set forth in the statute and 
regulations, compliance standards are set forth in our Medicare Managed 
Care Performance and Monitoring protocol. We use this document when 
conducting performance/monitoring evaluations of contracting Medicare 
managed care organizations, including M+C organizations. Pursuant to 
these reviews, each contracting organization must demonstrate that it 
again complies with all applicable statutory, regulatory and contract 
requirements that apply to M+C organizations. These reviews result in 
findings as to whether a failure to comply with requirements 
constitutes a ``substantial failure'' for purposes of Sec. 422.510(a). 
In determining whether a failure is ``substantial,'' we consider both 
the frequency and the seriousness of the noncompliance. In the case of 
a serious violation that could put the health of an enrollee at risk, 
even a single violation might be considered substantial. In the case of 
a less serious violation, the noncompliance would have to be more 
pervasive or systematic in order to be considered substantial.
    Comment: Some comments reflected confusion regarding 
Sec. 422.510(c), and its reference to subpart N of part 422. Section 
422.510(c) indicates that if we make a determination to terminate an 
M+C contract, we must first allow the affected M+C organization the 
opportunity to submit a corrective action plan in accordance with 
``time frames specified at subpart N'' of part 422. The commenter noted 
that subpart N does not contain any time frames that apply specifically 
to activities related to corrective actions.
    Response: We agree that subpart N does not contain time frames that 
appear applicable to an opportunity to take corrective action, and that 
this reference is an error. We accordingly are deleting this reference 
from Sec. 422.510(c).
15. Minimum Enrollment Requirements (Sec. 422.514)
    Section 1857(b) of the Act specifies that we may not enter into a 
contract with an M+C organization unless the organization has at least 
5,000 enrollees (or 1,500 if it is a PSO), or at least 1,500 enrollees 
(or 500 if it is a PSO) if the organization primarily serves 
individuals residing outside of urbanized areas. Section 1857(b)(3) 
creates a transition standard for meeting this requirement by allowing 
us to waive the minimum enrollment requirement during the M+C 
organization's first 3 years.
    Comment: A commenter asked if we would consider a permanent minimum 
enrollment waiver for ``smaller scale service models.''
    Response: A review of both the statute at section 1857(b) of the 
Act and the Conference Committee report indicates that the Congress 
intended for the minimum enrollment waiver to apply only during the 
first 3 contract years for any organizations. The minimum enrollment 
thresholds themselves are necessary to enable organizations to 
adequately spread risk across enrolled populations.
16. Reporting requirements (Sec. 422.516)
    The M+C regulations contain various provisions that specify 
information disclosure requirements. The requirements address both 
information to be provided by M+C organizations to HCFA (see 
Secs. 422.64, 422.502, and 422.512), by M+C organizations to 
beneficiaries (see Secs. 422.80 and 422.111), and by HCFA to 
beneficiaries (under existing Sec. 422.64). Section 422.516 specifies 
requirements that M+C organizations must meet regarding disclosure of 
statistics and information to HCFA, M+C enrollees, and the general 
public.
    Comment: A commenter requested that we expand the reporting 
requirements specified at section Sec. 422.516 to require M+C 
organizations to report the statistics and other information specified 
in Sec. 422.516 et seq. directly to the organization's network health 
care providers.
    Response: The commenter seeks to carve-out a separate category of 
individuals, providers, to receive statistics and other information 
that M+C organizations are already obligated to disclose to HCFA, to 
M+C plan enrollees, and to the general public. We believe that it is 
unnecessary for M+C organizations to report statistics and other 
information separately to providers. Since M+C organizations (or HCFA) 
are already required to disclose specified information to the general 
public, (a subset of which is the M+C providers), any additional 
requirement to disclose information separately to an organization's 
providers is duplicative and unnecessary. Moreover, we are concerned 
about the administrative burden that such a requirement could impose 
upon M+C organizations, which may contract with thousands of providers. 
Further, we suspect that many organizations already voluntarily furnish 
providers with much of the information required under Sec. 422.516, 
such as information on health plan benefits, premiums, quality and 
performance measurements, and utilization control mechanisms.
17. Prompt Payment by M+C Organization (Sec. 422.520(a))
    Section 422.520 indicates that contracts between M+C organizations 
and HCFA must specify that the M+C organization agrees to provide 
prompt payment of claims that have been submitted by providers for 
services and supplies furnished to Medicare enrollees when these 
services and supplies are not furnished by an organization-contracted 
provider. Specifically, 95 percent of ``clean claims'' must be paid 
within 30 days of receipt. While this provision closely follows 
requirements already in place for section 1876 contractors, (including 
provisions pertaining to interest to be paid if timely payment is not 
made), section 1857(f) of the Act extends similar prompt payment 
requirements to claims submitted by Medicare beneficiaries enrolled in 
M+C private fee-for-service plans. Section 422.520(a) incorporates this 
requirement of new section 1857(f), as well as the general 30-day 
requirement that applied to noncontracting providers under section 
1876. In the preamble to the June 1998 interim final rule, we indicated 
that pursuant to our authority under section 1856(b)(1) to establish 
standards under Part C, M+C organizations would be required to act upon 
(either approve or deny, not necessarily pay) all claims not subject to 
the 30-day standard within 60 calendar days from the date of request.
    Comment: Commenters noted that the ``approve or deny'' language in 
Sec. 422.520(a)(3) was inconsistent with rules regarding M+C 
organization determinations and reconsiderations as described in 
subpart M. Also, it has been brought to our attention that the 
requirement that ``non-clean'' claims (and up to 5 percent of clean 
claims) be ``approved or denied,'' but not necessarily paid, within 60 
calendar days from the date of the request for payment, is inconsistent 
with the

[[Page 40272]]

standard that applied to contractors under section 1876 of the Act. 
Under the Medicare risk program, HCFA traditionally required that HMOs 
or CMPs with Medicare risk contracts pay or deny non-clean claims 
within 60 calendar days from the date of the request for payment. The 
``approve or deny'' language may permit gaps of time between when an 
organization approved a claim for payment and when the organization 
actually paid a claim.
    Response: After further review of this issue, we agree that M+C 
organizations should be required to either pay or deny non-clean claims 
(and clean claims not subject to the 30-day standard) within 60 
calendar days from the date of the payment request. This standard 
removes the possible ambiguity associated with ``approving'', but not 
necessarily paying, a claim for payment, and any related ambiguities 
pertaining to M+C organization determination and reconsideration 
policies articulated in subpart M of this final rule. Thus, we are 
revising Sec. 422.520(a)(3) to indicate that claims for services that 
are not furnished under a written agreement between M+C organization 
and its network providers, and that are not paid within 30 days, must 
be either paid or denied within 60 calendar days from the date of the 
request.

L. Effect of Change of Ownership or Leasing of Facilities During Term 
of Contract (Subpart L)

    The provisions set forth in subpart L of part 422 by the June 1998 
interim final rule merely constituted a redesignation of the provisions 
in part 417 on change of ownership or leasing of facilities. However, 
since the June 1998 interim final rule was published, it has come to 
our attention that M+C organizations have serious concerns about 
language in the italicized title to Sec. 422.550(a)(2) which has been 
construed to present an impediment to an asset sale by one corporation 
to another. Section 422.550(a) sets forth what constitutes a ``change 
of ownership'' for purposes of provisions in Sec. 422.552 which permit 
an M+C contract to be transferred to a new owner under certain 
circumstances (for example, the new owner must meet the requirements to 
qualify as an M+C organization). Because this italicized title refers 
to an ``unincorporated sole proprietor,'' it suggests that a 
``[t]ransfer of title and property to another party'' does not 
constitute a change of ownership if the assets are transferred by a 
corporation, rather than a sole proprietor. This has presented problems 
in cases in which transactions that would benefit Medicare 
beneficiaries by keeping a M+C plan option available do not appear to 
fall within the definition of change of ownership. If an M+C contract 
accordingly could not be transferred as part of an asset sale, this 
could prevent the sale from going forward, or limit the sale to 
commercial or Medicaid lines of business, in either case, potentially 
depriving Medicare beneficiaries of an M+C plan option they would 
otherwise have.
    The italicized language in question was adopted from rules in 
section 1876 of the Act, which in turn were adopted from longstanding 
original fee-for-service Medicare change of ownership regulations 
containing identical language (see Sec. 489.18(a)). These original 
Medicare change of ownership regulations apply to a change of ownership 
in the case of a Medicare provider, and address the assumption of a 
Medicare provider agreement, rather than an M+C contract. However, the 
language in Sec. 489.18(a)(2) is identical to that in 
Sec. 422.550(a)(2). In the original Medicare context, this language has 
consistently been interpreted to encompass an asset sale from one 
corporation to another. This interpretation was applied by the U.S. 
Court of Appeals for the Fifth Circuit in U.S. v. Vernon Home Health 
Care Inc., 21 F.3d 693 (5th Cir.), cert. denied, 115 S. Ct. 575 (1994). 
While we have determined that the current M+C change of ownership 
regulation containing identical language should similarly be 
interpreted to encompass an asset sale by a corporation, we believe 
that it would be helpful to eliminate the reference in the title of 
Sec. 422.550(a)(2) to a ``sole proprietorship'' in order to avoid 
confusion. We therefore are changing this title in this final rule to 
read ``Asset sale.''

M. Grievances, Organization Determinations, and Appeals (Subpart M)

1. Background and General Provisions (Secs. 422.560 through 422.562)
    Subpart M of part 422 implements sections 1852(f) and (g) of the 
Act, which set forth the procedures M+C organizations must follow with 
regard to grievances, organization determinations, and reconsiderations 
and other appeals. Under section 1852(f) of the Act, an M+C 
organization must provide meaningful procedures for hearing and 
resolving grievances between the organization (including any other 
entity or individual through which the organization provides health 
care services) and enrollees in its M+C plans. Section 1852(g) of the 
Act addresses the procedural requirements concerning coverage 
(``organization'') determinations and reconsiderations and other 
appeals. Only disputes concerning ``organization determinations'' are 
subject to the reconsideration and other appeal requirements under 
section 1852(g). In general, organization determinations involve 
whether an enrollee is entitled to receive a health service or the 
amount the enrollee is expected to pay for that service. All other 
disputes are subject to the grievance requirements under section 
1852(f) of the Act. For purposes of this regulation, a reconsideration 
consists of a review of an adverse organization determination (a 
decision that is unfavorable to the M+C enrollee, in whole or in part) 
by either the M+C organization itself or an independent review entity. 
We use the term ``appeal'' to denote any of the procedures that deal 
with the review of organization determinations, including 
reconsiderations, hearings before administrative law judges (ALJs), 
reviews by the Departmental Appeals Board (DAB) and judicial review.
    For the grievance, organization determination, and appeal 
requirements, an M+C organization must establish procedures that 
satisfy these requirements with respect to each M+C plan that it 
offers. These requirements generally are the same for each type of M+C 
plan--including M+C non-network MSA plans and M+C PFFS plans. (Please 
refer to the preamble material on M+C appeals and grievances in the 
June 26, 1998 interim final rule (63 FR 35021) for a detailed 
discussion of the specific requirements under Subpart M.)
    Additional regulatory improvements to the M+C appeal and grievance 
processes are currently under development. We included in the M+C 
interim final rule those improvements that were practical within the 
short time frame allotted for completing that interim final rule. As we 
indicated in the preamble to the M+C interim final rule (63 FR 35030), 
we intend in the near future to publish a proposed rule implementing a 
variety of other improvements to the M+C dispute resolution process, 
including both appeals and grievances.
    Sections 422.560 and 422.561 contain the basis and scope and the 
relevant definitions for subpart M. Section 422.562, General 
Provisions, provides an overview of the rights and responsibilities of 
M+C organizations and M+C enrollees with respect to grievances, 
organization determinations, and appeals. The responsibilities of M+C 
organizations, under Sec. 422.562(a), essentially parallel those 
applicable to

[[Page 40273]]

HMOs under Sec. 417.604(a), with the added provision that, if an M+C 
organization delegates any of its responsibilities under subpart M to 
another entity or individual through which the organization provides 
health care services, the M+C organization is ultimately responsible 
for ensuring that the applicable grievance and appeal requirements are 
still met.
    Section 422.562(b) explains the basic rights of M+C enrollees under 
subpart M, and provides regulatory references to the sections that 
fully explain the relevant rights. This section does not establish any 
rights beyond those previously provided for HMO enrollees under part 
417, but consolidates general information about enrollees' rights into 
a central location in the regulations.
    Like the part 417 regulations, Sec. 422.562(b) contains provisions 
addressing the applicability of other regulations that implement Social 
Security appeals procedures under title II of the Act.
2. Grievance Procedures (Sec. 422.564)
    Section 1852(f) of the Act requires that each M+C organization 
provide ``meaningful procedures for hearing and resolving grievances.'' 
We have defined this term in Sec. 422.561 as any complaint or dispute 
other than one that involves an ``organization determination'' (as 
described under Sec. 422.566(b)). (This definition retains the meaning 
of grievance used in part 417.) An enrollee might file a grievance if, 
for example, the enrollee received a service but believed that the 
demeanor of the person providing the service was insulting or otherwise 
inappropriate. Also, as specified under Secs. 422.570(d)(2)(ii) and 
422.584(d)(2)(ii), grievance procedures would apply when an enrollee 
disagrees with an M+C organization's decision not to grant an 
enrollee's request to expedite an organization determination or a 
reconsideration.
    Under Sec. 422.564(a), an M+C organization must resolve grievances 
in a timely manner using procedures that comply with any guidelines 
which we establish. Section 422.564(c) clarifies that the PRO complaint 
process under section 1154(a)(14) of the Act addresses quality issues, 
but is separate and distinct from the M+C organization's grievance 
procedures. Thus, there are three different complaint processes 
(grievance, appeals and PRO processes) available to an enrollee in an 
M+C organization.
3. Organization Determinations (Secs. 422.566 through 422.576)
    Section 1852(g) of the Act requires an M+C organization to 
establish procedures for hearing and resolving disputes between the 
organization and its Medicare enrollees concerning organization 
determinations. In accordance with section 1852(g)(1) of the Act, 
Sec. 422.566 specifies that an M+C organization must have a procedure 
for making timely organization determinations regarding the benefits an 
enrollee is entitled to receive and the amount, if any, that an 
enrollee must pay for a health service. Also, an M+C organization's 
refusal to provide services that the enrollee believes should be 
furnished or arranged for by the M+C organization is an action that 
constitutes an organization determination. Disputes involving 
additional benefits, as well as mandatory and optional supplemental 
benefits, also constitute organization determinations and are subject 
to the appeals process.
    Section 422.566(b) lists actions that are organization 
determinations, and with two exceptions, follows the previous HMO 
regulation at Sec. 417.606(a). The exceptions involve the inclusion as 
organization determinations of decisions involving--(1) optional 
supplemental benefits, and (2) payment for post-stabilization services.
    Section 422.568 includes the standard time frame and notice 
requirements for organization determinations. Under Sec. 422.568(a), an 
M+C organization must make a determination with respect to an 
enrollee's request for service as expeditiously as the enrollee's 
health status requires, and in no case later than 14 calendar days 
after the organization receives the request. An M+C organization may 
extend the time frame by up to 14 calendar days if the enrollee 
requests the extension, or if the organization justifies a need for 
additional information and how the delay is in the interest of the 
enrollee; (for example, the receipt of additional medical evidence from 
noncontract providers may change an M+C organization's decision to 
deny). The M+C organization must include a written justification for 
the extension in the case file.
    Section 422.568(b) specifies that time frames for requests for 
organization determinations on payment issues are identical to the 
``prompt payment'' requirements set forth under Sec. 422.520. Thus, for 
issues relating to payment, the requirements are as follows: (1) For 
``clean claims,'' an M+C organization must make a determination 
regarding the claim within our current ``clean claim'' rules, that is, 
95 percent of clean claims must be paid within 30 calendar days after 
receipt of the request for payment; (2) for all other claims, an M+C 
organization must make a determination regarding the claim within 60 
calendar days after receipt of the request for payment. (Under existing 
Sec. 422.500, ``clean claims'' are claims that have no defect, 
impropriety, lack of any required substantiating documentation, or 
particular circumstances requiring special treatment that prevents 
timely payment. See section II.K of this preamble for a further 
discussion of rules regarding clean claims and prompt payment.)
    Consistent with section 1852(g)(1)(B) of the Act, Sec. 422.568(c) 
and (d) require that an M+C organization issue written notification for 
all denials of a request for services, including the specific reasons 
for the denial in understandable language, information regarding the 
enrollee's right to either an expedited or standard reconsideration, 
and a description of both the expedited and standard review processes, 
as well as the rest of the appeals process.
    Sections 422.570 and 422.572 set forth the requirements for M+C 
organizations with respect to expedited determinations. Sections 
422.570(a) (for expedited organization determinations) and 422.584(a) 
(for expedited reconsiderations) allow either an enrollee or a 
physician to request an expedited organization determination or 
reconsideration, regardless of whether the physician is affiliated with 
the M+C organization. Under Sec. 422.570(a), any physician can request 
an expedited organization determination. Section 422.584(a) provides 
that a physician who requests an expedited reconsideration must be 
acting on behalf of the enrollee as an authorized representative.
    Section 422.570(b)(2) specifies that a physician may provide 
written or oral support for a request for expedition, and under 
Sec. 422.570(c)(2)(ii), requests for expedited organization 
determinations that are made or supported by a physician must be 
granted by the M+C organization if the physician indicates that the 
enrollee's health could be jeopardized.
    Under Sec. 422.568(d)(1), an M+C organization must automatically 
transfer a denied request for an expedited organization determination 
to the standard 14-day time frame described in Sec. 422.568(a), and 
Sec. 422.570(d)(2)(ii) requires an M+C organization to inform the 
enrollee of the right to file a grievance if he or she disagrees with 
the

[[Page 40274]]

M+C organization's decision not to expedite. We also require under 
Sec. 422.570(c)(1) that an organization establish an efficient and 
convenient means for individuals to submit oral or written requests for 
expedited organization determinations and document any oral requests. 
We clarify under Sec. 422.570(b)(1) that procedures may involve 
submitting a request to another entity responsible for making the 
determination, as ``directed by the M+C organization.''
    Section 422.572(a) requires an M+C organization to notify the 
enrollee (and the physician involved, as appropriate) of an expedited 
determination as expeditiously as the enrollee's health condition 
requires but no later than 72 hours after receiving the request. Under 
Sec. 422.572(b), an M+C organization may extend the 72-hour deadline 
for expedited review by up to 14 calendar days if the enrollee requests 
the extension or if the organization finds that additional information 
is needed and the delay is in the interest of the enrollee. Also under 
this section, an M+C organization must notify an enrollee of a 
determination as expeditiously as the enrollee's health care needs 
require but no later than upon expiration of the extension.
    Provisions in both Secs. 422.570(f) and 422.584(f) prohibit an M+C 
organization from taking or threatening to take any punitive action 
against a physician acting on behalf or in support of an enrollee in 
requesting an expedited organization determination or reconsideration.
    Section 422.574 identifies the parties to an organization 
determination, which include the enrollee, certain physicians and other 
providers who are assignees of the enrollee, legal representatives of a 
deceased enrollee's estate, and any other entity (other than the M+C 
organization) determined to have an appealable interest in the 
proceeding.
4. Reconsiderations by an M+C Organization or an Independent Review 
Entity (Secs. 422.578 through 422.616)
    If a decision regarding a request for payment or service is 
unfavorable (in whole or in part) to the enrollee, the enrollee or any 
other party to an organization determination as listed in Sec. 422.574 
who is dissatisfied with the organization determination may request 
that the M+C organization reconsider the decision. Reconsiderations 
represent the first step in the appeals process. The reconsideration 
process encompasses both standard and expedited reconsiderations, as 
described under Secs. 422.582 and 422.584. The time frame and notice 
requirements for reconsiderations are set forth under Sec. 422.590.
    Section 422.590(a)(1) requires that, with respect to standard 
reconsiderations concerning requests for service, an M+C organization 
must issue any determination that is entirely favorable to the enrollee 
as expeditiously as the enrollee's health condition requires but no 
later than 30 calendar days after it receives the request for 
reconsideration. As with organization determinations, Sec. 422.590(a) 
also provides that the M+C organization may extend the time frame by up 
to 14 calendar days if the enrollee requests the extension, or if the 
organization justifies a need for additional information, and how the 
delay is in the interest of the enrollee. Under Sec. 422.590(b)(1), for 
standard reconsiderations involving requests for payment, the M+C 
organization must issue any fully favorable determination no later than 
60 calendar days from the date it receives the request for the 
reconsideration.
    In the case of expedited reconsiderations (which involve only 
requests for services), Sec. 422.590(d)(1) requires that an M+C 
organization issue any determination that is entirely favorable to the 
enrollee as expeditiously as the enrollee's health condition requires 
but no later than 72 hours after it receives the request for expedited 
reconsideration, again with the possibility of a 14-day extension as 
described in Sec. 422.590(d)(2). If, however, the M+C organization's 
reconsideration results in an affirmation, in whole or in part, of its 
original adverse organization determination, this decision is 
automatically subject to further review by an independent entity 
contracted by us. (Again, the time frame within which an M+C 
organization must reconsider a standard or expedited case has been tied 
to the enrollee's health needs for service requests, subject to either 
a 30-day or 72-hour maximum (with a possible 14-day extension), while 
the time frame remains at 60 days for reconsideration requests 
involving payment.)
    Section 1852(g)(4) of the Act requires us to contract with an 
independent, outside entity to review and resolve in a timely manner 
reconsiderations that affirm, in whole or in part, an M+C 
organization's denial of coverage. Thus, unless an M+C organization 
completely reverses its coverage denial, it must prepare a written 
explanation, and refer the case to the independent review entity for a 
new and impartial determination concerning the payment or service at 
issue.
    Section 422.590(a)(2) provides that for standard requests for 
services, an M+C organization that makes a reconsidered determination 
affirming, in whole or in part, its adverse organization determination, 
must send the case file to the independent review entity as 
expeditiously as the enrollee's health requires, but no later than 30 
calendar days from the date the M+C organization receives the request 
for a standard reconsideration (or the date of an expiration of an 
extension). For standard requests for payment, Sec. 422.590(b)(2) 
allows the M+C organization 60 calendar days from the date it receives 
the request to send the case to the independent review entity. In 
instances involving expedited requests for reconsideration, 
Sec. 422.590(d)(5) requires that the M+C organization forward its 
decision to the independent entity as expeditiously as the enrollee's 
health condition requires, but not later than within 24 hours of its 
affirmation of the adverse expedited organization determination.
    Section 422.590(g)(2) requires that any reconsideration that 
relates to a determination to deny coverage based on a lack of medical 
necessity must be made only by a physician with expertise in the field 
of medicine that is appropriate for the services at issue.
    For the most part, the procedures outlined above were carried over 
into the M+C requirements from the existing part 417 standards. We also 
implemented several changes in the reconsideration requirements that 
are analogous to those described for organization determinations, such 
as the requirement under Sec. 422.584(d)(1) that an M+C organization 
automatically transfer a denied request for an expedited 
reconsideration to the standard 30-day time frame described in 
Sec. 422.590(a). In addition, Sec. 422.590(e) requires that if an M+C 
organization refers a case to the independent entity, it must 
concurrently notify the enrollee of that action.
    Consistent with section 1852(g)(4) of the Act, Secs. 422.592 and 
422.594 address reconsiderations by an independent entity. If the 
independent review entity's reconsidered determination is not fully 
favorable to the enrollee, subsequent review possibilities include ALJ 
and Departmental Appeals Board (DAB) hearings, as well as judicial 
review. Provisions addressing these forms of review are set forth in 
Secs. 422.600 through 422.616.
5. Effectuation of a Reconsidered Determination (Sec. 422.618)
    Section 422.618 established effectuation requirements for payments

[[Page 40275]]

and services. For reconsiderations of requests for payment, when an M+C 
organization reverses its adverse organization determination, it must 
pay for the service no later than 60 calendar days after the date that 
the M+C organization receives the request for reconsideration. For 
reconsiderations of requests for service, when an M+C organization 
reverses its adverse organization determination, it must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 30 calendar days after the 
M+C organization receives the request for reconsideration, or no later 
than upon expiration of a 14 calendar day extension. When the M+C 
organization is reversed by the independent review entity or higher 
review level, the M+C organization must pay for, authorize, or provide 
the service as expeditiously as the enrollee's health condition 
requires, but no later than 60 calendar days from the date the M+C 
organization receives notice reversing its organization determination.
6. Notification of Noncoverage in Inpatient Hospital Settings 
(Secs. 422.620 and 422.622)
    Sections 422.620 and 422.622 pertain to M+C organizations' 
responsibilities in connection with inpatient hospital care. The 
existing provisions clarify that inpatient services continue to be 
covered only until written notice of noncoverage in situations in which 
the hospital admission was authorized in the first instance by the M+C 
organization, or in which the admission constituted urgent or emergent 
care. This notice now is issued to enrollees by the M+C organization, 
either directly or through the hospital, with the concurrence of the 
attending physician responsible for the enrollee's hospital care. 
Section 422.622 provides enrollees with the right to seek PRO review by 
noon on the day after the receipt of the notice if the enrollee 
believes that he or she is being discharged too soon. The enrollee 
bears no additional financial liability for care furnished during the 
period of PRO review, regardless of the proposed date of discharge. If 
the enrollee misses the noon deadline for requesting PRO review, the 
enrollee may file an expedited appeal with the M+C organization. Unlike 
the PRO review process, there is no financial protection afforded to 
the beneficiary while the M+C organization conducts its review.

Subpart M  Comments and Responses

7. Definitions and General Provisions
    Comment: One commenter suggested that the definition of appeal 
should read as follows: ``Appeal means any of the procedures that deal 
with the review of adverse organization determinations on the health 
care or health care services an enrollee is entitled to receive, 
including delay in providing or approving the health care or health 
care services. * * *''
    Response: We generally agree with the commenter and are revising 
the definition in Sec. 422.561 to incorporate most of the commenter's 
suggested language. We are omitting ``health care'' as we believe the 
language duplicates and is inferred in the meaning of ``health care 
services.'' We are adding the term ``arranging for'' to the definition. 
Therefore, we are adopting the following revision to the appeals 
definition: ``Appeal means any of the procedures that deal with the 
review of adverse organization determinations on the health care 
services the enrollee believes he or she is entitled to receive, 
including delay in providing, arranging for, or approving the health 
care services (such that a delay would adversely affect the health of 
the enrollee), or on any amounts the enrollee must pay for a service, 
as defined under Sec. 422.566(b). These procedures include 
reconsiderations by the M+C organization, and if necessary, an 
independent review entity, hearings before ALJs, review by the 
Departmental Appeals Board (DAB), and judicial review.''
8. Grievances (Secs. 422.564, 422.570, and 422.584)
    Comment: Two commenters contended that we should not establish 
prescriptive grievance procedures, while several supported establishing 
standards. One commenter stressed that any grievance requirements we 
imposed should be consistent with those applied by accrediting 
organizations, so that M+C organizations would not have to change 
current procedures to a great extent. The commenter expressed concern 
about State privacy requirements, as M+C organizations currently are 
prevented under State law in some cases from providing specific 
information on how grievances have been resolved. Rather, in these 
cases, organizations are only allowed under State law to inform 
enrollees that the complaint has entered the tracking system. One 
commenter stated that grievance procedures should be flexible, given 
our interpretation of preemption provisions. One commenter strongly 
encouraged establishing mandatory time frames for the resolution of 
grievances as soon as possible, and suggested that the time frames and 
notices mirror those applicable to organization determinations 
(including expedited time frames). Two commenters suggested a 30-
calendar day time frame to render a grievance decision, with an 
opportunity for a 14-calendar day extension for peer review. Both 
commenters stated that for non-quality of care grievances, both oral 
and written, M+C organizations should be encouraged to provide 
personalized service. One commenter believes that if a denial of 
expedited consideration is considered a grievance, then the grievance 
procedure must have a mechanism to resolve the dispute within 24 hours, 
so that an inappropriately denied request for expedited consideration 
can proceed quickly. Additionally, a commenter asserted that M+C 
organizations should be required to provide clear, accurate and 
standardized information concerning grievance and appeal procedures. 
One commenter asked who will determine which route is more appropriate 
for the beneficiary in pursuing a remedy to a complaint, since we 
acknowledge that the same claim or circumstances that give rise to an 
appeal may have elements of a grievance. This may cause the beneficiary 
to be unclear as to which route is most appropriate.
    Response: Currently, M+C organizations are required under section 
1852(f) of the Act and Sec. 422.564 to provide ``meaningful 
procedures'' for hearing and resolving grievances. In the interim final 
rule (63 FR 35030), we requested comments on whether to establish 
requirements for grievance procedures, and indicated that we would 
consider prescribing specific requirements for grievances through a 
forthcoming notice of proposed rulemaking. As anticipated, commenters 
indicated varying approaches to organization-level grievance 
procedures. As noted in the interim final rule, we believe that all 
parties would benefit from subjecting proposed grievance procedures to 
public notice and comment, and we will do so as part of the notice of 
proposed rulemaking we are in the process of developing. Thus, we are 
not including additional grievance requirements in this final rule.
    Comment: One commenter disagreed with treating a denial of an 
expedited determination as a grievance rather than permitting an appeal 
of such a denial. The commenter argued that such a denial should be 
considered an adverse organization determination on the

[[Page 40276]]

health care services an enrollee is entitled to receive, and should be 
appealable. This commenter contended that denying a request for an 
expedited determination is not analogous to the example of a grievance 
provided in the preamble to the interim final rule.
    Response: The preamble to the interim final rule cites the 
regulatory definition of a grievance at Sec. 422.561--that is, a 
grievance is ``any complaint or dispute other than one involving an 
organization determination.'' The revised definition of organization 
determination at Sec. 422.566(b) (discussed in detail below) includes 
determinations regarding payment or services that the enrollee believes 
should be furnished or arranged for by the M+C organization, and 
discontinuations of a service if the enrollee believes that the service 
continues to be medically necessary. In this context, we believe that 
the term ``services'' clearly refers to health care services, as 
opposed to member or customer services, that the M+C organization 
provides under its contract. Expedited review is a process provided by 
the M+C organization versus a health care service which is subject to 
appeal, such as mandatory and optional supplemental benefits. We 
believe there is a clear distinction between a substantive decision 
whether benefits should be covered and a procedural decision as to the 
timing of making such a substantive decision. Indeed, we do not believe 
that the latter type of determination falls within the statutory 
language establishing the reconsideration and appeals process, which 
refers to situations in which the enrollee believes he or she is 
entitled to services, and to the amount of enrollee liability for 
services. Therefore, we will continue to require that an organization's 
denial of expedition generally will be subject to the organization's 
grievance procedures. We intend to monitor the frequency with which M+C 
organizations deny requests for expedited determinations.
    Comment: One commenter believes that a beneficiary should be able 
to appeal a disenrollment by an M+C organization, rather than simply 
being able to utilize the grievance process, as provided in 
Sec. 422.74(d)(2)(ii). In addition, the commenter asserted that 
decisions on disenrollment should not be left to the M+C organization. 
Another commenter suggested that we permit a beneficiary to appeal a 
decision as to whether he or she is entitled to a special enrollment 
period, and that an M+C organization's decision regarding enrollment or 
disenrollment, based on the circumstances in Sec. 422.62, should be 
considered an organization determination subject to appeal.
    Response: While we do not believe all disenrollment decisions 
require an appeals process, we recognize the need in some instances, in 
particular, when a M+C organization disenrolls an individual for 
disruptive behavior. Accordingly, in Sec. 422.74(d)(2), M+C 
organizations must forward all proposed disenrollments for disruptive 
behavior to HCFA for administrative review. M+C organizations may not 
disenroll an individual unless HCFA approves of the decision. With 
respect to the other, limited circumstances under which a M+C 
organization has the option to disenroll an individual (that is, 
failure to pay premiums, or fraud), the enrollee has a right to file a 
grievance if he or she disagrees with an M+C organization's decision. 
We believe that this approach to these issues has been proven to be 
sufficient over the years. As indicated above, we will monitor M+C 
organizations' implementation of their grievance procedures to ensure 
that they are meaningful. Our monitoring will include investigating a 
complaint from a beneficiary who believes that the M+C organization did 
not properly handle a complaint about one of the issues discussed by 
the commenters above.
9. Organization Determinations (Sec. 422.566)
    Comment: We received numerous comments on various aspects of the 
definition of an organization determination, including requests for 
clarification of whether specific types of situations constitute 
organization determinations. For example, several commenters suggested 
that reductions in service should be included in the list of actions 
that constitute organization determinations. The commenters asserted 
that when services are reduced, beneficiaries receive no notice and are 
completely unaware of their ability to contest this reduction through 
the appeals process. Some commenters noted that the vacated 1997 
Grijalva order expressly required written notice for a reduction of 
services. One commenter believes that notice of a reduction in services 
is of particular importance in the delivery of home care and therapy 
services. Some commenters believe that Sec. 422.566(b)(4), which 
provides for notice of a termination only if the enrollee disagrees 
with the determination that the service is no longer medically 
necessary, is inconsistent with other Medicare regulations, which the 
commenter believes require written notice for discontinuation of 
inpatient services both in a hospital or a skilled nursing facility, 
regardless of whether the beneficiary agrees with the decision. One 
commenter suggested that the regulations require M+C organizations to 
send notices one day in advance of termination, reduction, suspension 
or delay in services. One commenter suggested that Sec. 422.566(b) 
should include a fifth category indicating that the failure of the M+C 
organization to approve or provide health care or health care services 
in a timely manner, or to provide the enrollee with timely notice of an 
organization determination, constitutes an organization determination. 
Additionally, some commenters suggested that if, in the future, we 
require that notices of appeal rights must be given in instances in 
which the current definition of organization determination is not met, 
we should incorporate the requirement into the regulations.
    Response: As these commenters suggested, we believe there is a need 
to revise Sec. 422.566(b) to provide additional clarity as to the types 
of situations that constitute an organization determination and thus 
give rise to the pursuant appeal rights. Therefore, we are revising 
Sec. 422.566(b) as follows:
    <bullet> Paragraph (b)(1), which concerns payment for out-of-plan 
services, is revised by adding payment for out-of-area renal dialysis 
to the existing list of such services (which already included 
emergency, urgently needed, and post-stabilization services);
    <bullet> Paragraph (b)(3) includes additional language to clarify 
that an organization's refusal to pay for or provide services ``in 
whole or in part, including the type or level of services'' can 
constitute an organization determination if the enrollee believes they 
should be furnished or arranged for;
    <bullet> Paragraph (b)(4) is restructured to indicate that a 
discontinuation of services when an enrollee believes that the services 
continue to be medically necessary constitutes an organization 
determination (thus eliminating any implication that an organization 
must make a formal determination as to medical necessity to give rise 
to appeal rights); and
    <bullet> New paragraph (b)(5) is added to specify that another 
situation that constitutes an organization determination is an MC 
organization's failure to approve, furnish, arrange for, or provide 
payment for health care services in a timely manner, or failure to 
provide the enrollee with timely notice of a determination, if such a 
delay would adversely affect the health of the enrollee.
    Thus, we agree that a reduction in services can be considered an

[[Page 40277]]

organizational determination that is subject to appeal. To the extent 
that a reduction results in an enrollee no longer receiving services to 
which the enrollee believes he or she is entitled, this would be 
subject to appeal under the language in the first sentence in section 
1852(g)(5) of the Act, which addresses appeals based on failure to 
receive a health service. Also, since a reduction in services could 
constitute a ``[d]iscontinuation'' of services to the extent they were 
no longer being provided, these cases could fall within the language in 
Sec. 422.566(b)(4). Finally, to the extent that the organization was 
refusing to continue to provide all or part of the services the 
enrollee believes should be furnished, and the enrollee has not 
received the services, this would also fall within the language in 
Sec. 422.566(b)(3).
    Examples of other situations that are intended to fall within the 
clarified definition of an organization determination include:
    <bullet> A physician requests approval of 10 home health visits, 
but the organization approves only five visits (even though Medicare 
allows more than five visits);
    <bullet> An organization approves a referral to a specialist, but 
the specialist it designates does not have experience in treating the 
enrollee's rare condition;
    <bullet> A physician requests inpatient surgery for a patient 
because of the patient's history of complications with anesthesiology, 
but the organization will approve only outpatient surgery; or
    <bullet> Although an organization agrees to pay for an in-network 
service, it imposes greater cost-sharing than the enrollee believes is 
permissible.
    We believe that each of these examples fit within the statutory 
language at section 1852(g)(1)(A) and (B) of the Act that establishes 
that an M+C organization must have an appeals procedure for 
determinations as to whether an enrollee ``is entitled to receive a 
health service under this section and the amount (if any) that the 
individual is required to pay with respect to such service.'' Thus, the 
purpose of the revisions to Sec. 422.566(b) is not to expand on our 
interpretation of what types of situations constitute organization 
determinations but rather to provide additional insight into how we 
continue to interpret the intent of the applicable statutory 
provisions.
    As we explained above, we are developing a proposed regulation that 
would provide additional specific guidance as to when a reduction in 
services gives rise to the obligation to provide a written notice. This 
has been an extremely difficult issue to resolve, and despite extensive 
consultations with beneficiary advocates, industry representatives, and 
State officials, we still have not been able to reach conclusions as to 
standards beyond those already in the statute and regulations and 
quoted above. Again, we will address the issue in connection with a 
separate rulemaking that is being developed in close consultation with 
all affected groups. Finally, as commenters suggested, if in the future 
we believe that it is necessary to require notices of appeal or other 
rights for situations other than organization determinations, we would 
do so through notice and comment rulemaking.
    Comment: Some commenters requested confirmation that a 
discontinuation on grounds other than medical necessity is not an 
organization determination.
    Response: As noted above, we have made a minor change to 
Sec. 422.566(b)(4) to clarify that any discontinuation situation in 
where the enrollee believes that the services continue to be medically 
necessary constitutes an organization determination, rather than only 
those situations where a formal medical necessity determination is 
involved. Moreover, Sec. 422.566(b)(3) continues to cover any refusal 
to provide services (including a refusal to continue to provide 
services) that the enrollee believes should be provided. While many 
cases may involve a medical necessity judgment, others may involve a 
question of how a limit on benefits (including additional or 
supplemental benefits) applies to given facts. In some cases, the case 
for noncoverage on grounds other than medical necessity may be so 
clear-cut that an appeal would not be requested. For example, in a case 
in which a service is expressly limited to a fixed number of days, and 
there is no dispute as to how many days the service has been provided, 
it is unlikely that the enrollee would ``believe'' that the M+C 
organization is obligated to cover days beyond the limit. In other 
cases, however, there may be ambiguities as to how a limit on benefits 
is to be interpreted, or applied to a given set of facts, or there may 
be a dispute as to facts relevant to whether the benefit is covered. In 
these cases, the beneficiary should have the right to a reconsideration 
of a denial, so that these issues could be addressed on appeal.
10. Written Notice (Secs. 422.566, 422.568, 422.572, and 422.620)
    Comment: Several commenters believe that the regulations at 
Secs. 422.566 and 422.568 do not make clear that a written notice is 
required for discontinuations of services.
    Response: Except in the case of inpatient hospital care, written 
notice currently is not required for all discontinuations in services. 
We believe that our policies on what constitutes a denial in the case 
of a discontinuation of service (other than in the case of inpatient 
hospital care) are set forth in the regulations concerning organization 
determinations. According to revised Sec. 422.566(b)(4), 
discontinuation of a service is considered to constitute an 
organization determination ``if the enrollee believes that continuation 
of the services is medically necessary.'' Therefore, if an M+C 
organization discontinues coverage, and an enrollee indicates that he 
or she believes that the services continue to be necessary, this action 
would constitute an organization determination for which a written 
notice must be provided. We recognize that there may be circumstances 
that make it difficult to tell whether a written notice is required in 
a particular case. We therefore are developing a notice of proposed 
rulemaking that would address this issue, and clarify rules for M+C 
organizations and beneficiaries.
    Comment: Several commenters suggested that written notice should 
take place in all instances where services are reduced or discontinued, 
not only in instances where the enrollee has indicated disagreement. 
One reason provided for this suggestion is that it would ensure that 
enrollees always would receive notice of their appeal rights, even if 
they have not formally objected to the reduction or discontinuation. 
Another reason given was that this would make the rule consistent with 
the rule that applies to hospital inpatient discharges. Other 
commenters suggested that M+C organizations should provide written 
notice when services actually terminate, or when services discontinue 
prior to the time for which the M+C organization initially authorized 
services. Two commenters suggested that we require notice when there 
are financial implications to the enrollee.
    Other commenters supported the current requirement that the M+C 
organization provide notice when the enrollee disagrees that the 
services are no longer medically necessary. One commenter stated that 
where there is no disagreement, it is wholly inappropriate to provide 
notice and appeal rights. Instead, it is more appropriate to provide 
notice at the beginning of a course of treatment. One commenter 
recommended that we provide advance notice for reductions and 
terminations in writing, describing the basis for the decision and 
appeal rights. Some

[[Page 40278]]

commenters stated that providing detailed notice in all situations 
would be confusing, burdensome, and intrusive upon the physician/
patient relationship. Two commenters recommended we include in this 
subpart notice requirements for discharge from a SNF.
    Response: We recognize that the issue of when it is appropriate for 
M+C organizations to issue written notice for organization 
determinations that involve reductions and discontinuations of services 
is a controversial one. As stated in the preamble to the June 26, 1998 
interim final rule (63 FR 35030), we are developing proposed 
regulations that would further clarify these requirements. At this 
time, however, we believe that the current regulations serve to balance 
the need for adequate notice with the potential for inappropriate 
burdens or beneficiary confusion that might ensue if notice were 
provided in all cases.
    To eliminate confusion, we want to point out that written notice is 
always required for inpatient hospital discharges regardless of whether 
the enrollee agrees with the discharge decision. The issuance of a 
notice to an enrollee prior to an inpatient hospital discharge required 
under Sec. 422.620 is a separate requirement that should not be 
confused with the provisions at Secs. 422.566(b)(4) and 422.568(c). We 
will address the SNF issue in the forthcoming proposed rule.
    Finally, as the commenters suggested, we recognize the potential 
compliance difficulties and burden associated with existing 
Sec. 422.568(c), which requires that if an M+C organization denies 
services or payment, in whole or in part, it must give the enrollee a 
detailed written notice that meets the content requirements of 
Sec. 422.568(d) (such as stating the specific reason for the denial and 
describing the available appeals procedures). We understand that in 
practice, plan practitioners generally are responsible on behalf of M+C 
organizations for issuing these detailed notices to their patients, 
given that most care decisions about future care are made at the 
practitioner level; and we agree that this practice may be 
unnecessarily burdensome and intrusive on the practitioner/patient 
relationship. Moreover, we can understand that requiring M+C 
organizations to ensure that appropriately detailed notices are given 
to enrollees in practitioners' offices may be difficult to monitor and 
enforce in all circumstances.
    Therefore, we have revised the provisions at Secs. 422.568(c) 
through (e) to establish a process under which--(1) practitioners 
routinely notify enrollees at each patient encounter of their right to 
receive a detailed notice about their services from the M+C 
organization itself, and (2) when an enrollee requests an M+C 
organization to provide a detailed notice of a practitioner's decision 
to deny a service in whole or in part, or if an M+C organization 
decides to deny service or payment in whole or in part, the M+C 
organization must give the enrollee a detailed written notice of the 
determination, consistent with existing content requirements.
    The practitioner's notification must inform enrollees of their 
right to receive a detailed notice from the M+C organization and 
provide enrollees with all information necessary in order to contact 
the M+C organization. Consistent with other notification requirements 
set forth in subpart M (for example, under existing Sec. 422.568(d)(4) 
or under Sec. 422.572(e)(2)(ii)), we also specify that the content of 
the practitioner's notification must comply with any other requirements 
established by HCFA. We are now developing standardized language for 
use by affected practitioners, and will provide an opportunity for 
public comment through OMB's Paperwork Reduction Act process. Once that 
process is completed, we intend to provide further guidance on the 
content and form of the required practitioner notice. We believe that 
this requirement will serve to improve M+C organizations' ability to 
assure implementation of the requirement for detailed written notices 
while at the same time reducing the administrative burden on 
practitioners by freeing them from the obligation to routinely provide 
such detailed notices to their patients.
11. Time Frames (Secs. 422.568, 422.572, 422.590, 422.592, 422.618)
    Comment: Several commenters asserted that the standard 
determination time frames are too long, with some commenters 
specifically suggesting the time frame of 5 working days that was 
adopted by a district court judge in a since-vacated March 3, 1997 
order in Grijalva v. Shalala (a class action lawsuit filed by Medicare 
HMO enrollees in 1993, challenging, among other things, the appeals 
procedures that applied under section 1876 of the Act and part 417). 
One commenter suggested that upon receipt of complete information, a 
decision should be rendered within 2 business days. Other commenters 
stated that the M+C time frames are too short. One commenter suggested 
that we require M+C organizations to make a good faith effort to meet 
time frames as opposed to a requirement that M+C organizations must 
meet absolute time frames. A number of other commenters supported the 
time frames established through the M+C interim final regulation.
    Response: Before deciding to incorporate into the interim final 
rule reductions in the time frames within which M+C organizations are 
expected to render standard organization determinations and 
reconsiderations for service requests, we consulted with 
representatives of the managed care industry and beneficiary advocacy 
community, and conducted extensive research on the subject of 
organization-level resolution time frames. All groups with which we 
consulted agreed that the 60-day time frames provided for under the HMO 
regulations in part 417 were too long. Reports from independent 
organizations, such as the Physician Payment Review Commission, the 
General Accounting Office, and medical journals also advocated the 
reduction of standard time frames. Additionally, we realized the 60-day 
time frames in part 417 were based on the original fee-for-service 
Medicare appeals process, which is mostly retrospective. We were aware 
that new time frames needed to account for the fact that pre-service 
requests for organization determinations exceed the number of 
retrospective requests, and that reduced time frames are of critical 
importance when an individual is awaiting prior authorization for a 
service. Further, public comments received prior to publication of the 
M+C interim final rule indicated strong support for a reduction in time 
frames.
    In view of the range of opinions contained in the comments on the 
M+C interim final rule, we believe that we succeeded in establishing an 
appropriate middle ground for the maximum time frames. It has also been 
reported to us that the majority of organizations make decisions within 
our reduced time frames. Only one commenter contended that the 14-day 
time frame could not be met as a general rule. We believe that the 
opportunity for up to a 14-day extension to the time frames for 
service-related requests allows the M+C organization adequate time in 
which to render a determination. We also believe that the new 14 and 30 
calendar day time frames are appropriate from both consumer protection 
and industry feasibility standpoints. The medical exigency standard, 
which requires that decisions be rendered as expeditiously as an 
enrollee's health requires, provides for a quicker response where 
appropriate. Likewise, the opportunity for up to a 14-day extension for 
both organization determinations and reconsiderations

[[Page 40279]]

permits M+C organizations additional time to make a coverage decision 
when appropriate; for example, an M+C organization may extend the time 
frame at an enrollee's request, or if additional medical documentation 
is necessary and the M+C organization justifies the reason for the 
extension.
    Comment: Another commenter who advocated reductions to 
reconsideration time frames suggested that we also reduce the time 
frame within which M+C organizations are permitted to forward case 
files to the independent review entity under the standard appeals 
process.
    Response: M+C organizations must forward standard reconsideration 
cases to the independent review entity within the time frames permitted 
for resolution of standard requests. That is, when an M+C organization 
makes a reconsidered determination that affirms, in whole or in part, 
its adverse organization determination, it must make the determination 
and send the case file for external review as quickly as the enrollee's 
health condition requires but no later than within 30 calendar days for 
service requests, or within 60 calendar days for payment requests. Time 
frames begin on the date the organization received the request for a 
standard reconsideration. Since time frames for submitting case files 
to the independent entity are incorporated into the resolution time 
frames, and we are not reducing time frames for standard 
reconsiderations, it would not be appropriate to reduce the time frames 
for submitting information to the independent review entity.
    Comment: One commenter stated that we should provide a definition 
of ``good cause'' for extensions of time frames. Another commenter 
suggested that we should clarify that a 14-day extension may be granted 
in any instance where an organization determination demonstrates a need 
for additional information.
    Response: The regulations for both expedited and standard requests 
for organization determinations (Secs. 422.568(a) and 422.572(b)) 
permit an M+C organization to obtain an extension ``if the organization 
justifies a need for additional information and how the delay is in the 
interest of the enrollee''. We believe that this standard is largely 
self-explanatory. As indicated in the preamble to the M+C interim final 
rule, the M+C organization must include written justification of the 
extension in the enrollee's case file. Although forthcoming operational 
instructions will provide further clarification of the M+C 
organization's ability to grant itself an extension, we would like to 
clarify that a 14-day extension for service-related requests may be 
granted where an organization finds and notes in the enrollee's case 
file that it needs additional information to make a determination.
    Moreover, to further clarify the grounds on which an M+C 
organization may seek an extension, and to ensure an enrollee is 
adequately advised of the M+C organization's use of an extension, we 
are adding language to both Secs. 422.568(a) and 422.572(b) that 
requires an M+C organization to notify the enrollee in writing of the 
reasons for the extension, and to inform the enrollee of the right to 
file a grievance if he or she disagrees with the M+C organization's 
decision. Relatively few enrollees utilize the appeals process, and 
most organizations are able to make determinations on requests for 
services within 30 days. Therefore, we do not foresee that requiring 
M+C organizations to notify enrollees upon initiating an extension will 
create an undue burden on M+C organizations.
    Comment: Some commenters supported the requirement that M+C 
organizations must make decisions ``as expeditiously as the enrollee's 
health requires'' (the ``medical exigency'' standard). In contrast, 
other commenters stated that the medical exigency standard was vague 
and uncertain, and likely to cause every reconsideration to become 
expedited.
    Response: We believe that the ``medical exigency'' standard is 
needed to ensure that M+C organizations will not routinely avail 
themselves of the maximum time frames for all decisions. Although the 
expedited review process incorporates the medical exigency standard, 
this standard is separate and distinct from the process M+C 
organizations use to handle cases in which a physician or the M+C 
organization determines that an enrollee's life, health or ability to 
regain maximum function could be jeopardized in applying the standard 
time frames.
    In our consultations with the public before publishing the M+C 
interim final rule, industry representatives advised us that each 
request is different; where some organization determinations are likely 
to require a 14-day time frame, and possibly 14 additional days, other 
decisions require less resolution time. Likewise, resolution of some 
reconsiderations will take up to 30 calendar days, and may require more 
time to gather additional information. The medical exigency standard 
requires M+C organizations to prioritize those cases where waiting for 
a decision is more likely to affect an enrollee adversely. We interpret 
this standard as requiring that the M+C organization or the independent 
entity apply, at a minimum, established, accepted standards of medical 
practice in assessing an individual's medical condition. Evidence of 
the individual's condition can be demonstrated by indications from the 
treating provider or from the individual's medical record (including 
such information as the individual's diagnosis, symptoms, or test 
results). We established the medical exigency standard by regulation to 
ensure that M+C organizations would develop a system for determining 
the urgency of both standard and expedited requests for services, and 
give each request priority according to that system. That is, we intend 
that M+C organizations treat every case in a manner that is appropriate 
to its medical particulars or urgency, rather than systematically use 
the maximum time permitted for service-related decisions.
    Also, as indicated in the preamble to the interim final rule (63 FR 
35028), we continue to believe that the emphasis on the health needs of 
the individual enrollee is consistent with the statutory requirement 
that determinations be made on a timely basis. Thus, the fact that an 
organization makes a determination on a service-related issue within 14 
days does not necessarily constitute compliance with the law or 
regulations if there is evidence that an earlier determination was 
necessary to prevent harm to the enrollee's health.
    We intend to issue additional guidance on the medical exigency 
standards in a future operational policy letter.
    Comment: Several commenters suggested shortening the maximum time 
frame for M+C organizations to pay for, or provide, services once the 
independent review entity has ruled in the beneficiary's favor. One 
commenter suggested the effectuation time frame should be reduced to 15 
days. Another commenter expressed concern that the effectuation 
requirements in Sec. 422.618 do not provide for shorter implementation 
periods for expedited appeals. One commenter observed that if an M+C 
organization completely reverses its organization determination on 
reconsideration of a request for service, the organization must 
authorize, or provide the service; however, given the fact that the 
enrollee must seek the service, it may prove difficult to ensure that 
the service has actually been provided. Thus, this commenter suggested 
that a letter authorizing the service should be sufficient.

[[Page 40280]]

    Response: We agree with the commenters concerning the need for a 
reduction of effectuation time frames for both standard cases 
overturned upon review by the independent review entity, and expedited 
cases overturned by the M+C organization or the independent review 
entity. However, we believe that since M+C organizations are permitted 
to authorize, provide or pay for the service in order to effectuate the 
decision, there is no need to establish a separate requirement for an 
authorizing letter. Based on these comments, we are revising 
Sec. 422.618 to reduce the time frame within which M+C organizations 
must pay for, authorize or provide services to enrollees following a 
decision rendered by the independent review entity. For service-related 
requests, the revised language states that ``the M+C organization must 
authorize the service under dispute within 72 hours from the date it 
receives notice reversing the determination, or provide the service 
under dispute as expeditiously as the enrollee's health condition 
requires, but no later than 14 calendar days from that date.'' For 
requests regarding payment, we are reducing the time frame to 
effectuate the independent review entity's determination from ``no 
later than 60 calendar days'' to ``no later than 30 calendar days.'' We 
continue to maintain a distinction for payment-related appeals because 
most billing practices are on a 30-day cycle.
    We also agree with the comments that expedited effectuation 
requirements should be incorporated into the regulations. To promote 
consistency in implementation, and to ensure enrollees receive the 
services they need as quickly as possible, we are establishing a new 
Sec. 422.619 to require M+C organizations to effectuate overturned, 
expedited determinations as quickly as necessary, but no later than 
within 72 hours. Under the new provision, if the M+C organization 
reverses its original adverse organization determination, in whole or 
in part, the M+C organization must authorize or provide the service 
under dispute as expeditiously as the enrollee's health condition 
requires, but no later than 72 hours from the date it receives the 
request for the determination.
    Where the independent entity reverses, in whole or in part, the M+C 
organization's initial expedited determination, the M+C organization 
must authorize or provide the service under dispute as expeditiously as 
the enrollee's health condition requires, but no later than 72 hours 
from the date it receives notice reversing the determination. In 
instances where the independent review entity expedites certain cases 
on its own accord (for example, where an enrollee or physician did not 
originally request an expedited appeal at the M+C organization level, 
but the independent review entity determines an expedited appeal is 
warranted), the expedited effectuation requirements of Sec. 422.619 
still apply.
    If the ALJ or higher level reviewer reverses the independent review 
entity's expedited reconsidered determination, the M+C organization 
must authorize or provide the service under dispute as expeditiously as 
the enrollee's health requires, but no later than 60 calendar days from 
the date of the decision.
    Comment: Several commenters urged that we incorporate the review 
time frames for the independent review entity into the regulations 
text. Section 422.592(b) provides that an independent outside entity 
must conduct reconsideration reviews ``as expeditiously as the 
enrollee's health condition requires but must not exceed the deadlines 
specified in the contract.'' One commenter noted that the contract with 
the independent outside entity may change each time it is negotiated, 
and that the general public is not informed of such negotiations, or 
the time frames produced by these negotiations. Thus, this commenter 
believes that regulations should specifically impose appropriate time 
limits on the independent review entity, and the time limits should be 
consistent with those specified in the vacated 1997 Grijalva order. One 
commenter expressed concern that the public has no remedy when the 
independent review entity fails to comply with time frames in the 
contract. This commenter added that the public plays no role in 
contract negotiation through which the independent review entity's time 
limits will be determined; and therefore, there is no assurance that an 
appropriate time limit will be imposed. One commenter recommended that 
we contract with PROs for the expedited review process instead of our 
current contractor, the Center for Health Dispute Resolution (CHDR). 
(PROs are organizations under contract with us to perform utilization 
and quality review of Medicare services generally, and review of the 
quality of services furnished by M+C organizations to their enrollees.) 
There was also concern about the notices provided by the independent 
review entity. Some commenters suggested that Sec. 422.594 specify that 
the notice should be written in ``understandable language,'' as 
provided in Sec. 422.568. Additionally, these commenters believe that 
the notice should also inform the enrollee about the PRO complaint 
process under section 1154(a)(14) of the Act.
    Response: The time frames for the independent entity's review 
currently are the same as those time frames within which M+C 
organizations are required to decide standard and expedited cases, as 
detailed in the chart provided in the interim final rule (63 FR 35024). 
The time frames appear in our contract with the independent entity (as 
opposed to the regulation), however, to provide flexibility in the case 
of an unanticipated increase in the volume of appeal cases--since the 
independent contractor reviews cases from organizations nationwide. We 
have provided public notice of the time frames in the interim final 
rule and again in this rule. We agree with the commenters that 
beneficiaries should be informed of any changes that we might make to 
the current time frames, and will inform beneficiaries if these time 
frames are changed.
    Additionally, we agree with one of the recommended changes to the 
independent entity's reconsideration notice, and are amending 
Sec. 422.568 to require that the notice be written in ``understandable 
language.'' We also will consider issuing instructions to require the 
independent entity to advise an enrollee of his or her right to review 
by the PRO for quality of care concerns; (the same requirement on M+C 
organizations is set forth via model notice instructions).
12. Expedited Organization/Reconsidered Determinations (Secs. 422.570, 
422.572, 422.584, and 422.590)
    Comment: Several commenters expressed concern with Sec. 422.572(d), 
which provides that the 72-hour time period under Sec. 422.572(a) does 
not begin until medical information is received from noncontract 
providers where such information is required. One commenter stated that 
such an open-ended requirement poses an unreasonable risk of delay for 
the enrollee; especially in cases where time is of the essence, this 
provision could allow a decision to be postponed indefinitely. Another 
commenter suggested that M+C organizations should be required, at a 
minimum, to contact the noncontract provider within 24 hours of the 
initial request for an expedited reconsideration in order to request 
the necessary information from the noncontract provider and provide a 
fax number where the information can be submitted. Additionally, the 
commenter suggested that the enrollee, the representative, and the 
physician should be contacted to: Explain the

[[Page 40281]]

delay, inform them of the information needed, and provide them with a 
fax number. One commenter stated that the regulations should place the 
burden on the M+C organization to make prompt, good faith efforts to 
communicate with the noncontract provider to obtain the needed 
information. Additionally, information from noncontract providers 
should be provided within the 14-day extension period and under the 
same conditions that an extension would be granted in other 
circumstances. However, one commenter stated allowing an M+C 
organization to grant itself a 14-day extension beyond the 72-hour time 
frame gives the M+C organization too much additional discretion. This 
commenter stressed that an M+C organization will always state that it 
needs more than 72 hours, particularly if treatment will be expensive.
    Response: We largely agree with the commenters, and are revising 
the regulation text to ensure that M+C organizations must make 
determinations within the same expedited time periods for cases 
involving noncontract providers. Accordingly, we are revising 
Secs. 422.572(d) and 422.590(d)(4) to eliminate the provisions 
indicating that the 72-hour period begins when the organization 
receives information from the noncontracting provider. Instead, the 
regulations will require the organization to meet the same time frames 
set forth in Secs. 422.572(a), (b), and (f) for expedited organization 
determinations and Secs. 422.590(d) and (f) for expedited 
reconsiderations regardless of whether the M+C organization must 
request information from noncontracting providers. We agree that in 
situations where either a physician or the M+C organization has already 
determined that an expedited decision is crucial, open-ended time 
frames may put the enrollee at risk. We likewise are incorporating into 
Sec. 422.572(d) the recommended provision for expedited reviews that 
requires the M+C organization to request any necessary information from 
the noncontract provider within 24 hours of the initial request for 
expedition. We continue to require noncontract providers to make 
``reasonable and diligent efforts to expeditiously gather and forward 
all necessary information to assist the M+C organization in meeting the 
required time frames.'' We believe an opportunity for an M+C 
organization to take up to a 14-day extension under the 72-hour 
expedited review process provides the M+C organization with a 
reasonable opportunity to obtain information from non-contract 
providers. We will monitor M+C organizations to ensure M+C 
organizations do not routinely, or unnecessarily, avail themselves of 
the 14-day extensions. Where appropriate, M+C organizations must notify 
the physician involved; M+C organizations are always required to notify 
enrollees of the decision, whether the decision is adverse or favorable 
to the enrollee, in accordance with the regulation. However, we do not 
agree that the M+C organization must always contact or notify the 
enrollee's physician.
    Comment: Several commenters stated that the criteria for deciding 
whether a determination must be expedited may be too rigorous. Some 
commenters suggested that we revise Secs. 422.570(c)(2) and 
422.584(c)(2) to reflect language from the district court's vacated 
order in the Grijalva case, under which reconsiderations were to be 
expedited ``when services are urgently needed.'' The district court 
provided the examples of when acute care services are being denied or 
terminated, certain types of nursing facility care, certain types of 
home health and therapy services, and denials of certain types of non-
cosmetic surgery. This commenter suggested that the regulation state 
that expedited consideration may be granted, in certain circumstances, 
upon lay evidence and without a request by the physician. One commenter 
contended that the regulations should clearly articulate what 
constitutes ``seriously jeopardizing the enrollee's life, health, or 
ability to regain maximum function.'' The commenter argued that a more 
specific definition should be provided that takes into account both a 
substantial risk of an adverse outcome, and a small (but significant) 
risk of a serious and adverse outcome such as permanent disability or 
death. Some commenters expressed concern that if an enrollee does not 
obtain physician support to expedite a determination, the M+C 
organization has broad discretion in deciding whether to expedite.
    Response: We do not believe that the adoption of the ``urgently 
needed'' standard from the vacated Grijalva order would be appropriate. 
First, we believe it is too broad and vague. Second, the term 
``urgent'' is already used in connection with ``urgently needed 
services'' (for which enrollees do not need to obtain prior 
authorization). Using the same term here could cause unnecessary 
confusion. We also believe that the ``serious jeopardy'' standard is 
sufficiently clear. It is unclear how we could expand on what is meant 
by ``serious jeopardy'' to an enrollee's ``life'' (that is, could put 
his or her life in serious jeopardy), ``health'' (that is, could put 
his or her health in serious jeopardy), or ``ability to regain maximum 
function'' (that is, could put his or her ability to regain maximum 
function in serious jeopardy). We believe that the commenter's 
suggestion that the requirement to expedite a case in which there is a 
``significant'' risk of a ``serious and adverse outcome such as 
permanent disability'' is already addressed in language referring to 
``seriously jeopardizing the enrollee's * * * ability to regain maximum 
function.'' With respect to the commenter's suggestion that the 
regulations provide for cases to be expedited based on ``lay evidence'' 
(that is, in the absence of the involvement of a physician), this is 
already required under section 1852(g)(3)(B)(ii) of the Act ``if the 
request indicates that the application of the normal time frame for 
making a determination (or a reconsideration involving a determination) 
could seriously jeopardize the life or health of the enrollee or the 
enrollee's ability to regain maximum function.'' The interim final rule 
and this final rule similarly provide for expedition without the need 
for a physician's involvement. (See Secs. 422.570(a) through (b), and 
422.584(a) through (b).) Although this decision is made by the M+C 
organization in the absence of a physician's involvement, the decision 
is subject to the grievance process, and we will monitor M+C 
organizations closely to ensure that they are expediting cases where 
appropriate.
    Comment: Several commenters strongly urged the removal of the 
requirement that physicians requesting an expedited appeal must be 
acting as an enrollee's authorized representative. Commenters contended 
that the regulation as written is inconsistent with their view of 
statutory intent, intrudes in the doctor-patient relationship, and 
could present a problem for incapacitated enrollees.
    Response: We agree that a physician who requests an expedited 
reconsideration on behalf of an enrollee should not have to be formally 
appointed as the enrollee's authorized representative. We initially 
included this provision based on our belief that the physician served a 
different role in the context of an organization determination versus 
an appeal. In the case of an organization determination, we regarded 
the physician as a provider who is requesting a service for his or her 
patient. On the other hand, in the context of a reconsideration, we 
viewed the physician as serving as the enrollee's representative in the 
first

[[Page 40282]]

level of the appeals process. Thus, we believed the physician would 
need to be appointed by the enrollee in the same manner as any one else 
who served as a representative. However, in response to the above 
comments, we have reconsidered our position, and recognize the 
operational problems with requiring that physicians be authorized 
representatives when requesting expedited reconsiderations on an 
enrollee's behalf. For example, under the M+C program, each appeal 
request requires completion of a separate authorized representative 
form, which may cause an undue burden on physicians. For this reason 
and those set forth in the comment above, we have decided to revise 
Sec. 422.584(a) by eliminating this requirement. Therefore, physicians 
may request expedited reconsiderations on a patient's behalf without 
being appointed as the enrollee's authorized representative.
    We want to make clear, however, the distinction between a physician 
acting on behalf of the enrollee, and a physician who meets the 
conditions for being a party in his or her own right. When a physician 
seeks either a standard or expedited organization determination for 
services on behalf of the enrollee, the physician does not need to be 
an authorized representative. But, if the physician seeks a standard 
reconsidered determination for purposes of obtaining payment, then the 
physician must sign a waiver of liability, consistent with 
Sec. 422.574(b).
    Comment: One commenter suggested that the ability to request an 
expedited organization determination should be expanded. The commenter 
suggested the following options for expansion: (1) All health care 
professionals, (2) health care professionals that have been designated 
by a physician to carry out such tasks, or (3) all health professionals 
providing care in medically underserved areas. Another commenter 
suggested that we should permit an ``authorized representative'' to 
request an expedited determination.
    Response: The statute explicitly lists enrollees and physicians as 
those permitted to request expedited organization determinations and 
expedited reconsiderations, (see sections 1852(g)(3)(a)(1) and (2) of 
the Act). We note that authorized representatives may request expedited 
determinations or reconsiderations, since the definition of 
``enrollee'' in Sec. 422.561 includes the enrollee's authorized 
representative. Therefore, the regulations already permit health care 
professionals who enrollees authorize as their representatives to 
request expedited organization determinations and expedited appeals. As 
described in the previous comment, physicians now may make requests 
without being authorized representatives. We do not believe it would be 
appropriate, however, to grant health care professionals other than the 
enrollee's physician the right to make requests on the enrollee's 
behalf absent an authorization. There are so many potential health care 
professionals involved in a patient's care, this could create 
confusion, and potentially cause duplicate or conflicting requests.
    Comment: One commenter suggested that we incorporate a separate 
notice requirement provision whereby, before deciding whether to 
expedite a determination, the M+C organization must notify the enrollee 
of the M+C organization's obligation to expedite any request for a 
determination that was accompanied by a physician's statement that 
``applying the standard time frame for making a determination could 
seriously jeopardize the life of the enrollee or the enrollee's ability 
to regain maximum function.'' Several commenters requested that we 
define ``prompt oral notice'' of a denied request for expedition, as 
provided in Sec. 422.570(d)(2). This section provides that, if the M+C 
organization denies a request for an expedited determination, it must 
give the enrollee prompt oral notice of the denial and follow up within 
2 working days with a written letter explaining their right to file a 
grievance. One commenter asked whether this meant the enrollee is 
supposed to receive the written notice within 2 working days of the 
decision, or that the organization is to mail it within 2 working days. 
Additionally, the commenters suggested that this section also specify 
that the enrollee be given the right to make an oral, immediate request 
for a reconsideration when given oral notice of denial, followed by 
written verification of the reconsideration request.
    Response: M+C organizations are required under Sec. 422.111(a)(8) 
to provide notice of grievance and appeal rights upon enrollment and at 
least annually thereafter. Thus, all enrollees should receive notice of 
the right to automatic expedition of determinations and 
reconsiderations when a physician supports the request. However, in a 
case in which an enrollee submits a request for an expedited 
organization determination or an expedited appeal, but does not 
indicate that the request was supported by a physician, we recognize 
that the enrollee may not have read the required notice carefully, and 
thus be unaware that a physician's support would make the expedition of 
the request automatic. We therefore are revising Secs. 422.570(d)(2) 
and 422.584(d)(2) to require that when an M+C organization denies a 
request for an expedited determination or reconsideration, its 
notification letter must inform the enrollee of the right to resubmit 
the request with a physician's support.
    As noted above, upon denial of an enrollee's request for expedited 
review, existing regulations require an M+C organization to provide the 
enrollee with ``prompt oral notice'' of the denial, and follow up with 
a written letter within 2 working days. We believe that this is a 
reasonable requirement which indicates that an M+C organization must 
contact and advise the enrollee of the denial without delay. As 
suggested by the commenter, we are clarifying the regulations to 
indicate that subsequent to providing oral notice of the denial, M+C 
organizations must ``deliver'' to the enrollee, within 3 calendar days, 
a written letter that includes the information listed in the regulation 
at Secs. 422.570(d)(2) and 422.584(d)(2). We interpret this provision 
as requiring an M+C organization to first orally notify an enrollee of 
a denial, and subsequently deliver written notice to the enrollee 
within 3 days after the decision. Note that we have revised the 
regulations at Secs. 422.570(d)(2), 422.572(c), 422.584(d)(2), and 
422.590(d)(3) to establish a requirement of 3 calendar days, rather 
than 2 working days. We believe this is a reasonable amount of time 
within which to require M+C organizations to deliver written notice 
enrollees (following the oral notice) of a denied expedited request, 
and that the change to calendar days will eliminate confusion over what 
constitutes a working day. This change is consistent with the general 
replacement of standards related to ``working days'' with ``calendar 
day'' standards throughout the M+C regulations.
    We also wish to clarify that if an enrollee's request for an 
expedited organization determination is denied, the M+C organization 
will automatically transfer and process the enrollee's request under 
the standard process. If the M+C organization denies the request in 
whole or in part, the enrollee (or a physician on the enrollee's 
behalf) then has a right to orally request expedited reconsideration. 
The M+C organization continues to be responsible for documenting all 
oral requests in writing and maintaining the documentation in the case 
file.

[[Page 40283]]

13. Authorized Representative (Secs. 422.561 and 422.574)
    Comment: A commenter suggested that Sec. 422.574, which addresses 
parties to the organization determination, should include surrogates 
under State law as a possible party to an organization determination. 
This commenter added that by excluding such surrogates, enrollees who 
are incapacitated and cannot appoint representatives may lack persons 
authorized to handle appeals on their behalf. Similarly, two other 
commenters stated that the ``authorized representative'' definition 
should be expanded to allow individuals who can act on behalf of an 
individual under State law to be authorized representatives. This 
commenter believes that the current definition is limited to an 
individual appointed under the Social Security Act, and requires 
completion of the Appointment of Representative form. The commenter 
believes that this requirement makes it difficult for those who have 
written Durable Power of Attorney to act in place of the beneficiary. 
Several commenters suggested that the definition of ``enrollee'' should 
not include an authorized representative. One commenter argued that an 
authorized representative is not the enrollee, since an enrollee is 
someone who is entitled to health services. Further, the commenter 
recommended that an authorized representative receive copies of all 
communications sent to the enrollee concerning the appeal.
    Response: We agree with the commenters concerning the need to 
include those individuals appointed under State law (such as 
surrogates) in M+C requirements, as well as those with Durable Power of 
Attorney. For this reason, we are amending the definition of authorized 
representative at Sec. 422.561 to include an individual authorized by 
an enrollee, ``or under State law,'' to act on his or her behalf in 
obtaining an organization determination, or in dealing with any of the 
levels of the appeals process, subject to the rules described in 20 CFR 
part 404, subpart R, unless otherwise stated in subpart M. We believe 
that the revised definition of an authorized representative includes 
those individuals with Durable Power of Attorney. Therefore, an 
individual authorized to act as a surrogate of an enrollee and those 
who have written Durable Power of Attorney are permitted to act on 
behalf of an enrollee in the organization determination, 
reconsideration and appeal processes. By adding individuals authorized 
under State law to the definition of authorized representative, such 
individuals are included as one of the parties to an organization 
determination listed at Sec. 422.574, since the definition of an 
enrollee (who is a party) includes the enrollee's authorized 
representative. Thus, a surrogate authorized by the State is not only a 
party to the organization determination, but is permitted to act on 
behalf of the enrollee under all provisions of subpart M.
    We disagree with the commenters who requested that the definition 
of ``enrollee'' exclude an authorized representative. Although we 
recognize that an authorized representative is not an enrollee in the 
literal sense of being entitled to health services, we believe that to 
ensure authorized representatives are always permitted to act on behalf 
of an enrollee, the regulations should include an authorized 
representative in the definition of ``enrollee'' under subpart M. We 
note that Sec. 422.561, which sets forth the definitions used in the 
appeals regulations contained in subpart M, specifies that the 
definitions are only ``as used in this subpart, unless the context 
indicates otherwise.''). An authorized representative thus would not be 
considered an enrollee for general M+C program purposes, such as under 
enrollment or financial liability provisions, but would be able to 
exercise the rights available to an enrollee for appeal and grievance 
purposes, such as the right to act on behalf of an enrollee in 
requesting an appeal or to receive applicable notifications.
    Comment: One commenter commended our appeal and grievance rights as 
providing substantial protection, yet expressed concern over access for 
enrollees with special health care needs (the disabled and/or 
chronically ill). One commenter stated that M+C organizations will face 
a challenge in serving the increasing population of beneficiaries with 
questionable, fluctuating or diminished capacity, and further stated 
that M+C organizations need to identify enrollees who have surrogates 
in order to keep them informed. This commenter stated that the 
regulation should require information and notices be sent to surrogates 
of incapacitated beneficiaries, and surrogates should be listed as 
requesters of expedited decisions.
    Response: As noted above, to the extent that such a surrogate is 
authorized under State law to act on the beneficiary's behalf, he or 
she would be considered an authorized representative who is included in 
the definition of enrollee and permitted to make requests on the 
beneficiary's behalf. With respect to other additional procedural 
protections for enrollees with special health care needs, we believe 
that such additional protections for enrollees with special health care 
needs should be included in a notice of proposed rulemaking to provide 
the public with ample opportunity for input on final standards. We plan 
in this rulemaking to address the issue of special protections for 
beneficiaries with limited capacity, and consider possible additional 
notice requirements for surrogates in such cases.
14. Other Appeal Rights (Secs. 422.596, 422.600, 422.602, 422.608, 
422.612, and 422.616)
    Comment: One commenter suggested that we revise Sec. 422.596 to 
clarify that an M+C organization cannot appeal to an Administrative Law 
Judge (ALJ). However, two commenters argued that M+C organizations 
should have the right to appeal to an ALJ.
    Response: Section 422.600 addresses the ``Right to a hearing.'' 
Section 422.600(a) provides that ``any party to the reconsideration 
(except the M+C organization) who is dissatisfied with the reconsidered 
determination has the right to a hearing before an ALJ.'' (Emphasis 
added.) Section 422.600(a) then expressly states that ``[t]he M+C 
organization does not have the right to request a hearing before an 
ALJ.'' While we believe that the regulations thus are already clear on 
this point, we have no objection to the commenter's suggestion that 
Sec. 422.596 be revised to also reflect this restriction.
    The policy limiting ALJ appeal rights to Medicare enrollees has 
been in place since the inception of the Medicare risk contracting 
program under section 1876 of the Act. As noted above, under section 
1856(b)(2) of the Act, M+C standards are to be based on standards 
established under section 1876 of the Act to the extent consistent with 
M+C rules. More importantly, the M+C statute expressly grants a right 
to a hearing only to an enrollee, with the M+C organization given the 
right to: (1) Be made a party to such a hearing; and (2) appeal from an 
ALJ. Section 1852(g) of the Act sets forth a three step process for 
appeals of coverage determinations. Section 1852(g)(1) of the Act 
establishes the process for making initial organization determinations 
and providing notice of appeal rights. Section 1852(g)(2) of the Act 
provides for the reconsideration process, which is conducted initially 
by the M+C organization. (Section 1852(g)(3) of the Act provides for 
M+C organizations to

[[Page 40284]]

expedite certain organization determinations under section 1852(g)(1) 
of the Act and reconsiderations under section 1852(g)(2) of the Act; 
and section 1852(g)(4) of the Act provides for review by an independent 
review entity as part of the reconsideration process established under 
section 1852(g)(2) of the Act). It is section 1852(g)(5) of the Act 
which provides for the ALJ level of review if the amount in controversy 
is at least $100, and for ultimate judicial review. Under section 
1852(g)(5) of the Act, ``[a]n enrollee with a Medicare+Choice 
organization * * * is entitled (if the amount in controversy is $100 or 
more) to a hearing before the Secretary * * * and in any such hearing 
the Secretary shall make the [M+C] organization a party.''
    Comment: A commenter suggested that some denied services that do 
not reach the $100 threshold represent legitimate disputes that could 
adversely affect patients. This commenter believes that patients should 
be able to request ALJ hearings for denials of services needed to 
maintain or regain health or physical functions, without regard to the 
cost involved. Another commenter similarly asserted that an enrollee's 
ability to obtain an ALJ hearing and seek judicial review should not be 
based on the amount in controversy, because this could arbitrarily 
prevent some enrollees with legitimate disputes from appealing. This 
commenter suggested modifying the provision to allow a decision to be 
appealed if the amount in controversy meets the identified threshold, 
or if the patient's life or health may be jeopardized as a consequence 
of the decision.
    Response: Although we are sensitive to the concerns of the 
commenters, amount in controversy (AC) requirements in the case of 
appeals under the M+C program are set forth in the statute at section 
1852(g)(5) of the Act. A statutory change would be required to alter 
the current threshold levels; therefore, we are not modifying the M+C 
regulations.
    Comment: A commenter expressed concerns about the process for 
obtaining judicial review. The commenter also requested clarification 
as to what constitutes the ``final decision of HCFA.'' The commenter 
believes that some enrollees may not have the resources to pursue their 
rights in court. This commenter recommended that the reimbursement of 
attorney fees or associated court costs be left to the discretion of 
the judge performing the judicial review.
    Response: A decision by our agent, the independent review entity, 
becomes ``final'' and binding on all parties unless a party other than 
the M+C organization files a request for an ALJ hearing, or unless the 
decision is reopened and revised by the independent entity. This is the 
earliest ``final'' decision that involves us (through our agent), since 
organization determinations are made by M+C organizations. If this 
decision is not appealed or re-opened, it is in essence, a ``final 
decision of HCFA.'' A failure to appeal this decision, however, would 
mean that the right to further administrative and judicial review has 
been forfeited. An ALJ decision is similarly final and binding if it is 
not appealed by a party; (unlike a reconsidered determination, an M+C 
organization has the right to appeal an ALJ decision). If a timely 
appeal is filed, the ALJ decision is subject to further review by the 
Departmental Appeals Board (DAB). At this point, if the DAB declines to 
review the case, under Sec. 422.612(a), the ALJ's decision becomes a 
``final'' decision for purposes of the right to judicial review. If the 
DAB agrees to hear the case on appeal, the DAB's decision is the 
``final decision of HCFA'' for purposes of judicial review.
    We believe that the commenter's confusion about what constitutes a 
``final decision of HCFA'' may be due to some confusing regulatory text 
in Sec. 422.612(b). Section 422.612(b) provides that a decision of the 
DAB may be appealed to Federal court if ``(1) It is the final decision 
of HCFA; and (2) The amount in controversy is $1,000 or more.'' This 
implies that there is a distinction between a DAB decision and a 
``final HCFA decision.'' In fact, a DAB decision constitutes a ``final 
decision'' on our behalf, since it is not subject to any further 
administrative review. We therefore are revising Sec. 422.612(b) to 
provide that a DAB decision may be appealed to district court if the 
amount in controversy is $1,000 or more.
    Comment: One commenter suggested that we include other rights found 
in State managed care laws, such as requiring M+C organizations to 
provide beneficiaries, on request, with clinical guidelines upon which 
a denial is based.
    Response: M+C organizations must provide enrollees with written 
notice of the reasons for a denial, as set forth at Secs. 422.568(c) 
and (d). This includes providing all the information necessary for the 
beneficiary to understand why the service was denied, including any 
Medicare coverage criteria or policies applied in making the decision, 
as well as specific clinical rationales if applicable. To the extent 
that particular guidelines or screens are used in the determination 
process, but are not determinative of coverage (for example, services 
falling outside certain screens will be given closer review, but still 
covered if coverage standards are met), we do not believe it is 
critical for beneficiaries to have access to these documents. We note 
that Medicare does not make similar documents used by carriers and 
intermediaries under the fee-for-service program available to the 
public.
15. Inpatient Hospital Notice of Discharge (Secs. 422.580, 422.586, 
422.620 and 422.622)
    Comment: Two commenters urged that we simplify the language used in 
the notice of noncoverage (hereafter referred to as the Notice of 
Discharge & Medicare Appeal Rights (NODMAR)). One commenter suggested 
working with us to craft a notice outlining beneficiary rights of 
appeal while avoiding unnecessary paper work, especially since most of 
the NODMAR information is already contained in the ``Important Message 
From Medicare'' issued upon admission to a hospital. One commenter 
stated that the notice should be on a clear and readable form, in at 
least 12-point font, and in understandable language. One commenter 
stated that beneficiaries are confused by the content and intent of the 
notice, and that the notice should include a contact person at the M+C 
organization. Two commenters stated that this should be a form 
developed by HCFA.
    Response: Shortly after the promulgation of the notice requirement, 
which is reiterated in Sec. 422.620, we began receiving comments that 
the notices of noncoverage being issued to beneficiaries were 
confusing, contained a great deal of sophisticated ``legalese,'' were 
too long (the notices were ranging from five to nine pages), and that 
the many variations of the document posed administrative burdens. 
Therefore, we committed to drafting a more comprehensive and 
beneficiary-friendly notice.
    We began consulting with industry groups, beneficiary advocacy 
groups, and peer review organizations in support of drafting a notice 
that would serve the intended purpose. On February 11, 1999, we issued 
OPL 99.082. This OPL conveyed: (1) Our new notice, the NODMAR; (2) our 
intent to consumer test and standardize the model language; and (3) our 
continued effort to find the best balance of beneficiary protections 
with administrative burden. The model language conveyed in the OPL 
contains language that is in 12 and 14-point fonts, is written in 
understandable language, and is only three pages in length.

[[Page 40285]]

    The Important Message from Medicare (IMM) and the NODMAR are two 
documents that contain similar information. The IMM is currently given 
to the Medicare beneficiary at or about the time of admission, while 
the NODMAR is given in advance of the patient's discharge. We 
recognized the burden associated with issuing two notices with similar 
information. Therefore, we have developed a single document and process 
that allows patients to be informed about their inpatient hospital 
rights at a time and in a form that will be most beneficial to them and 
in a manner that reduces administrative burden. This single document is 
a revision to the existing Important Message from Medicare.
    Accordingly, we have revised the IMM to provide for the inclusion 
of information on patients' inpatient hospital discharge rights. All 
Medicare beneficiaries will receive a revised notice, the ``Important 
Message About Medicare Rights: Admission, Discharge, & Appeals,'' as 
required under section 1866(a)(1)(M) of the Act.
    This revised standardized form will be issued to all Medicare 
beneficiaries who are inpatients of a hospital at or about the time of 
their admission. Once a Medicare beneficiary's time of discharge is 
determined, an amended notice that includes the reasons for the 
discharge would again be provided to the beneficiary prior to his or 
her actual discharge. The revised Important Message About Medicare 
Rights: Admission, Discharge, & Appeals has been consumer-tested, and 
has received favorable feedback. (Pursuant to the Paperwork Reduction 
Act of 1995 (PRA), a notice outlining this document was published in 
the Federal Register on April 12, 2000, with public comments accepted 
through June 12, 2000. See 65 FR 19783.) The content of the revised 
notice (and amended follow-up notice) will meet the requirements of the 
PRA and section 1866(a)(1)(M) of the Act (the Important Message from 
Medicare), and the notice requirements set forth at Sec. 422.620 that 
are now contained in the NODMAR.
    Comment: One commenter stated that the notice should include 
standardized language that indicates that review by PROs is usually 
preferable to a plan review, and should clearly explain that the 
enrollee is obligated to make a request in this fashion under these 
tight time restraints in order to be protected from financial 
liability.
    Response: As explained in the preamble to the June 26, 1998 interim 
final rule, there are advantages to filing for immediate PRO review. 
The most significant advantage in utilizing the immediate PRO review 
process is protection from financial liability for a continued hospital 
stay until noon of the calendar day following the day the PRO notifies 
the enrollee of its review determination. In addition, the immediate 
PRO review process offered the enrollee direct communication with the 
PRO and a decision that is generally rendered more quickly than an M+C 
organization's determination.
    Therefore, when the model language, NODMAR, was drafted, we 
included language that would allow the enrollee to understand the 
significance of meeting the immediate PRO review deadline. Likewise, 
the revised Important Message stipulates that if the enrollee meets the 
deadline for filing for immediate PRO review, the enrollee's M+C 
organization continues to be responsible for paying the costs of the 
enrollee's hospital stay until noon of the day after the PRO notifies 
the enrollee of its official decision.
    In addition to stating that the enrollee has financial protection 
if he/she meets the immediate PRO review deadline, we have included a 
section that explains what happens to the enrollee if he/she misses the 
deadline and has to appeal to the M+C organization.
    Comment: One commenter strongly supported the M+C regulations that 
improve notice requirements for hospital discharges. The commenter 
stated that the requirement that hospitals provide notice at the time 
of discharge instead of at admission gives M+C enrollees an additional 
protection against premature discharges. One commenter stressed the 
importance of always issuing a notice with respect to termination of 
any form of inpatient care, even when the enrollee has not expressed 
disagreement, because these are such significant changes in 
circumstances. The commenter suggested that these notices must be given 
in advance of the termination, and inpatient care must continue, 
without financial liability to the enrollee, until the appeal is 
resolved.
    Response: We agree with the commenter that a notice of appeal 
rights should be issued at discharge without regard to whether the 
beneficiary expresses disagreement with the termination of care. 
Section 422.620(a) already provides that an M+C enrollee has the right 
to continued coverage of inpatient hospital services unless a proper 
discharge notice is provided. We are concerned that the commenter 
appears not have understood the existing regulations to require a 
notice in all cases. This misinterpretation of our current requirements 
is consistent with what we have heard from beneficiaries discharged 
from hospitals during the year prior to consumer testing conducted on 
the NODMAR, who reported that they were unaware that they had the right 
to appeal the decision that it was time to leave the hospital, and left 
based on the belief that they had no choice in the matter. Given that 
the existing regulations text may not be sufficiently clear, we are 
responding to this comment by revising Sec. 422.620(a) to expressly 
require that written notice be issued to enrollees in the case of all 
discharges and by revising the introductory clause in Sec. 422.620(c) 
to provide that ``In all cases in which a determination is made that 
inpatient hospital care is no longer necessary, no later than the day 
before hospital coverage ends, each enrollee must receive a written 
notice that includes the following * * * .''
    With respect to the commenter's suggestion that the enrollee not be 
financially liable until an appeal is resolved, as noted above, if the 
enrollee disagrees with a discharge decision, the enrollee may file for 
immediate PRO review by noon the day after a discharge notice is 
received. If such a timely request for review is filed, the enrollee is 
protected from financial liability until at least noon on the day after 
notice of the PRO's decision, if the PRO upholds the decision to 
discharge the enrollee. If the PRO decides that hospital services are 
still necessary, coverage would continue until a new discharge notice 
is issued.
    Comment: Several commenters did understand the current regulations 
to require issuing the NODMAR to every enrollee prior to being 
discharged from an inpatient hospital setting, and indicated that they 
found this requirement difficult to administer. One commenter believes 
that M+C organizations need the cooperation of hospitals to fulfill 
this requirement, and contended that such cooperation was not always 
possible to obtain. Therefore, this commenter suggested that we 
reconsider our decision to require that a NODMAR be provided to every 
M+C organization member prior to discharge, or that we at least 
articulate this requirement as a ``good faith effort'' versus an 
absolute requirement. Two commenters said that in cases in which the 
responsibility for providing the notice has not been delegated by the 
M+C organization to the hospital, or where hospitals refuse to assist 
in this process, M+C organization staff would have to be available to 
visit each hospital on an ongoing basis 7 days each week, thereby 
creating a significant increase in the level of staffing. One commenter 
reported that in some cases,

[[Page 40286]]

hospitals are demanding compensation from M+C organizations for 
providing the notice to enrollees. Another commenter contended that it 
is inappropriate and unhelpful for hospitals to issue the notice, since 
there is no reimbursement from M+C organizations or Medicare, and it is 
impossible for hospital staff to explain decisions they did not make.
    Response: We understand the burdens associated with an M+C 
organization directly providing notices in a hospital setting, and 
agree with the commenters who stated that hospitals are in the best 
position to give the discharge notice required under Sec. 422.620. In 
light of the above comments, we have completed development of a single 
document that combines the NODMAR with the ``Important Message.'' (The 
Important Message is the document we have determined that hospitals are 
already required, under section 1866(a)(1)(M) of the Act, to issue to 
all Medicare beneficiaries, including M+C enrollees.) While this 
regulation is not the appropriate vehicle to impose requirements on 
hospitals, some of which do not contract with M+C organizations, we 
intend, through a more appropriate vehicle, to require that all 
hospitals provide discharge notices for all Medicare patients. Thus, we 
are revising Sec. 422.620 to eliminate the existing requirement that 
M+C organizations issue the notice of noncoverage to M+C enrollees.
    Lastly, we note that it is the responsibility of the entity that 
made the discharge decision to ensure that an enrollee's questions 
about the discharge decision be directed to someone within that entity 
who can provide assistance. Thus, where a discharge decision is made by 
an M+C organization, that organization should be available to answer 
questions, even though the notice is issued on the organization's 
behalf by a hospital.
    Comment: Several commenters suggested that the requirement to issue 
a NODMAR to all enrollees prior to discharge should be repealed or 
significantly modified. Four commenters suggested that the NODMAR 
should be given only if the enrollee or the physician disagrees with 
the hospital's decision to discharge. One commenter contended that 
issuing a notice in cases where the enrollee agrees with the discharge 
decision is unnecessary, will confuse the enrollee, and may result in 
the delay of appropriate discharge or the increase in hospital costs.
    Response: The intent of the notice requirement set forth at 
Sec. 422.620, as with all notice requirements, is to provide enrollees 
with information that will help them make an informed decision about 
their health care at a time when it would be most needed and 
effectively received. The notice requirement is an important and 
necessary beneficiary protection.
    Again, the revised Important Message has undergone extensive 
consumer testing. This has helped us to improve the content of the 
notice to make it less confusing to the beneficiary. Since the revised 
notice will be used to satisfy the requirement for notice of discharge/
termination of coverage, beneficiaries will have the benefit of the 
consumer testing in this context as well.
    Comment: One commenter supported an extension of the notice 
requirement to original Medicare beneficiaries, that is, all Medicare 
beneficiaries would receive a notice prior to being discharged from the 
hospital regardless of whether the beneficiary agrees with the 
decision. The commenter stated that until this requirement is extended, 
it will be very difficult to achieve full compliance, and urged that we 
defer any evaluation of plan compliance with this requirement until 
such an extension is secured.
    Response: We have received many inquiries as to whether the M+C 
policy of issuing NODMARs in all cases will also apply to original 
Medicare beneficiaries. Currently, the practice has not been for 
hospitals to issue notices (that is, the Hospital-Issued Notices of 
Noncoverage (HINN)) to all original Medicare beneficiaries in advance 
of their hospital discharge, but to do so only in cases in which the 
beneficiary disagrees. We believe that it is in the best interests of 
all Medicare beneficiaries and the entities responsible for 
distribution of such notices to implement a uniform policy for M+C 
program and original Medicare purposes, and we intend to provide for 
this through an appropriate vehicle. This final rule, however, sets 
forth only those requirements that apply in the case of M+C enrollees.
    Comment: One commenter contended that our inpatient hospital notice 
requirement generates ill will among M+C organizations, contracting 
providers, and beneficiaries. Two commenters opposed the notice 
requirement because they believe it would raise costs to hospitals.
    Response: The intent of the notice requirement is not to supplant 
the doctor/patient relationship nor to harm the working relationships 
among M+C organizations, contracting providers, and/or beneficiaries. 
We believe that standardized instructions, and the eventual 
implementation of a uniform policy for original Medicare beneficiaries, 
will help to alleviate a great deal of contention between the various 
entities. In the long run, this should make the referenced 
relationships function more smoothly.
    Comment: One commenter suggested that the regulation should make 
clear that if a notice is not issued, the M+C organization (not the 
hospital) is liable for services.
    Response: We agree that if proper notice is not provided, the M+C 
organization is liable for coverage, unless the hospital has been 
delegated the authority to make coverage decisions on behalf of the M+C 
organization. This liability is provided for under Sec. 422.622(c), 
which expressly addresses liability for services, and Sec. 422.620(a), 
which makes clear that the enrollee is entitled to coverage until noon 
the day after notice is given.
    Comment: One commenter suggested that the only information that 
should be reviewed in an appeal of a decision not to admit a patient to 
a hospital, or to discharge a patient, is that which was available at 
the time that the decision was made.
    Response: We disagree with the commenter. We believe that the 
entity reviewing an inpatient hospital discharge decision, or decision 
not to admit an enrollee to the hospital, should base its review on all 
the facts and evidence available--regardless of whether such 
information was available at the time of the decision not to admit or 
to discharge. In particular, in the case of review by the M+C 
organization, Sec. 422.586 provides the parties to the reconsideration 
with an opportunity to present related evidence and allegations of fact 
or law in person as well as in writing; (the regulation notes that such 
an opportunity may be limited in the case of expedited 
reconsideration). Further, Sec. 422.580 defines a reconsideration as a 
review of an adverse organization determination, the evidence and 
findings upon which it was based, and any other evidence the parties 
submit or the M+C organization or we obtain. Thus, there is ample 
precedent for not limiting information to be reviewed in the case of an 
appeal, and we plan to continue that policy.
    Comment: One commenter suggested that, in order to avoid 
stalemates, the M+C regulations (like the original Medicare 
regulations) should provide a process to resolve cases in which the 
physician and the M+C organization disagree about the discharge 
decision.
    Response: We agree with the commenter that the existing regulations 
do not provide for a clear resolution process in situations where an 
M+C

[[Page 40287]]

organization determines that inpatient care is no longer necessary, but 
the physician who is responsible for the patient's hospital care does 
not agree. We are currently examining different methods to resolve 
these situations, such as a method comparable to the existing Medicare 
fee-for-service system. Under that system, if a hospital believes that 
an inpatient is ready for discharge, but cannot obtain the concurrence 
of the attending physician, the hospital may request PRO review of the 
case. We intend to discuss this issue in our forthcoming notice of 
proposed rulemaking.
16. Other Comments
    Comment: As alluded to above, several commenters suggested that we 
modify the subpart M regulations to reflect the provisions of the 1997 
district court order in Grijalva that was vacated by the Ninth Circuit 
on appeal in 1999. For example, several commenters suggested we provide 
for the continuation of coverage during the pendency of an expedited 
appeal as provided under that district court order. Two commenters 
suggested that we clarify the enrollee's right to submit evidence in 
person. Additionally, several commenters suggested that the regulation 
should state that the enrollee has the right to informal, in-person 
communication with the reconsideration decision maker and that 
telephone hearings could be conducted if appropriate. One commenter 
opposed the implementation of the provisions in the vacated Grijalva 
order as too burdensome on M+C organizations.
    Response: In general, we intend to implement regulatory changes 
that stem from the Grijalva order through upcoming notice and comment 
rulemaking. Thus, several of the commenters' suggestions are not 
addressed here. We note, however, that in some respects, we believe 
that the improvements to the appeals process that have been made under 
the M+C program already incorporate several of the provisions in the 
vacated Grijalva order, and in many instances are stronger. For 
example, the Grijalva order would have required that organization 
determinations be rendered within 5 working days, with the possibility 
of a 60-day extension. Under this regulation, we require that when an 
enrollee requests a service, the M+C organization must respond as 
expeditiously as the enrollee's health condition requires, but no later 
than 14 calendar days. The M+C organization may not extend the time 
frame beyond an additional 14 calendar days. More significantly, unlike 
under the Grijalva order, the M+C program provides an expedited 72-hour 
time frame for organization determinations in some cases that is 
shorter than the Grijalva time frame, and a similar expedited 72-hour 
time frame for the resolution of certain reconsiderations, while the 
Grijalva order provides neither. In another example illustrative of how 
our current M+C regulations meet or exceed the Grijalva order, at 
Sec. 422.586, the M+C organization is required to provide parties to 
the reconsideration with a ``reasonable opportunity to present evidence 
and allegations of fact or law * * * in person.''
    Comment: One commenter urged that we eliminate the phrase in 
Sec. 422.574(b) which reads ``and formally agrees to waive any right to 
payment from the enrollee for that service,'' because this language 
demeans the role of physicians as patient advocates for medically 
necessary services.
    Response: We do not believe changes are needed in Sec. 422.574(b), 
which requires a physician or other provider who has furnished a 
service to an enrollee to formally agree to waive any right to payment 
from the enrollee for that service. The waiver is only required in the 
case of retrospective payment denials, where an enrollee has already 
received medically necessary services, but the noncontract physician or 
provider is seeking payment for furnishing those services; therefore, 
this phrase does not affect the role of physicians as patient advocates 
for medically necessary services. In the context of receipt of payment, 
the role of the physician or provider is no longer as a patient 
advocate for medically necessary services. Therefore, the M+C 
regulation does not adversely affect or demean a physician's role as an 
advocate in prospective instances where an enrollee has not yet 
received health care services.
    Comment: A commenter asked whether we would offer clarification of 
respective Medicare/Medicaid authorities, particularly with respect to 
New York State's existing 1115 Medicaid demonstration project. 
Additionally the commenter wondered if we will establish an 
administrative linkage between the States and the Medicare review 
authority for the provision of reports on reviews of adverse 
determinations in M+C organizations also operating as a State-defined 
managed long term care plan. (The commenter noted that managed long 
term care plans will predominantly serve the dually eligible.)
    Response: We agree that access of dual eligibles to both the 
Medicare and Medicaid external hearing process should be clarified. The 
external hearing process accessed depends upon the type of services 
being provided. For example, in original Medicare, enrollees who are 
dually eligible access Medicare services through the Medicare system. 
Therefore, appeals of Medicare services may be appealed through the 
Medicare external hearing process, if the beneficiary chooses to do so. 
Medicaid-only wraparound services (such as pharmacy services) must be 
accessed through Medicaid. Therefore, appeals of Medicaid-only services 
must be appealed through the Medicaid external hearing process. 
Likewise in capitated managed care, when a dually eligible enrollee is 
enrolled in a Medicaid MCO, the capitated rates are set based on an 
assumption that Medicare services are accessed through the Medicare 
system. Therefore, the Medicaid fair hearing system is accessed only 
for the Medicaid capitated services. The Medicare external hearing is 
accessed for the Medicare services outside of the Medicaid capitation 
contract. If a dually eligible individual is enrolled in an M+C 
organization, then the Medicare external hearing is accessed for the 
Medicare services within the capitation contract. The enrollee accesses 
the Medicaid State Fair Hearing only for services outside of the 
Medicare contract. The key to this example is that the enrollee and the 
M+C organization need to know whether the service provided is a 
Medicare- or Medicaid-covered service.
    Comment: A commenter suggested that Sec. 422.568(e), which 
addresses the effect of failure to provide timely notice of an 
organization determination, should be revised to specify that: (1) 
Failure to give timely and proper notice shall result in an automatic 
authorization/approval; and/or (2) failure to give timely and proper 
notice shall result in automatic sanctions by us. Furthermore, the 
commenter stressed that if an M+C organization fails to give proper 
notice, the M+C organization should be required to submit the file 
directly to an independent organization as described in 
Sec. 422.590(c). Another commenter suggested that M+C organizations 
that fail to comply with grievance and appeal requirements should be 
subject to other intermediate sanctions.
    Response: If we determine that an M+C organization substantially 
fails to comply with the notice requirements relating to grievances and 
appeals in subpart M, we have the option to terminate the contract 
under the requirements of Sec. 422.510(b), impose intermediate 
sanctions as described in Secs. 422.756(c)(1) and (c)(3), and/or

[[Page 40288]]

impose civil money penalties as described in Sec. 422.758. We note 
that, depending on the seriousness of a violation (for example, in 
terms of the degree of risk to an enrollee's health), failure to comply 
with notice or appeal requirements in only one or two cases could 
constitute a substantial failure. Intermediate sanctions include the 
suspension of enrollment and marketing. We believe that these sanction 
requirements are most appropriately set forth in the sections of the 
M+C regulations dedicated to contract provisions (subpart K) and 
intermediate sanctions (subpart O).
    We do not agree that we should add the requirement that an M+C 
organization's failure to give timely and proper notice shall result in 
an automatic authorization/approval, or that failure to give timely and 
proper notice shall result in automatic sanctions. In fact, we believe 
the first recommendation could seriously jeopardize the enrollee's 
health if, for example, an enrollee requested service that could be 
harmful to his or her health. We note that in the case of hospital and 
nursing home services already being provided, we have in part 
implemented the commenter's suggestion, in that the M+C organization is 
obligated to continue to cover the services until notice of noncoverage 
is provided. Also, as mentioned earlier, our sanction authority 
includes cases where we determine an M+C organization substantially 
fails to comply with the requirements relating to grievances and 
appeals in subpart M, including the organization's failure to provide 
the enrollee with timely and proper notice. Finally, where an M+C 
organization fails to give proper notice within the time frames 
required for resolution, Sec. 422.590 requires the M+C organization to 
submit the file to the independent entity for review. We expect M+C 
organizations to provide enrollees with written notice for all denials 
(including the case of a discontinuation of a service where the 
enrollee disagrees (that?) the services are no longer medically 
necessary) according to the time frames and notice requirements set 
forth under subpart M and in operational instructions. However, we do 
not agree that it is practical, nor does the law mandate, that we 
require M+C organizations to automatically forward cases for 
independent review when content of the notice is at issue, and there 
has not been an adverse organization determination (that is, a coverage 
denial).
    Comment: A commenter suggested that M+C organizations should be 
required to establish an independent appeals procedure for denials of 
care.
    Response: The M+C statute requires that we contract with an 
independent review entity to independently review plan denials of care. 
We believe that this arrangement, along with the other M+C appeal 
requirements, provide Medicare enrollees with the rights they need, and 
the rights to which they are entitled.
    Comment: Two commenters did not believe that the physician 
reviewing the reconsideration needed to be of the same specialty or 
sub-specialty as the treating physician. Requiring the same specialty 
as the treating physician unduly complicates the reconsideration 
process in this commenter's view. One commenter pointed out that the 
BBA Conference Report states that ``It is not the conferees intent to 
require that a physician involved in the reconsideration process in all 
cases be of the same specialty or sub-specialty as the treating 
physician.'' One commenter suggested that expertise should be defined 
in terms of board certification in the specialty, years of experience 
practicing in the specialty, and active practice. One commenter also 
suggested that physicians have qualifications other than expertise in 
the field of medicine that is appropriate for the services at issue. 
The commenter believes that the reviewing physician should also be 
formally qualified in the specialty treatment (licensed and actively 
practicing in the same jurisdiction) as the practitioner providing (or 
who would provide) the services, and have the appropriate level of 
training and experience to judge the necessity of the service. To 
ensure greater professional accountability, a commenter recommended 
that the reviewing physician's identity be accessible to the physician 
who recommended, rendered, or would have rendered the treatment under 
review. One commenter suggested that we also include other rights found 
in State managed care laws, such as requiring initial (organization) 
determination denials to be made or approved by a physician.
    Response: We agree that a physician involved in the reconsideration 
process need not in all cases be of the exact same specialty or sub-
specialty as the treating physician; therefore, we are revising 
Sec. 422.590(g)(2) to make this clear. For example, we believe that 
there may be situations where only one specialist practices in a rural 
area, and therefore, it would not be possible for the M+C organization 
to obtain a second reviewer with expertise in the same specialty. In 
addition, we recognize that there may be some situations where there 
are few practitioners in highly specialized fields of medicine. Under 
these circumstances, it would not be possible to get a physician of the 
same specialty or sub-specialty involved in the review of the adverse 
organization determination.
    With respect to the commenter who specified training that the 
commenter believes reviewing physicians should have, we believe that 
our standard of ``appropriate'' expertise addresses this comment. Nor 
do we believe that it would be appropriate for the reviewing 
physician's identity to be provided to the treating physician being 
reviewed. The treating physician has the right to challenge the M+C 
organization's decision on the merits through several levels of an 
appeals process. We believe that sufficient accountability exists for 
reviewing physicians through the appeals process, since a physician 
whose decisions are reversed on appeal would be accountable to his or 
her M+C organization. Providing the name of the physician making the 
initial decision for the M+C organization could result in needless 
personal harassment of that physician by the physicians he or she 
reviews.
    Finally, we do not agree with the comment that organization 
determinations should be made or approved by a physician. We do not 
believe that it is necessary to require physician involvement in all 
organization determinations that are adverse. Nevertheless, we expect 
that where adverse determinations are based on a lack of medical 
necessity, M+C organizations will ensure that appropriate health care 
professionals will be involved in the decision-making. For example, a 
nurse practitioner could render an adverse organization determination 
without the need to involve a physician. Furthermore, if an enrollee 
believes that the lack of physician involvement was a central factor in 
an adverse organization determination, then the enrollee need only 
request a reconsideration since the reconsideration requirements 
(Sec. 422.590(g)(2)) specify that a denial of coverage based on a lack 
of medical necessity must be made by a physician with expertise in the 
field of medicine that is appropriate for the services at issue. (We 
note that we have made a minor technical change to Sec. 422.590(d) to 
clarify that the term ``medical necessity'' includes any substantively 
equivalent term used by an M+C organization to describe the concept of 
medical necessity.)
    Comment: Several commenters provided suggestions on elements for 
grievance and appeal data.

[[Page 40289]]

    Response: We appreciate the variety of comments we received 
concerning categories of meaningful data elements. The comments have 
provided valuable insight as we continue to work with the public to 
develop collection and reporting requirements related to organization-
level appeals and grievances. Please note that OPLs 99.081 and 2000.114 
provide guidance on the manner and form in which M+C organizations will 
be expected to comply with the requirement under Sec. 422.111 for 
disclosing grievance and appeal data upon request to M+C-eligible 
individuals. Collection began April 1, 1999, and the first reporting 
went into effect on January 1, 2000.

N. Medicare Contract Appeals (Subpart N)

    Subpart N of Part 422 addresses M+C contract determinations. There 
are three types of contract determinations addressed under Subpart N: 
(1) A determination that a contract applicant is not qualified to enter 
into a contract with us under Part C of title XVIII of the Act; (2) a 
determination to terminate a contract with an M+C organization; and (3) 
a determination not to authorize a renewal of a contract with an M+C 
organization. Regarding item (1), above, this type of contract 
determination likewise applies to service area expansion applications.
    As indicated in the June 1998 interim final rule, pursuant to 
section 1856(b)(2) of the Act, most of what comprises subpart N was 
drawn from regulations in part 417 governing similar contract 
determinations involving contracts under section 1876 of the Act. We 
received nine public comments concerning subpart N of the interim final 
rule.
    Comment: We received one comment on Sec. 422.641. The commenter 
objected to the fact that subpart N, and Sec. 422.641 in particular, 
does not provide for an appeal mechanism when we and an M+C 
organization disagree over a term of the organization's M+C contract. 
The commenter believes that because the Federal Acquisition Regulations 
(FAR) and contract disputes procedure in Subpart 33.2 of that 
regulation do not apply to M+C contracts, the M+C final rule should 
address how these disputes or disagreements will be resolved.
    Response: The M+C statute does not contemplate a contract disputes 
procedure akin to the contract disputes procedure contained in Subpart 
33.2 of the FAR. Unlike acquisition contracts subject to the FAR, the 
terms of M+C contracts are dictated by statute and regulations. M+C 
organizations have an opportunity for input on the regulations that 
govern what is included in M+C contracts through the notice and comment 
process. Ultimately, however, as a matter of Federal administrative 
law, we are charged with implementing the M+C statute in regulations, 
and with interpreting and applying its regulations. We attempt, through 
Operational Policy Letters and other means, to provide guidance to M+C 
organizations on our interpretations of regulatory provisions, and 
ultimately, M+C contract terms. In some cases, M+C organizations, or 
associations representing M+C organizations, have objected to our 
interpretations of the regulations or to M+C contract terms. In some of 
these cases, we have taken these objections into account, and we have 
made modifications. To the extent that an M+C organization remains 
uncomfortable with the terms of the M+C contract, or of our 
interpretation of these terms, it ultimately is free not to renew its 
contract for the following calendar year. We believe that this informal 
process has worked well, and that there is no need to create a 
formalized adjudicatory process for addressing disagreements between an 
M+C organization and us about an M+C contract issue.
    Comment: We received several comments about the terminology used 
throughout subpart N. In particular, commenters noted that the terms 
used in describing the two categories of entities to which the subpart 
applies, that is, entities that hold M+C contracts and entities that 
apply to become M+C contractors, vary throughout the subpart. For 
example, Secs. 422.650(c), 422.650(d), 422.656(a), and 422.660 use 
three different terms to describe contract applicants: ``entity,'' 
``M+C contract applicant,'' and ``applicant entity.'' The commenter 
recommended that we standardize our use of terminology concerning 
contract applicants.
    Response: We agree with the commenter that the varied use of terms 
to describe contract applicants is confusing and unnecessary. 
Therefore, we are revising the regulation text throughout subpart N to 
refer to organizations applying to become M+C organizations as 
``contract applicants.''
    Comment: One commenter indicated that in some instances, subpart N 
refers only to M+C organizations when it presumably should refer to 
contract applicants as well. For example, Sec. 422.648(b) states that 
we will reconsider a contract determination if the M+C organization 
files a written request. Presumably, this provision should likewise 
apply to contract applicants since we also afford these organizations 
reconsideration rights under subpart N.
    A similar issue exists at Sec. 422.656 of the interim final rule. 
Paragraph (a) discusses giving both the M+C organization and the 
contract applicant written notice of the reconsidered determination, 
while paragraph (b)(1) refers only to the M+C organization. Paragraph 
(b)(3) returns to using both M+C organizations and contract applicants.
    Response: We agree with the commenter that contract applicants are 
also entitled to seek reconsideration pursuant to a Medicare contract 
determination. Thus, we are revising Sec. 422.648(b) to specify that we 
will reconsider a contract determination if a contract applicant or M+C 
organization files a written request for one. We likewise agree that 
Sec. 422.656(b)(1) should be revised to specify that the provision 
applies to contract applicants as well as existing M+C organizations, 
and we are making the needed changes to the regulation text.
    Comment: One commenter pointed out that subpart N appears to grant 
different rights to contract applicants than those available to M+C 
organizations. This is due, in part, to the provision at 
Sec. 422.648(b) that states--in error--that we will reconsider contract 
determinations for M+C organizations, but not contract applicants. In 
conjunction with the Sec. 422.660 citation mentioned above, this 
section indicates that applicant entities must seek reconsideration 
before requesting an appeal, while M+C organizations can appeal a 
termination or nonrenewal without first seeking a reconsideration. This 
too stands in contrast to the provision at Sec. 422.662 that 
contemplates hearings taking place after the initial determination and 
reconsideration occur.
    Response: As mentioned earlier, correcting the language at 
Sec. 422.648(b) to include contract applicants correctly realigns the 
language in subpart N to convey that applicant entities and M+C 
organizations must first seek a reconsideration before proceeding to 
the hearing stage.
    Comment: A commenter believes that the language provided at 
Sec. 422.662(b) is confusing, because it appears to indicate that 
contract applicants who are denied a contract by us must file a request 
for a hearing within 15 days of the date of the contract determination 
without first receiving notice of our initial determination.
    Response: We agree that the language at Sec. 422.662(b) confuses 
our intent to provide for a contract appeals process that includes--in 
this order--(1) a

[[Page 40290]]

contract determination, (2) an opportunity for reconsideration of the 
initial contract determination, (3) a reconsidered determination, as 
necessary, (4) the right to a hearing, as applicable, and (5) for 
contract terminations, a review by our Administrator. We therefore are 
changing the language at Sec. 422.662(b) to clearly specify that the 
affected party must file a request for a hearing within 15 days after 
the date of the reconsidered determination.
    Comment: We received one comment on Sec. 422.668 regarding the 
disqualification of a hearing officer. Paragraph (b) of this section 
states that the person designated to be the hearing officer must 
consider objections from any party to the hearing that relates to any 
potential bias of the hearing officer. The hearing officer may then 
proceed with the hearing or withdraw. The commenter suggested that 
allowing a hearing officer whose impartiality has been questioned the 
discretion to continue with the hearing is ill-advised. The commenter 
asserted that if a party believes that the officer is biased, it would 
be more expedient to resolve that issue immediately instead of 
proceeding with the hearing.
    Response: We believe that in selecting an individual to serve as a 
hearing officer, the individual's ability to be fair and impartial 
would be taken into account. Should there be a suggestion of a possible 
bias, we believe that such an individual would be in a position to 
evaluate the situation, and determine whether he or she in fact could 
be impartial with regard to the case in question. Vesting the 
decisionmaker with this authority to make his or her own determination, 
subject to appeal only after the matter is heard on the merits, is the 
same approach used with respect to judges in court proceedings, and we 
believe is appropriate in this context as well. The alternative could 
permit an appealing party to delay hearings indefinitely by repeatedly 
challenging the impartiality of the hearing officer and appealing any 
rejection of such a challenge.
    We believe that Sec. 422.668 provides an adequate remedy to 
situations where bias of the hearing officer is questioned. This 
section states that the objecting party may, at the close of the 
hearing, present objections, request that the decision of the hearing 
officer be revised, or request a new hearing before a different hearing 
officer.
    Comment: Commenters noted that Sec. 422.692 limits the right to a 
review by our Administrator to situations involving M+C contract 
terminations. The commenters questioned whether we intended to deny 
this level of review in instances in which we nonrenew an M+C contract, 
or we deny a contract application.
    Response: The additional layer of review by our Administrator is 
intended to apply only to contract termination decisions. This extra 
level of administrative review was included in the case of termination 
decisions in order to implement the requirement in section 
1857(h)(1)(B) of the Act that M+C organizations have the ``right to 
appeal an initial decision'' following a termination decision. In 
providing for review of a hearing officer's decision by our 
Administrator, we have adopted procedures similar to those used for the 
Administrator's review of decisions of the Provider Reimbursement 
Review Board found at Sec. 405.1875.
    Comment: A commenter questioned the provision at Sec. 422.696 under 
which reopening a contract or reconsideration determination is limited 
to our discretion, the Administrator, or the hearing officer. The 
commenter asked if the aggrieved party can petition for reopening in 
any instance.
    Response: If an applicant or M+C organization believes it has a 
basis for re-opening a decision, it may request that the decisionmaker 
re-open the matter. The decision whether to act on such a request, 
however, is committed to the decisionmaker's discretion, and is not 
subject to appeal or further review of any kind. This is consistent 
with our general policies on re-opening decisions. See, for example, 42 
CFR Part 405, Subpart R.

O. Intermediate Sanctions (Secs. 422.750 through 422.760)

    As stated in the interim final rule, M+C organization actions that 
are subject to intermediate sanctions include those specified at 
Sec. 417.500 for contracts under section 1876 of the Act. The BBA also 
contained additional sanction authority not found in Sec. 417.500, 
which we have implemented in subpart O. Specifically, section 
1857(g)(3) of the Act provides that the Secretary can impose 
intermediate sanctions and civil money penalties based on a finding 
that the grounds in section 1857(c)(2) of the Act for terminating a 
contract are met. These grounds for termination are reflected in 
Sec. 422.510(a), and are discussed in section II.K and II.N above. 
While intermediate sanctions based on the grounds for termination at 
Sec. 422.510 generally are imposed on the same terms as sanctions for 
the violations specified in Sec. 422.750(a), in the case of all grounds 
except a finding of fraud or abuse under Sec. 422.510(a)(4), HCFA, 
rather than the OIG, imposes civil money penalties.
    We received 3 comments on subpart O.
    Comment: A commenter contended that the intermediate sanctions 
provisions do not provide Medicare contracting organizations with 
sufficient appeal rights before intermediate sanctions are imposed. 
Another commenter argued that the Congress originally intended 
intermediate sanctions to be an intermediate step less severe than a 
termination, and that instead suspension of payment for enrollees can 
be a worse penalty than termination. This commenter believes that the 
use of intermediate sanctions and civil money penalties has been 
incorporated as a program management tool, rather than an intermediate 
step to termination, which the commenter believes should follow 
sanctions.
    Response: In the case of the imposition of a civil money penalty, 
extensive appeal rights are afforded, including the right to a hearing 
before the departmental appeals board (DAB). In the case of an 
``intermediate sanction,'' however, the entire point of this authority 
is to allow the Secretary to take swift action to respond to a finding 
of a serious violation of M+C requirements. Since the sanction is 
temporary, and only remains in place until corrective actions have been 
taken, elaborate appeal rights were not contemplated by the Congress, 
and would not be appropriate. The Congress has demonstrated in section 
1857(h) of the Act that it knows how to require specific appeal rights 
when it wishes to do so. We believe that an M+C organization's 
interests are sufficiently protected by giving the organization an 
opportunity to seek reconsideration of a decision to impose 
intermediate sanctions by demonstrating that the basis for the decision 
is incorrect, and giving the organization an opportunity to have the 
sanctions lifted when corrective action is taken. This approach is 
consistent with what is provided with respect to intermediate sanctions 
in the nursing home enforcement area. With respect to the second 
comment, we believe that intermediate sanctions are an ``intermediate 
step'' between no action and the drastic step of termination, yet do 
not agree that termination necessarily would follow, unless the 
organization fails to take corrective action in response to sanctions. 
Our experience generally has been that organizations respond favorably 
to sanction letters. The commenter's opinion that an intermediate 
sanction could be worse than termination may be based on a

[[Page 40291]]

misunderstanding of the nature of the sanction referenced by the 
commenter. The option of suspending payment for enrollees, under 
section 1857(g)(2)(C) of the Act, applies only to payments for 
individuals who enroll after the effective date of the sanction. This 
sanction option, which is available with respect to the violations 
specified in Sec. 422.752(a), would only apply in a case in which HCFA 
decided not to impose the sanction of a suspension of enrollment. 
Finally, the commenter is correct that we view intermediate sanction 
and civil money penalty authorities as a program management tool that 
HCFA can employ in the event an organization is not meeting Medicare 
regulations. Through the use of this tool, HCFA can ensure compliance 
with regulations without depriving beneficiaries who may be happy with 
the M+C plan in which they are enrolled of that enrollment option.
    Comment: A commenter suggested that HCFA expand intermediate 
sanctions to include all aspects of grievance and appeals violations.
    Response: HCFA has the authority to impose intermediate sanctions 
for a substantial failure to comply with any grievance and appeal 
requirement set forth in subpart M. Specifically Sec. 422.752(b) 
provides that HCFA may impose intermediate sanctions for any violation 
under Sec. 422.510(a). Section 422.510(a)(6) in turn specifies a 
substantial failure to ``comply with the requirements in subpart M of 
this part relating to grievances and appeals'' as a sanctionable 
violation.

P. Medicare+Choice MSA Plans

1. Background
    Among the types of M+C options authorized under section 1851(a)(2) 
of the Act is an M+C medical savings account (MSA) option, that is, a 
combination of a high deductible M+C insurance plan (an M+C plan) and a 
contribution to an M+C MSA. Section 1859(b)(3)(A) of the Act defines an 
MSA plan as an M+C plan that:
    <bullet> Provides reimbursement for at least all Medicare-covered 
items and services (except hospice services) after an enrollee incurs 
countable expenses equal to the amount of the plan's annual deductible.
    <bullet> Counts for purposes of the annual deductible at least all 
amounts that would have been payable under original Medicare if the 
individual receiving the services in question was a Medicare 
beneficiary not enrolled in an M+C plan, including amounts that would 
be paid by the beneficiary in the form of deductibles or coinsurance.
    <bullet> After the annual deductible is reached, provides a level 
of reimbursement equal to at least the lesser of actual expenses or the 
amount that would have been paid under original Medicare, if the 
individual receiving the services in question was a Medicare 
beneficiary not enrolled in an M+C plan, including amounts that would 
be paid by the beneficiary in the form of deductibles or coinsurance.
2. General Provisions (Subpart A)
    Sections 422.2 and 422.4 set forth several definitions for terms 
connected with M+C MSA plans, including ``M+C MSA,'' ``M+C MSA plan,'' 
and ``MSA trustee.'' We also distinguish between a ``network'' and a 
``non-network'' M+C MSA plan. These definitions consist of general 
meanings for these terms as used in the BBA, and do not include 
specific requirements in the definitions themselves. The definition for 
an MSA does, however, reference the applicable requirements of sections 
138 and 220 of the Internal Revenue Code, while the M+C MSA plan 
definition references the applicable requirements of part 422.
3. Eligibility, Election, and Enrollment Rules (Subpart B)

a. Eligibility and Enrollment (Sec. 422.56)

    Any individual who is entitled to Medicare under Part A, is 
enrolled under Part B, and is not otherwise prohibited (such as an ESRD 
patient), is eligible to enroll in an M+C plan. However, the statute 
places several limitations on eligibility to enroll in an M+C MSA plan, 
and these limitations are set forth at Sec. 422.56 of the regulations. 
Section 422.56(a) indicates that M+C MSA plans are authorized on a 
limited ``demonstration'' basis, and incorporates the statutory 
provisions of section 1851(b)(4), that is:
    <bullet> No more than 390,000 individuals may enroll in M+C MSA 
plans.
    <bullet> No individual may enroll on or after January 1, 2003, 
unless the enrollment is a continuation of an enrollment already in 
effect as of that date.
    <bullet> No individual may enroll or continue enrollment for any 
year unless he or she can provide assurances of residing in the United 
States for at least 183 days during that year.

b. Election (Sec. 422.62)

    Section 1851(e) of the Act establishes general rules concerning the 
time periods when a beneficiary could elect to enroll in an M+C plan 
(if one is offered in the beneficiary's area), with special rules for 
M+C MSA plans set forth at section 1851(e)(5) of the Act. Based on 
these provisions, Sec. 422.62(d) specifies that an individual may elect 
an MSA plan only during one of the following periods:
    <bullet> An initial election period, that is, the 7-month period 
beginning 3 months before the individual is first entitled to parts A 
and B of Medicare.
    <bullet> The annual coordinated election period in November of each 
year.
4. Benefits (Subpart C)

a. Basic Benefits Under an M+C MSA Plan (Sec. 422.103)

    Section 422.103 incorporates the statutory requirements for M+C MSA 
plans defined under section 1859(b)(3) of the Act, as outlined above. 
Thus, Sec. 422.103(a) specifies that an MSA organization offering an 
MSA plan must make available to an enrollee, or provide reimbursement 
for, at least all Medicare-covered services (except for hospice 
services) after the enrollee's countable expenses reach the plan's 
annual deductible. Further, Sec. 422.103(b) then indicates that 
countable expenses must include the lesser of actual costs or all the 
amounts that would have been paid under original Medicare if the 
services were received by a Medicare beneficiary not enrolled in an M+C 
plan, including the amount that would have been paid by the beneficiary 
under his or her deductible and coinsurance obligation.
    Section 422.103(c) provides that after the deductible is met, an 
M+C MSA plan pays the lesser of 100 percent of either the actual 
expense of the services, or of the amounts that would have been paid 
under original Medicare if the services were received by a Medicare 
beneficiary not enrolled in an M+C plan, including the amount that 
would have been paid by the beneficiary under his or her deductible and 
coinsurance obligation.
    Section 422.103(d), concerning the annual deductible, is based on 
section 1859(b)(3)(B) of the Act. As the statute specifies, the maximum 
annual deductible for an MSA plan for contract year 1999 was $6,000. In 
subsequent contract years, the maximum deductible may not exceed the 
maximum deductible for the previous contract year increased by the 
national per capita M+C growth percentage for the year. Thus, based on 
a national per capita growth percentage of 5 percent, the maximum 
deductible for 2000 is $6,300. In calculating the maximum deductible 
for future years, HCFA will round the amount to the nearest multiple of 
$50.

b. Supplemental Benefits (Secs. 422.102 and 422.104)

    Section 422.102 addresses the general M+C rules on supplemental 
benefits.

[[Page 40292]]

Unlike other M+C plans, MSA plans are not permitted to include any 
mandatory supplemental benefits, and are limited in terms of the 
optional supplementary benefits that can be offered. In accordance with 
section 1852(a)(3)(B)(ii) of the Act, Sec. 422.104(a) specifies that an 
M+C MSA plan generally may not provide supplemental benefits that cover 
expenses that count toward the annual deductible. In addition, section 
4003(b) of the BBA added new section 1882 to the Act to prohibit the 
sale of most supplementary health insurance policies to individuals 
enrolled in M+C MSA plans. The only exceptions to this rule are spelled 
out in section 1882(u)(2)(B) of the Act. Further, these exceptions 
apply both for purposes of the prohibition on selling freestanding 
supplementary health insurance (or ``Medigap'' insurance), and for 
purposes of ``optional supplemental benefits'' offered under M+C MSA 
plans. These exceptions are reflected in Sec. 422.103(b)(2).
5. Quality Assurance (Subpart D)
    Consistent with section 1852(e)(2) of the Act, a network model M+C 
MSA plan must meet requirements similar to those that apply to all 
other M+C coordinated care plans (with the exception of the achievement 
of minimum performance levels); the statute and regulations establish 
different requirements for non-network M+C MSA plans. These 
requirements are discussed in detail in section II.D of this preamble.
6. Relationships With Providers (Subpart E)
    For the most part, subpart E of new part 422 does not establish any 
requirements that are specific to MSA plans. However, Sec. 422.214, 
``Special rules for services furnished by noncontract providers,'' does 
not apply to enrollees in MSA plans. Section 422.214 implements section 
1852(k) of the Act, which contains limits on amounts providers can 
collect in the case of coordinated care plan enrollees (section 
1852(k)(1) of the Act), and private fee-for-service plan enrollees 
(section 1852(k)(2) of the Act). As explained in the June 1998 interim 
final rule preamble, it is clear that Congress intended no such limits 
to apply to services provided to MSA plan enrollees.
7. Payments Under MSA Plans (Subpart F)
    Section 1853 of the Act describes the method to be used to 
calculate the annual M+C capitation rate for a given payment area. We 
apply the same methodology in determining the annual capitation rate 
associated with each M+C MSA plan enrollee, though the actual amount 
paid to an M+C organization offering an M+C plan is not the amount 
determined under section 1853 of the Act.
    The special rules concerning the allocation of the M+C capitated 
amount for individuals enrolled in M+C MSA plans are set forth at 
section 1853. In general, HCFA will allocate the capitated amount 
associated with each M+C MSA enrollee as follows:
    <bullet> On a lump-sum basis at the beginning of the calendar year, 
pay into a beneficiary's M+C MSA an amount equal to the difference 
between the annual M+C capitation rate calculated under section 1853(c) 
of the Act for the county in which the beneficiary resides and the M+C 
MSA premium filed by the organization offering the MSA plan (this 
premium is uniform for all enrollees under a single M+C MSA plan, or 
segment of a plan service area, if authorized under section 1854(h). 
(See section I.C.7 for a discussion of the BBRA changes in this 
regard). This results in a uniform amount being deposited in an M+C MSA 
plan enrollee's M+C medical savings account(s) in a given county, since 
the uniform premium amount will be subtracted from the uniform county-
wide capitation rate for every enrollee in that county.
    <bullet> On a monthly basis, pay to the M+C organization an amount 
equal to one-twelfth of the difference, either positive or negative, 
between the risk adjusted annual M+C capitation payment for the 
individual and the amount deposited in the individual's M+C MSA.
    Section 422.262 contains the regulations concerning the allocation 
of Medicare trust funds for enrollees in M+C MSA plans.
8. Premiums (Subpart G)
    Section 1854 of the Act establishes the requirements for 
determination of the premiums charged to enrollees by M+C 
organizations. Like other M+C organizations, organizations offering M+C 
MSA plans in general must submit by July 1 of each year information 
concerning enrollment capacity and premiums. For M+C MSA plans, the 
information to be submitted includes the monthly M+C MSA plan premium 
for basic benefits and the amount of any beneficiary premium for 
supplementary benefits. These requirements are set forth under section 
1854(a)(3) of the Act and Sec. 422.306(c) of the regulations.
9. Other M+C Requirements
    The remaining requirements under subpart 422 have few, if any, 
implications specific to M+C MSA plans. One issue that we discussed in 
the interim final rule, however, involves the provision of section 
1856(b)(3)(B)(i) of the Act (and Sec. 422.402(b)) that any State 
standards relating to benefit requirements are superseded. We recognize 
that this provision means that State benefit rules will not apply (for 
example, State laws that mandate first dollar coverage for particular 
benefits such as mammograms or other preventative services). Some 
States may not license entities to offer catastrophic coverage, and it 
is possible that M+C MSA plans could not be offered in that State. We 
invited public comment on this issue.
10. Responses to Comments
    Comment: We had requested comments on the establishment of a 
minimum deductible for MSA plans. We had suggested the possibility of 
establishing the minimum deductible equal to the projected actuarial 
value of the average per capita copayment under original Medicare. For 
1999, that amount would have been $1000. In response, we received three 
comments. One commenter supported a minimum deductible but recommended 
that it be higher, $2000--$3000. Two other commenters opposed the 
minimum deductible, stating that it would be counterproductive, and 
would preclude organizations from offering plans feasible for lower 
income beneficiaries.
    Response: Since that there is neither clear consensus on the issue 
nor any actual experience under the demonstration, we do not believe it 
would be appropriate at this time to set a minimum deductible. 
Therefore, we will continue with only a maximum deductible as specified 
in the Act, but will include an analysis of the deductible issue in the 
evaluation of this program.
    Comment: One commenter requested clarification of Sec. 422.56 
specifying how an MSA should be treated in the Medicaid eligibility 
process.
    Response: We are not planning to address the issue of Medicaid 
eligibility in these regulations. However, this is a valid issue that 
needs to be addressed in Medicaid eligibility regulations.
    Comment: One commenter expressed a concern that MSA enrollees may 
fail to pay physician claims, based upon experiences with existing 
deductibles under Medicare. Further, the commenter feared that 
enrollees might decrease their use of noncovered

[[Page 40293]]

elective services, such as elective screening and initial diagnostic 
examinations.
    Response: Assuming that an M+C organization chooses to offer an MSA 
plan, beneficiaries would be advised before they enroll in the plan 
that they are responsible for initial medical expenses for the year, 
and each enrollee would have an MSA account to pay at least part of 
those expenses. Whether they would be able to meet all of their 
obligations would be considered in the evaluation. The purpose of the 
M+C MSA program is to permit beneficiaries to play a greater role in 
their health care purchasing decisions. The program does provide them 
with incentives to discourage the overutilization of health care 
services. We had considered requiring first-dollar coverage for 
services such as certain screening procedures, but decided that would 
be contrary to the intent of this demonstration.
    Comment: One commenter stated that the maximum enrollment of 
390,000 beneficiaries would be a disincentive for organizations to 
participate in the MSA demonstration. This would be too small a number 
to permit organizations to devote the resources to developing and 
marketing a high-deductible MSA policy.
    Response: The limit of 390,000 enrollees over the course of the MSA 
demonstration was specified under section 1851(b)(4) of the Act. We are 
not at liberty to change that requirement by regulation. Nevertheless, 
as we previously stated, we do not believe that number would be reached 
over the course of the demonstration if an M+C organization chose to 
offer an MSA plan.
    Comment: We had solicited comments regarding the issue of whether 
we should establish sample standardized MSA plans similar to the 
limited number of Medigap plans. Two organizations commented, both 
opposing standardized MSA plans as unnecessary and overly restrictive.
    Response: We agree with the commenters that there is no need to 
establish standardized MSA plans under the demonstration.
    Comment: Two organizations expressed concern that some States may 
not license insurers to provide high-deductible policies, thus limiting 
the availability of MSA plans.
    Response: The Act requires that an M+C organization wishing to 
offer an MSA plan be licensed by the State as a risk-bearing entity, 
and that the State determine that it can reasonably assume the risk 
that it would assume under the M+C plan it proposes to offer. It does 
not require that the organization be licensed commercially to offer a 
high deductible policy. Therefore, an M+C organization could offer an 
MSA plan in a State in which the State does not commercially license 
high deductible plans. The M+C organization must have the State's 
approval to do so, however.
    Comment: Two commenters asserted that the requirement to submit 
encounter data would be unduly burdensome for M+C organizations 
offering MSA plans, particularly for non-network MSA plans. Further, 
M+C organizations may not have access to claims incurred under the MSA 
deductible.
    Response: This issue was discussed at length during the development 
of the M+C regulations. Of particular concern was the fact that non-
network MSA plans may not see enrollee claims should those claims not 
exceed the deductible. The possibility of requiring enrollees to submit 
claims regardless of whether the insurer would have liability was 
discussed, but dropped as burdensome for enrollees. We believe it is in 
the interest of the Medicare program that the encounter data submission 
requirement be maintained for all M+C plans, including MSAs. Should an 
organization approach HCFA about offering an MSA plan, we would work 
with the organization on its compliance with these requirements. (For 
example, enrollees who reach the deductible probably would be required 
to submit documentation of claims totaling the deductible amount. This 
documentation might be used to supply encounter data.)
    Comment: Four commenters addressed the quality performance measures 
and the required data submissions. One commenter offered support for 
the performance improvement projects for MSAs and other M+C plans. Two 
commenters found the health data requirements for MSAs to be 
unrealistic, particularly for non-network plans, and likely to deter 
the offering of MSA and PFFS plans. A fourth commenter recommended that 
if certain quality assurance data are not available for certain 
categories for MSAs and PFFS plans, beneficiaries should be made aware 
of this lack of information.
    Response: M+C organizations offering MSA plans are required by 
statute to adhere to specified quality standards. Quality performance 
standards in the June 1998 interim final rule have been modified to 
accommodate the particular characteristics of an MSA, and the fact that 
a report will be done on the MSA demonstration (assuming that an M+C 
organization chooses to offer an MSA plan). We recognize the fact that 
non-network MSAs may not have access to an enrollee's claims unless 
that individual's total claims exceed the deductible. In addition, MSAs 
may not be structured to provide incentives to beneficiaries to obtain 
preventive and diagnostic services. HCFA is reviewing the quality 
requirements to make sure that they are feasible for the specific plan 
for which they are specified.
    Comment: One commenter questioned the ``community-rated'' MSA 
contributions for all beneficiaries enrolled in an MSA plan, and the 
lack of balance billing protections for MSA enrollees. Another 
commenter described the payment methodology as arcane and confusing, 
and the possibility of a negative premium as absurd.
    Response: After lengthy discussions with industry representatives 
and other officials, the fixed MSA contribution for all beneficiaries 
in a specific plan in a specific area seemed to be the approach most 
consistent with legislative intent. Also, HCFA made a point of 
clarifying that no balance billing restrictions were included in the 
statute, and that Congress intended that there be none. As has been 
previously stated, a negative premium is not impossible, but we would 
expect an MSA plan to set its premium in a given market at a level to 
avoid such a possibility.

O. M+C Private Fee-for-Service Plans

1. Background and General Comments
    As noted above, one type of M+C option available under section 
1851(a)(2) of the Act is an M+C private fee-for-service (PFFS) plan. 
Consistent with the statutory definition of an M+C private fee-for-
service plan at 1859(b)(2)(A) of the Act, the regulations state that an 
M+C PFFS plan is an M+C plan that: Pays providers at a rate determined 
by the M+C organization offering the PFFS plan on a fee-for-service 
basis without placing the provider at financial risk; does not vary the 
rates for a provider based on the utilization of that provider's 
services; and does not restrict enrollees' choice among providers who 
are lawfully authorized to provide the services, and agree to accept 
the plan's terms and conditions of payment. The requirements M+C 
organizations must meet to contract with HCFA to offer an M+C PFFS plan 
generally are incorporated into the relevant sections of the M+C 
regulations. An M+C organization wishing to offer a PFFS plan must meet 
all of the requirements that apply with respect to offering any other 
type of M+C plan, except to the extent that there are special rules 
that apply to M+C PFFS plans.

[[Page 40294]]

    Comment: One commenter contended that HCFA should examine 
alternatives to the ACR process for ensuring good value under PFFS and 
MSA plans. The ACR restriction on the premium may conflict with the 
role envisioned for these plans as paying high fees to providers to 
ensure unrestricted access.
    Response: The commenter is mistaken in the belief that there are 
restrictions on premiums for M+C MSA and PFFS plans. There is no 
restriction on the premiums that may be charged for these plans (see 
Sec. 422.306(e)(2)).
    Comment: A commenter noted that the regulations create a loosely 
defined option in which the organization offering a PFFS plan fills in 
the details of the plan. The commenter questioned whether many 
beneficiaries would be motivated to join such a plan, whether insurers 
would be motivated to offer an option that could have such limited 
appeal. As currently constructed, the commenter believes that M+C PFFS 
plans are not likely to be viable, and therefore are not likely to be 
made available to beneficiaries. This in the commenter's view mitigates 
against the espoused concept of offering a meaningfully expanded range 
of options. The commenter suggested that HCFA work with the physician 
community to do demonstrations to explore what features of the M+C PFFS 
statute should be changed so that Medicare can offer a viable M+C PFFS 
defined contribution plan.
    Response: We recognize that the statute created a loose structure 
for M+C PFFS plans, and that therefore M+C plans may vary greatly from 
one another in how they function. This is a direct consequence of the 
law. However, we believe that, as currently constituted, M+C PFFS plans 
are viable. We have received an application for a 30-State, largely 
rural M+C PFFS plan, and have reason to expect to receive more 
applications within the next year.
2. Beneficiary Issues
    Comment: A commenter objected to the M+C PFFS plan option on the 
basis that the commenter believes it leaves the beneficiary vulnerable. 
The commenter's objections included the lack of a quality assurance 
program to protect beneficiaries, as well as the absence of a cap on 
premiums or out of pocket expenses, resulting in the possibility that 
beneficiaries could be charged up to 15 percent over the plan payment 
amounts. The commenter contended that beneficiaries would be better 
protected if the PFFS option were not offered.
    Response: We recognize that some beneficiary protections provided 
for under the coordinated care plan option are not included for M+C 
PFFS plans. In some cases, such as certain quality assurance 
requirements, these protections may be less critical in an environment 
in which the enrollee has complete freedom of choice to use any 
provider in the country, and is not limited to a defined network of 
providers. We note that the quality assurance requirements that apply 
to coordinated care plans do not at this time apply to original 
Medicare either, which is also a ``fee-for-service'' arrangement. With 
regard to the absence of certain limits on beneficiary financial 
liability, we believe that this makes it particularly important that 
beneficiaries make a prudent consumer decision when choosing this 
option. However, we also believe that this alternative can provide a 
valuable alternative to original Medicare in areas that are not served 
by coordinated care plans, rural areas in particular. Moreover, we 
anticipate that, as we gain experience with M+C PFFS contracts, we will 
determine what changes we need to make to the regulations, or ask 
Congress to consider improving this M+C option, should we decide that 
such changes are needed. (We note that we have recently approved the 
first PFFS plan and intend to monitor its performance closely in order 
to identify and assess potential beneficiary protection issues.)
    Comment: A commenter urged that marketing information to seniors 
and providers clearly differentiate between traditional Medicare and 
M+C PFFS plans, as there are substantially different payment schedules, 
balance billing rules, and premiums that can be charged for M+C PFFS 
purposes than for original Medicare.
    Response: We agree that there is a significant potential for 
confusion between original Medicare and the M+C PFFS option, and we 
have tried to clarify the distinction between these options in our 1999 
and 2000 Medicare handbooks (Medicare and You). We are also considering 
the best way to make this distinction clear in our model explanation of 
coverage for M+C PFFS plans. The model evidence of coverage document is 
created for an M+C organization to use as a model for the explanation 
they provide to beneficiaries about the plan's terms and conditions of 
coverage. We are currently adapting the existing Evidence of Coverage 
for coordinated care plans for use in the case of PFFS plans.
    Comment: A commenter recommended that we require providers 
furnishing services to PFFS enrollees and MSA enrollees to give notice 
if they think the plan may not cover a service. The commenter believes 
that the same limitations on liability protection that apply in 
original Medicare should apply to M+C PFFS plans and MSA plan 
beneficiaries. Moreover, the commenter suggested providers be required 
to give enrollees of M+C PFFS plans a notice of the expected balance 
billing amounts that exceed $250 or more (not just the more than $500 
notice required of hospitals).
    Response: Unlike under original Medicare, the statute does not 
provide any protection against enrollee or provider liability for 
services that a M+C PFFS plan determines are not medically necessary to 
treat illness or injury, and the law does not require providers to give 
an advance notice to enrollees of the likelihood of plan noncoverage. 
Therefore, there is no basis in law to require an M+C organization to 
offer such protection in its plan. Of course, the organization may, if 
it chooses, build such protection into its plan, and we believe that 
doing so may be necessary to attract and keep enrollees. Moreover, an 
enrollee and provider clearly may seek an advance determination of 
coverage from the M+C organization under the organization determination 
regulations in part 422 subpart M. Thus, the enrollee and provider have 
the opportunity to seek a plan determination of coverage before 
receiving the service, and we encourage them to avail themselves of 
this option.
    With respect to the notice of anticipated cost sharing, the law 
requires such a notice for hospital services, but not for other 
services. The M+C organization could, however require that contracting 
and deemed contracting providers of other types furnish such a notice 
in advance of providing care as a term and condition of payment, and 
could set whatever tolerance they chose for such a notice.
    We chose the $500 threshold for a notice of out-of-pocket expenses 
that a hospital may collect from the enrollee because it mirrors the 
$500 threshold long established by law at section 1842(m)(1) of the 
Act. Section 1842(m)(1) of the Act requires that a nonparticipating 
physician who does not accept assignment on the Medicare claim must 
give the beneficiary advance notice if the actual charges that will be 
collected from the beneficiary equal or exceed $500. While the benefit 
to which the threshold applies is different, the concept of advance 
notice of amounts to be collected from the enrollee is the same, and 
therefore use of the same threshold is justified.

[[Page 40295]]

3. Provider Payment Issues
    Comment: A commenter urged that HCFA establish standard payment 
deadlines, and contended that those for M+C PFFS plans should mirror 
those for original Medicare.
    Response: We believe that the prompt payment provisions of 
Sec. 422.520 largely accomplish this, since they apply to all claims 
submitted ``by, or on behalf of an M+C private fee-for-service 
enrollee.'' Since the benefits under a PFFS plan are the enrollee's 
benefits, we believe that any claim submitted on behalf of a PFFS plan 
enrollee is subject to the clean claim standard in Sec. 422.520. While 
written agreements with PFFS plan providers must address this issue, 
and better terms may be negotiated, we have interpreted the reference 
to fee-for-service enrollees in section 1857(f)(1) of the Act to cover 
all claims involving PFFS enrollees. Under this standard, the M+C 
organization must pay 95 percent of the ``clean claims'' within 30 days 
of receipt, if they are submitted by or on behalf of an enrollee of the 
M+C PFFS plan, and are not furnished under a written agreement between 
the M+C organization and the provider. Moreover, the M+C organization 
must pay interest on clean claims that are not paid within 30 days as 
required by sections 1816(c)(2)(B) and 1842(c)(2)(B) of the Act for 
original Medicare.
    Comment: A commenter argued that the prompt payment rules at 
Sec. 422.520 permit payers to ``game'' the clean claim policy by 
building in a float between the receipt of Medicare payment and the 
payment to the providers, and recommended that HCFA establish a 
standard that would apply for PFFS network providers where an 
organization offering an M+C PFFS plan effectively imposes a delay as a 
condition of getting the contract.
    Response: The prompt payment provisions that apply to all PFFS plan 
claims ensure against a float of more than 30 days in the case of a 
``clean'' claim.
    Comment: A commenter suggested that HCFA require M+C organizations 
offering PFFS plans to give physicians 30 days notice of changes to fee 
schedules, and should require them to follow CPT coding conventions in 
the same manner as original Medicare.
    Response: M+C organizations offering PFFS plans must pay 
noncontracting providers at least the amounts they would receive under 
original Medicare (less the enrollee's cost-sharing); therefore, there 
is no potential for changes to the payment rates other than through the 
annual Medicare fee schedule changes. Also, in order to meet access 
requirements without having a network in place that satisfies 
coordinated care plan rules, an M+C organization offering a PFFS plan 
must pay contracting providers (both those with signed and deemed 
contracts) at least the Medicare payment rate. In this case, again, 
providers could count on Medicare payment notices. In all cases, 
however, providers either will negotiate rates in written and signed 
contracts, or have the opportunity to learn payment information before 
providing services under a deemed contract.
4. Noncontracting Provider Issues
    Comment: A commenter contended that the regulations should clarify 
whether a noncontracting provider is precluded from balance billing 
beneficiaries, and must accept as payment in full rates that are no 
less than what would be paid under original Medicare. The commenter 
believes it is not clear: (1) If those rates would include the limiting 
charge of 115 percent; (2) if noncontracting providers are entitled to 
direct payment from the M+C organization; or (3) what amounts may be 
balance billed. The commenter suggested that enhanced balance billing 
should have been provided as an incentive to sign a contract, but 
because of the deemed contract provisions, this basic premise for 
contracting is lost.
    Response: The law permits, but does not require, an M+C PFFS plan 
to permit contracting providers (with both signed and deemed contracts) 
to balance bill up to 15 percent of the PFFS plan payment rate for the 
service, in addition to the cost-sharing established under the plan. 
The statute expressly applies this to deemed contractors as well. 
Therefore, the balance billing that an M+C plan may permit contracting 
and deemed contracting providers to collect will be set by the 
organization offering the plan. The M+C organization will pay under its 
terms and conditions of payment, and the contracting or deemed 
contracting provider may collect the cost sharing and any balance 
billing permitted by the plan (which cannot exceed 15 percent of the 
PFFS plan payment rate).
    In the case of noncontracting providers (that is, providers that 
neither have a written contract with the M+C organization offering the 
PFFS plan nor meet the criteria for a deemed contract), there is no 
balance billing permitted; by law, the provider may collect no more 
than the plan's cost sharing. Under section 1852(k)(2)(B) of the Act, 
the beneficiary liability limits governing payment to noncontracting 
providers are the same for M+C PFFS plans as for M+C coordinated care 
plans. We have clarified this by indicating in Sec. 422.214 that the 
special rules for payment to noncontracting providers that apply for 
M+C coordinated care plans also apply for M+C PFFS plans. Specifically, 
the provider must accept as payment in full the amount that it would be 
entitled to receive under original Medicare, and the plan must pay the 
provider the amount that the provider would collect if the beneficiary 
were enrolled in original Medicare, less the enrollee's cost-sharing. 
For example, if the physician participates in Medicare, the plan would 
pay the noncontracting physician the Medicare allowed amount less the 
plan's cost-sharing. In the case of a nonparticipating physician, the 
plan would pay the Medicare limiting charge less the enrollee's cost-
sharing. In the case of an acute care hospital, the plan would pay the 
diagnosis-related group (DRG) payment less the enrollee's cost-sharing. 
In the case of a nonparticipating durable medical equipment, prosthetic 
and orthotics (DMEPOS) supplier, the plan would pay actual charges less 
the enrollee's cost-sharing.
    While the law addresses the payments to providers and the payment 
liabilities of beneficiaries, it does not specify whether the M+C 
organization must pay the provider, or whether it may function as an 
indemnity plan and pay the enrollee, for services for which the 
enrollee has paid the provider. Moreover, the discussion of prompt 
payment by M+C plans at section 1857(f) of the Act contemplates that 
the M+C organization may make payment to the beneficiary. Hence, the 
M+C organization may determine to whom (provider or beneficiary) it 
will make payment for covered services. However, we anticipate that M+C 
organizations will want to make payment to providers of services, 
rather than to beneficiaries since we believe that minimizing 
beneficiary paperwork and confusion is necessary to attract and keep 
enrollees in the plan.
5. Quality Assurance (Secs. 422.152 and 422.154)
    As discussed in section II.D of this preamble concerning quality 
assurance requirements, M+C PFFS plans and non-network MSA plans (and 
now PPO plans) are exempt from some of the quality assurance 
requirements that apply to network model M+C plans. The statute also 
exempts these plans from external quality review if they do not have 
written utilization review protocols. As with all other requirements 
for M+C organizations and M+C plans, those provisions of regulations 
that are not identified as

[[Page 40296]]

limited to coordinated care plans or MSA plans also apply to M+C PFFS 
plans.
    Comment: Commenters suggested that Sec. 422.154 affirmatively 
states that M+C organizations, including those offering MSA plans and 
PFFS plans, must coordinate with an external entity's (that is, a 
PRO's) investigation of beneficiary quality of care complaints. These 
commenters believe that beneficiary complaints are an important 
indicator of quality of care problems, and that all M+C plans should 
have to cooperate in investigating them.
    Response: The statute relieves an M+C organization offering a PFFS 
plan of responsibility for contracting for external quality review if 
it does not carry out utilization review with respect to services 
covered under the plan.
6. Access to Services (Sec. 422.214)
    Like other M+C plans, an M+C private fee-for-service plan must 
offer sufficient access to health care. Section 422.114(a) specifies 
that an M+C organization that offers an M+C PFFS plan must demonstrate 
to HCFA that it has sufficient number and range of health care 
providers willing to furnish services under the plan. Pursuant to the 
specific instructions of the law, under Sec. 422.114(a), HCFA will find 
that an M+C organization meets this requirement if, with respect to a 
particular category of provider, the plan has: Payment rates that are 
not less than the rates that apply under original Medicare for the 
provider in question; contracts or agreements with a sufficient number 
and range of providers to furnish the services covered under the plan; 
or a combination of the above. These access tests must be met for each 
category of service established by HCFA on the M+C organization 
application. Thus, if an M+C PFFS plan has payment rates that are no 
lower than Medicare, it need not address if it has a sufficient number 
of providers of services under written contract. However, where the 
plan's payment rates are less than the Medicare payment for that type 
of provider, the M+C organization must demonstrate that the plan has a 
sufficient number of providers of that type under written contract.
    Medicare payment amounts are established in a variety of different 
ways. For many of the key services for which Medicare pays, Medicare 
has prospectively set payment amounts or fee schedules that are 
established by HCFA and published in the Federal Register each year. 
These include, but are not limited to, prospective payment systems for 
acute care hospital services, and skilled nursing care, and fee 
schedules for physician services (which includes care by many 
nonphysician practitioners and diagnostic tests), durable medical 
equipment, and clinical laboratory services. Moreover, HCFA is 
currently developing prospective payment systems or fee schedules for 
other key services including home health care, ambulance services, and 
outpatient hospital care, which we expect to be implemented within the 
next year or two.
    However, for some services, Medicare payments are set 
retrospectively or concurrently by Medicare carriers and 
intermediaries. For example, until the prospective payment systems or 
fee schedules are implemented, home health care, outpatient hospital 
care, and ambulance services will be paid by carriers and 
intermediaries based upon a HCFA-specified national methodology that 
they apply either upon receipt of the claim (for example, ambulance 
services paid on a reasonable charge basis) or long after the service 
is furnished (for example, retroactive cost report settlement). 
Moreover, there are some services for which reasonable cost and 
reasonable charge payment will continue indefinitely. Examples of these 
services are critical access hospital care (which by law must be paid 
actual cost without limits) and carrier priced physician services (for 
which the service is too new or too rare to support a national fee 
schedule value).
    Clearly, where there are national prospective payment systems and 
fee schedules, M+C organizations offering PFFS plans should have no 
problem in paying amounts no less than the Medicare payment amount for 
covered services since those amounts are clearly and prospectively 
published by HCFA. However, the question arises as to how the access 
test based on Medicare payment levels can be met with regard to 
services that are paid by Medicare intermediaries or carriers on a 
reasonable cost or reasonable charge basis. Moreover, consistent with 
section 1852(d)(4) of the Act and Sec. 422.214(b), M+C organizations 
offering PFFS plans cannot restrict providers from whom the beneficiary 
can acquire care. Therefore, the M+C organization must have the 
capacity to pay no less than the Medicare-allowed amounts for any 
Medicare-covered service furnished by any provider in any area of the 
nation. Acquiring the payment amounts from individual Medicare 
intermediaries and carriers would be a cumbersome and difficult task, 
and would be likely to result in unwanted payment delays. Therefore, we 
have decided to permit M+C organizations offering PFFS plans to 
establish proxies for use in paying services for which no Medicare 
prospective payment system or fee schedule exists.
    The law and regulations permit the use of HCFA-approved proxies as 
long as those proxies result in payment amounts that are ``not less 
than'' Medicare payment rates. If the payment amounts to be paid by the 
M+C organization are equal to or more than the Medicare payment amounts 
for those services, the requirement of the law and regulations are met 
and HCFA must find that the PFFS plan provides for adequate access to 
care for those categories of services. Therefore, in cases of services 
for which there is no prospective payment system or fee schedule 
amount, we will permit M+C organizations to pay proxy amounts under 
certain circumstances. These proxy amounts must be approved by HCFA as 
approximating as closely as possible what providers as a whole receive 
for certain services. Because we expect these payment proxies would be 
estimates, the M+C organization must also have a process for reviewing 
these amounts, if necessary, on a provider-by-provider basis. If a 
provider is able to demonstrate that the proxy amount is less than the 
amount Medicare would actually pay, the M+C organization must pay the 
latter amount.
    Proxies will take different forms, depending upon what makes the 
most sense for the type of service being paid. For example, a hospital 
that is paid on reasonable costs subject to a limit may be paid a 
percent of charges that is taken from the provider's last settled 
Medicare cost report. Similarly, an ambulance supplier may be paid the 
prevailing charge adjusted for the IC that applies in the year in which 
the service is furnished. Where proxies are used, HCFA will require 
that a description of the proxy methodology must be included in the 
terms and conditions of plan payment for deemed contractors that must 
be made available to providers of services before they treat an PFFS 
enrollee (see Sec. 422.216(h)(2)(iii)(B)). As nationally established 
prospective payment systems and fee schedules are developed and 
implemented by HCFA, the use of proxies should diminish. However, at 
this time, and for the foreseeable future, for a limited subset of 
Medicare-covered services, proxies will be necessary for organizations 
offering M+C PFFS plans that choose not to contract directly with 
providers. For the reasons discussed above, we believe that their use 
comports with both the spirit and intent of the law and regulations.

[[Page 40297]]

7. Physician Incentive Plans (Sec. 422.208)
    In Sec. 422.208(e), we specify that an M+C PFFS plan may not use 
capitated payment, bonuses, or withholds in the establishment of the 
terms and conditions of payment. This is necessary to implement that 
part of the definition of an M+C plan that specifies that the plan must 
pay without placing the provider at financial risk.
8. Special Rules for M+C Private Fee-for-Service Plans (Sec. 422.216)
    As discussed in detail in our June 1998 interim final rule (63 FR 
35040), Sec. 422.216(a) addresses payment to providers. Specifically 
Sec. 422.216(a)(1) provides that the M+C organization offering a PFFS 
plan must pay all contract providers (including those that are deemed 
to have contract under Sec. 422.216(f)) on a fee-for-service basis at a 
rate, determined under the plan, that does not place the provider at 
financial risk. This reflects the statutory definition of an M+C PFFS 
plan. We also specify in Sec. 422.216(a)(1) that the payment rate 
includes any deductibles, coinsurance, and copayment imposed under the 
plan, and must be the same for all providers paid pursuant to a 
contract whether or not the contract is signed or deemed to be in 
place. Section 422.216(a)(3) establishes the payment rate for 
noncontracting providers.
    Section 422.216(b) addresses permissible provider charges to 
enrollees. Under Sec. 422.216(b)(1), contracting providers (including 
deemed providers) may charge the enrollee no more than the deductible, 
coinsurance, copayment, and balance billing amounts permitted under the 
plan. Like payment rates, the plan deductible, coinsurance or 
copayments and other beneficiary liability must be uniform for services 
furnished by all contracting providers, whether contracts are signed or 
deemed to be in place. These two requirements are closely related, 
since permissible enrollee liability is linked by statute to the plan's 
payment rate. These cost-sharing amounts must be specified in the plan 
contract. The plan must have the same cost-sharing for deemed contract 
providers as for contract providers, and it may permit balance billing 
no greater than 15 percent of the payment rate for the service.
    Other significant requirements set forth in Sec. 422.216 address 
monitoring and enforcement of the payment and charge provisions 
(Sec. 422.216(c)), notifications to plan members concerning payment 
liability, including balance billing rules (Sec. 422.216(d)), and rules 
covering deemed contract providers, including enrollee and provider 
notification requirements associated with these providers regarding 
payment terms and conditions (Secs. 422.216(f), (g), and (h)).
9. Deemed Contracting Providers
    Comment: One commenter endorsed having the same standards for 
deemed and contracting providers so that an M+C PFFS plan does not 
become a PPO without the quality assurance standards of a PPO. Other 
commenters objected to the concept of deemed contracting providers, 
because they believe that it will reduce provider willingness to 
provide services in these plans, and because they believe it is unfair 
to physicians, particularly those who provide emergency care.
    Specifically, a commenter indicated that M+C organizations offering 
PFFS plans will not be able to get providers to sign contracts because 
there is no incentive for a provider to bind itself to a contract when 
it is not promised a share of the market in the area, and when it will 
be paid like a contracting provider, whether it signs a contract or 
not, under the deemed contracting provisions. Commenters indicated that 
there will be problems determining the ``deemed contract'' vs. the 
noncontract status of providers, since it depends on what they knew at 
the time of service. A commenter said that HCFA should tighten the 
rules under which deeming can be presumed, and seek statutory 
modifications to limit the use of deeming.
    Some commenters indicated that emergency department physicians 
should not be deemed contractors because the M+C organization could 
blanket an area with terms and conditions of plan payment, and thereby 
force them to accept terms and conditions with which they did not 
agree, since they must treat all patients who present in the emergency 
department. They commented that HCFA should stipulate that deeming is 
never presumed to have occurred when emergency services or urgent care 
are required, particularly when they are required under the Emergency 
Medical Treatment and Labor Act. Other commenters recommended that the 
deemed contract language should be amended to explicitly not apply to 
out of network service provided in an emergency department, and to 
require that all physicians who provide services in the emergency 
department be paid as noncontracting providers. Commenters believe that 
this is needed because, under the Medicare provider agreement anti-
dumping rules, the hospital must ensure that all patients who present 
in the emergency room are seen and that, therefore, the physicians on 
duty have no ability to choose not to provide care to the enrollee. 
Under the deemed contracting provisions of the law, they are forced to 
accept the terms and conditions of plan payment when they treat the 
patient.
    Response: We recognize that the law provides little or no incentive 
for a provider to sign a contract with an M+C PFFS plan because of the 
deemed contracting provisions. We also agree that the deemed 
contracting requirements of the law are problematic, particularly in 
emergency room settings, and will create disputes between M+C 
organizations and providers about what the provider knew and when it 
was known.
    The statute specifies that the M+C organization must treat 
providers that do not have a contract with the plan as if they had such 
a contract, if the provider knew that the beneficiary was enrolled in 
the plan, and either knew the terms and conditions of plan payment, or 
had reasonable access to those terms and conditions.
    In general, if the beneficiary has advised the provider of his or 
her plan enrollment (as is often requested by the provider before 
providing care), and the provider knows the terms and conditions of 
plan payment (for example, because the physician or the party to whom 
the physician has reassigned benefits has received the plan terms and 
conditions in writing), or has a reasonable opportunity to learn the 
terms and conditions of plan payment (for example, through a toll free 
phone number, a website, or by having been sent a copy of the terms and 
conditions of plan payment), in a manner reasonably designed to effect 
informed agreement by a provider, then the provider meets the statutory 
test of being a deemed contracting provider, and the law requires that 
he or she must be treated as such. The law and regulations presume 
that, if the provider meets the criteria as a deemed contracting 
provider and subsequently treats the enrollee, then the provider has 
implicitly demonstrated agreement to the terms and conditions of 
payment by treating the enrollee.
    While the law does not provide an explicit exception to the deemed 
provider provisions for emergency or urgent care services, we 
acknowledge that there are special circumstances that surround services 
in an emergency department of a hospital that justify considering 
providers who have not signed a contract with the PFFS plan to be 
noncontracting providers when they furnish services in an emergency

[[Page 40298]]

department of a hospital. We have revised Sec. 422.216(f) accordingly.
    When a physician or hospital has not signed a contract with a PFFS 
plan but treats a plan enrollee in an emergency department of a 
hospital, the physician or hospital has no opportunity to refuse to 
treat the patient as the deemed contracting provisions of the law 
anticipate. Hence, we believe that it is appropriate to specify that a 
physician or hospital that furnishes services in the emergency 
department of a hospital on behalf of the hospital's obligations under 
the Emergency Medical Treatment and Active Labor Act (EMTALA) cannot be 
deemed to be a contracting provider. Of course, if the physician or 
hospital has previously signed a contract with the PFFS plan, the 
physician or hospital is a contracting provider, and is bound by the 
terms and conditions of that contract. Moreover, once the services 
furnished in the emergency department of a hospital cease to be 
required under Sec. 489.24, the criteria that determine whether the 
providers are deemed contracting providers or noncontracting providers 
would then apply.

III. Provisions of this Final Rule--Changes to the M+C Regulations

    For the convenience of the reader, listed below are all significant 
changes to the M+C regulations that are set forth in this final rule. 
Please note that changes stemming from the BBRA, which--unlike those 
changes listed below--are subject to public comment, are all discussed 
in a discrete section of this preamble (section I.C) and thus are not 
listed here. In addition, we caution the reader that the list below is 
intended solely as a reference aid, rather than as a policy summary.
    <bullet> In Sec. 422.2, we are revising the definition of ``service 
area'', as well as making minor technical changes to several other 
definitions.
    <bullet> We are revising Sec. 422.50(a) to allow individuals and 
employer group members who become entitled to Medicare and live outside 
of the service area to convert to an M+C plan if they were previously 
enrolled in a commercial plan offered by the M+C organization, provided 
these individuals receive full plan benefits and M+C access and 
availability standards are met.
    <bullet> To allow us the flexibility to vary the timeframes for the 
enrollment transmission schedule in the future, we are amending 
Sec. 422.60(e)(6) to state ``upon receipt of the election form or from 
the date a vacancy occurs for an individual who was accepted for future 
enrollment, the M+C organization transmits within time frames specified 
by HCFA, the information necessary for HCFA to add the beneficiary to 
its records as an enrollee of the M+C organization.''
    <bullet> We are revising Sec. 422.60(f)(3) to state that ``upon 
receipt of the election form from the employer, the M+C organization 
must submit the enrollment within time frames specified by HCFA.''
    <bullet> In order to avoid introducing confusion between 
responsibilities of M+C organizations and HCFA, we have eliminated 
material in Sec. 422.64 concerning HCFA's information responsibilities 
and moved necessary material to Sec. 422.111.
    <bullet> We have modified Sec. 422.66(b)(3)(i) to state that the 
timeframe to submit disenrollment transactions will be ``specified by 
HCFA,'' and have made a conforming change at Sec. 422.66(f)(2), as 
opposed to within 15 days.
    <bullet> At Sec. 422.66(d) we are clarifying that an M+C 
organization must accept any eligible individual who is enrolled in a 
health plan offered by ``an'' M+C organization to apply to a specific 
M+C organization, namely the organization that offers both the 
commercial health plan in which the individual is enrolled and the M+C 
plan in which the individual will be enrolling.
    <bullet> At Sec. 422.74(b)(3)(ii) we are permitting an M+C 
organization that has reduced an M+C plan's service area to offer 
continued enrollment in one of its M+C plans to enrollees in all or a 
portion of the reduced area if enrollees agree to receive ``basic 
benefits'' exclusively at designated facilities within the plan's new 
service area.
    <bullet> We are adding a provision to Sec. 422.74(d)(1)(iv) that 
expressly provides an M+C organization the option to discontinue an 
optional supplemental benefit for which premiums are not paid, while 
retaining the beneficiary as an M+C enrollee.
    <bullet> We are changing the requirement at Sec. 422.74(d)(4) to 
state that the M+C must disenroll an individual, unless he or she 
chooses the continuation option, if the individual moves out of the 
plan's service area for over 6 months, rather than 12 months.
    <bullet> We are adding wallet card instructions to the list of 
examples of marketing materials at Sec. 422.80(b)(5)(v), to ensure that 
wallet card instructions to enrollees are consistent with the statute 
and regulations, particularly requirements that apply to emergency and 
urgently needed services.
    <bullet> We are revising Sec. 422.80(e) to permit more flexibility 
for providers in distributing materials to M+C enrollees.
    <bullet> We are adding a new Sec. 422.80(e)(1)(viii) that prohibits 
new M+C plan names that exclude the disabled population.
    <bullet> We are removing the definition of post-stabilization 
services in Sec. 422.100(b)(1)(iv) and instead including all post-
stabilization requirements in new Sec. 422.113. See section II.C of 
this preamble for a full discussion of changes in the post-
stabilization requirements.
    <bullet> We are specifying at Sec. 422.100(b)(1)(vi) and 
Sec. 422.113 that M+C organizations are required to cover ambulance 
services dispatched through 911 or its local equivalent when use of 
other forms of transportation would endanger the health of the 
beneficiary.
    <bullet> We are adding a provision at Sec. 422.101(a) to state 
explicitly that services may be provided outside of the service area of 
the plan if the services are accessible and available to enrollees.
    <bullet> To promote beneficiary freedom of choice among providers, 
Sec. 422.105 is revised to permit use of the POS option for in-network 
providers, rather than only for providers outside the plan network.
    <bullet> To clarify our existing policy, we are clearly delineating 
HCFA's review authority in Sec. 422.106 for employer group health plans 
and Medicaid plans.
    <bullet> We are adding a new Sec. 422.108(f) to clarify that a 
State cannot take away an M+C organization's Federal rights to bill or 
authorize providers to bill for services for which Medicare is not the 
primary payer.
    <bullet> We are revising Sec. 422.109(b)(5) to provide that M+C 
enrollees are responsible only for coinsurance amounts.
    <bullet> We are revising Sec. 422.111(e) to decouple the enrollee 
notice time frame from the ``issuance or receipt'' of a notice of 
termination and instead require that an M+C organization make a good 
faith effort to provide written notice at least 30 calendar days before 
the termination effective date.
    <bullet> We are revising Sec. 422.112(a)(3) to clarify that an M+C 
organization shall authorize out-of-network specialty care when its 
plan network is unavailable or inadequate to meet an enrollee's medical 
needs.
    <bullet> At new Sec. 422.113(b) we are specifying that ``urgently 
needed services'' are not ``emergency services.''
    <bullet> We are clarifying at Sec. 422.113(b)(2)(ii) that prior 
authorization may not be required from the beneficiary in wallet card 
instructions or in other enrollee materials . We are also specifying 
that instructions on what to do in an emergency should include a 
statement

[[Page 40299]]

specifying that in the event of an immediate and serious threat to 
health, the enrollee may call 911.
    <bullet> We are revising Sec. 422.113(b)(2)(iii) to expressly set 
forth the requirement that M+C organizations assume financial 
responsibility for services meeting the prudent layperson definition of 
emergency at Sec. 422.2 regardless of final diagnosis.
    <bullet> In order to clarify the distinction between a removal of 
deemed status by HCFA based on HCFA's own survey and a removal based on 
a determination by an accreditation organization based on its 
accreditation survey, we are revising Sec. 422.156(a) to separate these 
two situations.
    <bullet> We are revising Sec. 422.157(a)(3) to relax the 
prohibition on the participation of managed care organization 
representatives in private accreditation organization activities.
    <bullet> We are revising Sec. 422.158(e) to provide that we will 
act within the same timeframes that apply to fee-for-service deeming.
    <bullet> To help clarify that the appeals procedures apply only for 
adverse participation decisions, we are redesignating the provider 
appeals procedures from Sec. 422.204(c) to new Sec. 422.202(d).
    <bullet> Section 422.204 has been re-titled ``Provider selection 
and credentialing'' and contains the general rule that an organization 
must have written policies and procedures for the selection and 
evaluation of providers.
    <bullet> We are consolidating the regulations concerning 
antidiscrimination and choice of providers into new Sec. 422.205. We 
reaffirm that M+C organizations are prohibited from discriminating 
against providers based solely on their licensure or certification, and 
specify that when an M+C organization declines to include a provider in 
its network, it must notify the provider of the reason for its 
decision.
    <bullet> We have revised Sec. 422.214 to clarify the rules 
concerning payments to noncontracting providers.
    <bullet> We have revised Sec. 422.216(f) to indicate that, for PFFS 
purposes, ``deemed contract'' providers are considered to be 
noncontracting providers when they furnish services in an emergency 
department of a hospital.
    <bullet> We are revising Sec. 422.257 to permit M+C organizations 
to require that their contractors provide them with complete and 
accurate encounter data.
    <bullet> We are adding two terms--``first tier'' and 
``downstream''--to the list of definitions at Sec. 422.500 that we 
believe clarify the types of entities to which the M+C contracting 
requirements described at Sec. 422.502(i) apply.
    <bullet> We are revising the definition of ``clean claim'' in 
Sec. 422.500 to require that claims include data for encounter data 
submission, and meet the original Medicare ``clean claim'' requirements 
in order to be considered a clean claim.
    <bullet> In consultation with the Office of Inspector General, we 
are revising the compliance plan requirements under Sec. 422.501 to 
eliminate mandatory self-reporting.
    <bullet> In order to ensure that M+C enrollees are not put at 
financial risk in situations where provider groups or other entities 
``downstream'' from an M+C organization become insolvent, we are 
revising Sec. 422.502 to strengthen the protections for Medicare 
enrollees in situations where an M+C organization or its contractors 
encounter financial difficulties.
    <bullet> Section 422.502(l), concerning certifications of the 
accuracy of payment data, has been modified to be consistent with the 
OIG's ``good faith'' standard, under which M+C organizations certify 
the accuracy of payment information to their ``best knowledge, 
information, and belief.'' We are also permitting the delegation of 
this responsibility to individuals other than the CEO or CFO of the M+C 
organization.
    <bullet> We are revising Sec. 422.506(a)(2)(i) to permit an M+C 
organization until July 1 to notify us of its intent not to renew its 
M+C contract for the upcoming contract year.
    <bullet> We are deleting Sec. 422.506(b)(ii) in response to a 
concern that the standard for declining to renew an M+C contract was 
too vague to enforce.
    <bullet> We are adding a new Sec. 422.510(a)(12) that would specify 
that a substantial failure to comply with marketing guidelines is 
grounds for termination, non-renewal, or intermediate sanction.
    <bullet> We are changing the language at section Sec. 422.520(a)(3) 
to indicate that non-clean claims and the remaining 5 percent of clean 
claims not paid within 30 days must be either paid or denied within 60 
calendar days from the date of the request.
    <bullet> We are revising the definition of an organization 
determination under Sec. 422.566 to provide additional clarity as to 
the types of situations that constitute an organization determination 
and thus give rise to the pursuant appeal rights.
    <bullet> To further clarify the grounds on which an M+C 
organization may seek an extension, and to ensure an enrollee is 
adequately advised of the M+C organization's use of an extension, we 
are adding language to both Secs. 422.568(a) and 422.572(b) that 
requires an M+C organization to notify the enrollee in writing of the 
reasons for the extension, and to inform the enrollee of the right to 
file a grievance if he or she disagrees with the M+C organization's 
decision.
    <bullet> We are revising Sec. 422.568(c) and (d) to modify the 
requirement concerning written notification of M+C enrollees when a 
service is denied in whole in or part.
    <bullet> We have added new Sec. 422.619 concerning effectuation of 
expedited reconsideration determinations.
    <bullet> We have revised Sec. 422.620 to eliminate the requirement 
that M+C organizations distribute to enrollees the notification of 
noncoverage of inpatient hospital care.
    We have also made many minor technical and conforming changes to 
the M+C regulations to ensure that citation references are accurate, 
use more consistent terminology, and correct typographical errors in 
the current regulations.

IV. Collection of Information Requirements

    Under the PRA, we are required to provide 30-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 PRA 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 
sections that contain information collection requirements.

    Note: Unless otherwise noted below, all information collection 
requirements in this rule are currently approved under OMB approval 
#0938-0753, which currently expires August 31, 2000.

Section 422.60  Election Process

    Paragraph (b) of this section states that M+C organizations may 
submit information on enrollment capacity of plans they offer by July 1 
of each year as provided by Sec. 422.306(a)(1). The

[[Page 40300]]

burden associated with this reporting provision is captured under 
Sec. 422.306.

Section 422.74  Disenrollment by the M+C Organization

    Paragraph (c) of this section requires that if the disenrollment is 
for any reason other than death or loss of entitlement to Part A or 
Part B, the M+C organization must give the individual a written notice 
of the disenrollment with an explanation of why the M+C organization is 
planning to disenroll the individual. Notices for reasons specified in 
paragraphs (b)(1) through (b)(2)(i) must include an explanation of the 
individual's right to a hearing under the M+C organization's grievance 
procedures. This requirement is currently approved under 0938-0763, 
which expires March 31, 2003.

Section 422.111  Disclosure Requirements

    Paragraph (e) requires the M+C organization to make a good faith 
effort to provide written notice of a termination of a contracted 
provider at least 30 calendar days (revised from 15 days) before the 
termination effective date to all enrollees who are patients seen on a 
regular basis by the provider whose contract is terminating. The burden 
associated with this requirement has not changed.

Section 422.113  Special Rules for Ambulance Services, Emergency and 
Urgently Needed Services, and Maintenance and Post-Stabilization Care 
Services

    Paragraph (b)(2) of this section requires that enrollees be 
informed of their right to call 911.
    The burden associated with this disclosure provision is the time it 
takes an M+C organization to inform each beneficiary of his or her 
right. In addition, instructions to seek prior authorization for 
emergency services and/or before the enrollee has been stabilized may 
not be included in any materials furnished to the enrollee. We 
anticipate that these requirements will be provided as part of standard 
enrollment disclosures. Therefore, the burden associated with this 
requirement is contained in section 422.64.

Section 422.152  Quality Assessment and Performance Improvement Program

    Paragraph (e) of this section requires that an organization 
offering an M+C plan, non-network MSA plan, or private fee-for-service 
plan to measure performance under the plan using standard measures 
required by HCFA and report its performance to HCFA. The standard 
measures may be specified in uniform data collection and reporting 
instruments required by HCFA and will relate to clinical areas 
including effectiveness of care, enrollee perception of care, and use 
of services and to nonclinical areas including access to and 
availability of services, appeals and grievances, and organizational 
characteristics.
    The burden associated with this reporting provision is the time it 
takes an M+C organization to gather and submit the information. ``All 
Medicare+Choice organizations and an organization offering an M+C non-
network MSA plan or an M+C private fee-for-service plan will be 
required to measure performance under their plans, using standard 
measures required by HCFA, and report their performance to HCFA. 
Reporting will be required annually. Currently the standard measures 
that will be required will most likely be those already captured in 
HEDIS and CAHPS, approved under OMB #0938-0701. The currently approved 
annual per plan burden is estimated to be 400.53 hours. Therefore, the 
total burden associated with this requirement is 180,239 hours (400.53 
hours  x  450 plans (100 new/350 current)).

Section 422.202  Participation Procedures

    Paragraph (d) of this section requires that an M+C organization 
that suspends or terminates an agreement under which the physician 
provides services to M+C plan enrollees give the affected individual 
written notice as required by this section.
    This section also requires that an M+C organization that suspends 
or terminates a contract with a physician because of deficiencies in 
the quality of care give written notice of that action to licensing or 
disciplinary bodies or to other appropriate authorities.
    The burden associated with these reporting provisions is the time 
it takes an M+C organization to write the notice and give it to the 
practitioner and the appropriate licensing, or disciplinary bodies or 
to other appropriate authorities. We estimate that it will take 450 
plans, 10 hours to produce and disclose 10 notices on an annual basis, 
for a national annual burden of 4,500 hours.
    In addition this paragraph requires that an M+C organization and a 
contracting provider must provide at least 60 days written notice to 
each other before terminating the contract without cause.
    The burden associated with this reporting provision is the time it 
takes an M+C organization and provider to write the notice and furnish 
it to the other party. We estimate that 450 entities will be required 
to write 10 notices, at 1 hour per notice, for a national annual burden 
of 4,500 hours.

Section 422.205  Provider Antidiscrimination Rules

    The reporting requirement of this section requires that, if an M+C 
organization declines to include a given provider or group of providers 
in its network, it furnish written notice to the affected provider(s) 
of the reason for the decision.
    The burden associated with this reporting provision is the time it 
takes an M+C organization to write and provide the required notice. We 
estimate that it will take 450 plans, 30 minutes to produce and 
disclose 20 notices on an annual basis, for a national annual burden of 
4,500 hours.

Section 422.206  Interference With Health Care Professionals' Advice to 
Enrollees Prohibited

    The reporting requirement in paragraph (b)(2) requires that, 
through appropriate written means, an M+C organization make available 
information on any conscience protected policies to HCFA, with its 
application for a Medicare contract, within 10 days of submitting its 
ACR proposal or, for policy changes, in accordance with Sec. 422.80 
(concerning approval of marketing materials and election forms) and 
with Sec. 422.111. With respect to current enrollees, the organization 
is eligible for the exception provided in paragraph (b)(1) of this 
section if it provides notice within 90 days after adopting the policy 
at issue.
    The revision to the information collection provisions requires the 
M+C organization to make available policy changes. We estimate that it 
will take 30 minutes for each of the 450 M+C organizations to comply, 
for a total of 2,225 hours nationally on an annual basis.

Section 422.257  Encounter Data

    Paragraph (d)(1) of this section requires that M+C organizations 
must submit data that conform to the requirements for equivalent data 
for Medicare fee-for-service, when appropriate, and to all relevant 
national standards. M+C organizations must obtain the encounter data 
required by HCFA from the provider, supplier, physician, or other 
practitioner that rendered the services. In addition, M+C organizations 
may include in their contracts with providers, suppliers, physicians, 
and other practitioners, provisions that require submission of

[[Page 40301]]

complete and accurate encounter data as required by HCFA.
    The burden associated with this paragraph is currently approved 
under OMB approval #0938-0753.

Section 422.568  Standard Timeframes and Notice Requirements for 
Organization Determinations

    Under paragraph (a) of this section, when a party has made a 
request for a service, the M+C organization must notify the enrollee of 
its determination as expeditiously as the enrollee's health condition 
requires, but no later than 14 calendar days after the date the 
organization receives the request for a standard organization 
determination. The M+C organization may extend the timeframe by up to 
14 calendar days if the enrollee requests the extension or if the 
organization justifies a need for additional information and how the 
delay is in the interest of the enrollee. When the M+C organization 
extends the timeframe, it must notify the enrollee in writing of the 
reasons for the delay and inform the enrollee of the right to file a 
grievance if he or she disagrees with the M+C organization's decision 
to grant an extension. The M+C organization must notify the enrollee of 
its determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
    The revision to this provision is that requiring the M+C 
organization to notify the beneficiary of its reasons for delay and of 
the right to file a grievance.
    We estimate that this requirement will add 40 hours for each of the 
450 M+C organizations to the burden currently captured under 0938-0753, 
for an annual addition of 18,000 hours.
    Under paragraph (c), at each patient encounter with an M+C 
enrollee, a practitioner must notify the enrollee of his or her right 
to receive, upon request, a detailed notice from the M+C organization 
regarding the enrollee's services. The practitioner must provide the 
enrollee with complete information, using approved notice language in a 
readable and understandable form, necessary to contact the M+C 
organization.
    The burden associated with this reporting provision is the time it 
takes a practitioner to notify the beneficiary. We estimate that there 
will be 160 encounters per entity (450) and that each notification will 
take an average of 15 minutes to do so, for a national annual burden of 
4,500 hours.
    Under paragraph (d), if an enrollee requests an M+C organization to 
provide a detailed notice of a practitioner's decision to deny a 
service in whole or in part, or if an M+C organization decides to deny 
service or payment in whole or in part, it must give the enrollee 
written notice of the determination.
    In addition to the currently approved burden under 0938-0753, the 
burden associated with this reporting provision is the time it takes to 
write the detailed decision and provide it to the beneficiary. We 
estimate that there will be 160 occasions per entity (450) for which a 
detailed decision must be provided and that each notification will take 
an average of 15 minutes for a national annual burden of 4,500 hours.
    Under paragraph (e), the notice of any denial under paragraph (d) 
of this section must, in addition to currently approved requirements, 
(1) for service denials, describe both the standard and expedited 
reconsideration processes, including the enrollee's right to, and 
conditions for, obtaining an expedited reconsideration and the rest of 
the appeal process; and (2) for payment denials, describe the standard 
reconsideration process and the rest of the appeal process.
    The burden associated with this reporting provision is the time it 
takes an M+C organization to add the required information to a notice. 
We estimate that it will take 450 plans 1 hour to produce and disclose 
the necessary language on an annual basis, for a national annual burden 
of 450 hours.

Section 422.570  Expediting Certain Organization Determinations

    The information collection requirement in this section 
((d)(2)(iii)) that is not currently approved under 0938-0753 requires 
that, if an M+C organization denies a request for expedited 
determination, it must take give the enrollee prompt oral notice of the 
denial and subsequently deliver, within 2 calendar days (proposed as 2 
working days), a written letter that informs the enrollee of the right 
to resubmit a request for an expedited determination with a physician's 
support. The currently approved burden, associated with this 
requirement has not changed.

Section 422.572  Timeframes and Notice Requirements for Expedited 
Organization Determinations

    The information collection requirement change to paragraph (b) 
requires that, when the M+C organization extends the deadline, it 
notify the enrollee in writing of the reasons for the delay and inform 
the enrollee of the right to file a grievance if he or she disagrees 
with the M+C organization's decision to grant an extension.
    The additional burden associated with this requirements set forth 
in this section is the time it takes an M+C organization to notify the 
beneficiary of the delay and the reasons for it. We estimate that 450 
plans will provide extension notices to approximately 100 of their M+C 
enrollees on an annual basis and it will take an average of 5 minutes 
per notification. Therefore, the annual national burden is estimated to 
be 3,750 hours.

Section 422.584  Expediting Certain Reconsiderations

    The information collection change to this section requires that, if 
an M+C organization denies a request for expedited reconsideration, it 
must give the enrollee prompt oral notice, and subsequently deliver, 
within 2 calendar days, a written letter that (in addition to currently 
approved disclosure requirements) informs the enrollee of the right to 
resubmit a request for an expedited reconsideration with a physician's 
support.
    The one time burden associated with this disclosure requirement is 
the time it takes an M+C organization to add the requisite language to 
the letter it furnishes to the beneficiary. We estimate that it will 
take each M+C organization (450) an average of 30 minutes to add the 
language to its current letter for notifying beneficiaries, for a 
national annual burden of 2,250 hours.

Section 422.620  How Enrollees of M+C Organizations Must Be Notified of 
Noncoverage of Inpatient Hospital Care.

    The information collection change to this section the clarification 
that in all cases in which a determination is made that inpatient 
hospital care is no longer necessary, no later than the day before 
hospital coverage ends, the hospital (as provided under paragraph (d) 
of this section) or M+C organization must provide written notice to the 
enrollee that includes the elements described in this section. The 
burden associated with this requirement is currently approved and 
captured under 422.622.
    We have submitted a copy of this final rule to OMB for its review 
of the revised information collection requirements in Secs. 422.60, 
422.74, 422.111, 422.113, 422.152, 422.205, 422.206, 422.257, 422.568, 
422.570, 422.572, 422.584, and 422.620. These revised requirements are 
not effective until they have been approved by OMB.
    If you have any comments on any of these information collection and 
record keeping requirements, please mail the original and 3 copies 
within 30 days of

[[Page 40302]]

this publication date directly to the following:

Health Care Financing Administration, Office of Information Services, 
Information Technology Investment Management Group, Division of HCFA 
Enterprise Standards, Room N2-14-26, 7500 Security Boulevard, 
Baltimore, MD 21244-1850. Attn: John Burke HCFA-1030-FC.
    and,

Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Allison Heron Eydt, HCFA Desk Officer.

V. Regulatory Impact Statement

A. Introduction

    We have examined the impact of this rule as required by Executive 
Order 12866 and the Regulatory Flexibility Act (RFA) (Pub. L. 96-354). 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, when regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). The RFA requires agencies to analyze 
options for regulatory relief of small businesses. For purposes of the 
RFA, small entities include small businesses, non-profit organizations 
and governmental agencies. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $5 million or less annually.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis for any rule that 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 a Metropolitan 
Statistical Area and has fewer than 50 beds.
    As a result of changes to the M+C regulations to reflect provisions 
of the BBRA, this rule has been determined to be a major rule as 
defined in Title 5, United States Code, section 804(2). We consider a 
major rule to be one with economic effects of $100 million or more in a 
given year, and as noted below in section V.B.8 of this regulatory 
impact analysis, the effects of the BBRA changes reach this threshold. 
Generally, a major rule takes effect 60 days after the date the rule is 
published in the Federal Register. In this case, however, as discussed 
in detail above in section I.C of this preamble, the BBRA included 
specific effective dates for its various M+C provisions. For the most 
part, the statutory changes are self-explanatory, and have already 
taken effect. Thus, except as provided under the BBRA, the provisions 
of this final rule with comment period take effect 30 days after 
publication in the Federal Register.
    The Unfunded Mandates Reform Act of 1995 also requires (in section 
202) that agencies prepare an assessment of anticipated costs and 
benefits before enacting any rule that may result in an expenditure in 
any one year by State, local, or tribal governments, in the aggregate, 
or by the private sector, of $100 million or more. This final rule with 
comment period will have no consequential effect on State, local, or 
tribal governments. We believe the private sector cost of this rule 
falls below these thresholds as well.
1. Summary of the Final Rule
    As discussed in detail above, this rule implements only limited 
changes in the M+C regulations published June 26, 1998 (and further 
amended February 17, 1999). While we do not expect the changes 
contained in this final rule to have a significant economic impact, we 
believe that we have a responsibility to keep the public informed of 
the impact of inherent features of the M+C program, such as payment 
changes and the implementation of risk-adjusted payments. We attempted 
to describe the impacts of these payment changes in the interim final 
rule. However, after a year of experience administering the program, we 
now have a better understanding of the impact of the payment changes. 
This impact analysis will examine payment effects associated with these 
two items, and respond to public comments concerning the economic 
impact of M+C policies.
2. Summary of Comments on Impact of M+C Program
    Although commenters on the interim final rule generally recognized 
that the payment methodology and rates associated with the M+C program 
were implemented as directed by the BBA, several commenters still 
expressed concern that resulting payments to M+C organizations were 
insufficient to keep pace with the costs of providing medical care. 
These commenters suggested that the new payment methodology, 
particularly when combined with the implementation of a risk adjustment 
mechanism in 2000, could have the unintended consequence of limiting, 
rather than expanding, the health plan choices available to Medicare 
beneficiaries. M+C organizations have withdrawn from some areas, and 
many beneficiaries have experienced growing premium increases or 
benefit reductions. Commenters also asserted that the M+C regulations 
contained discretionary provisions that added unnecessarily to the 
administrative burden on M+C organizations. In particular, commenters 
identified quality standards, provider participation requirements, and 
attestation procedures as examples of what they considered overly 
proscriptive rules that had the potential to raise health plan costs. 
In general, commenters urged us to evaluate more carefully the 
cumulative impact of the changes introduced by the M+C program.
    We noted in our February 17, 1999 limited M+C final rule that we 
needed a statistically-based model to evaluate the total impact of 
payment changes for M+C organizations. We have subsequently developed a 
model that estimates the impact of risk-adjusted payments on M+C 
organizations. This impact analysis focuses on results from this model. 
When possible, we provide detail on impacts by geographic area and by 
organization size.
    We then discuss some of the concerns raised by commenters about 
likely withdrawals from the M+C program. Finally, our analysis examines 
available information concerning the administrative burden associated 
with selected M+C requirements.

B. Payment Changes

1. Background
    Prior to the BBA, Medicare's capitation rates for managed care 
plans had been set at 95 percent of expected costs based on actual fee-
for-service costs. Because of the variation in fee-for-service 
expenditures for different counties due to different utilization 
patterns and cost structures, the Medicare managed care rates for 
different counties were also quite divergent. In addition, there was 
significant evidence that Medicare had paid more for enrollees in the 
Medicare managed care programs than it would have paid in the fee-for-
service program. This was due primarily to the favorable selection that 
these plans have experienced.
    The BBA made a number of changes in Medicare payments to managed 
care plans including:
    <bullet> Increasing payments in counties that historically had the 
lowest payment rates (and generally have not had risk-based Medicare 
managed care plans) through the use of a payment floor and by 
introducing a blended payment rate.

[[Page 40303]]

    <bullet> Reducing the rate increases in counties that historically 
had higher payment rates.
    <bullet> Reducing M+C capitation rates by phasing in the removal of 
direct and indirect medical education payments from M+C capitation 
rates beginning in 1998 (and phasing in direct payment of these 
``carved out'' amounts to the institutions providing care to M+C 
enrollees).
    Payment increases from year to year after 1997 are based on an 
update factor that is the rate of increase in projected Medicare 
expenditures each year, less a statutorily specified reduction 
(reducing the rate to .8 percent less in 1998 and .5 percent less each 
year thereafter through 2002). However, all counties are guaranteed a 
minimum payment increase of 2 percent over the preceding year's base 
rates.
    The BBA also mandated the introduction, by the year 2000, of risk-
adjusted payments in the M+C program. Risk adjustment will have the 
effect of reducing payments to plans because, as a number of studies 
have shown, relatively healthier Medicare beneficiaries enroll in M+C 
plans. Projections on reduced payments assume a stable mix of 
enrollees. However, we assume that organizations will respond 
appropriately to the incentives to attract more seriously ill 
beneficiaries. As a result, organizations can do better under risk 
adjustment than they would if case mix stayed the same.
    These M+C payment changes were intended to promote the three 
objectives which we discuss below in V.B.2, 3 and 4.
2. Promote the Availability of M+C Plans in Lower Payment Areas
    The introduction of a ``floor'' on the payment rates for M+C 
organizations was intended to make the program financially viable in 
areas where the AAPCC appeared to be too low for any organization to 
recoup its costs. Beginning in 1998, the floor was set at $367 and was 
adjusted annually by the rate of growth of the overall Medicare 
program. By providing this floor payment level, M+C organizations are 
paid more than would otherwise be spent on the same beneficiaries in 
original Medicare.
    Some county payment rates are raised through implementation of 
blended payments. These rates are calculated as a blend of national 
average rates adjusted for local input prices and area-specific rates. 
Area-specific rates are 1997 payment rates, adjusted for spending for 
graduate medical education, and updated using the national M+C update 
factor.
    By raising the M+C payment levels higher than the spending amounts 
in original Medicare, it was hoped that M+C organizations would be 
attracted to these lower payment areas. In the chart below, we have 
compared the M+C county payment rates for 2001 to the area-specific 
rate in each county. In 2001, 3,020 counties will receive a payment 
rate higher than their area-specific rate. The payment rate for Arthur, 
Nebraska, will be 77 percent or $175 higher, the greatest improvement 
for any county.
    The payment floor and the phased in blended payments were also 
designed to raise the payment level for more than just the lowest 
payment counties. Raising payments above the levels determined by the 
pre-BBA methodology was intended to give organizations that have 
operated in lower payment counties the opportunity to enhance their 
benefit packages, thereby increasing enrollment.
    The largest improvements in payments are for areas with relatively 
small numbers of beneficiaries, and are largely achieved in most cases 
by applying the payment floor. Many more beneficiaries live in counties 
where the improvements are more modest (up to a 5 percent difference). 
These counties were primarily those paid under the blend mechanism in 
2000, whose payment improvements were safeguarded by the minimum 
increase component of the formula for 2001.
    Following is a breakout of the 3,147 U.S. counties by percentage 
improvement over their area specific rate:

          Table 1.--Percent Difference Between M+C Payment Rates and Area-Specific Payment Rates, 2001
----------------------------------------------------------------------------------------------------------------
                                                     Number of                                      Payment is
      Percentage difference          Number of     beneficiaries    Payment is      Payment is        minimum
                                     counties         (000s)           floor           blend         increase
----------------------------------------------------------------------------------------------------------------
Negative........................             127           1,318               0               0             127
0 to 5..........................           1,000          15,741               0               0           1,000
5 to 10.........................             946           9,848              62               0             884
10 to 20........................             572           4,133             401               0             171
20 to 30........................             264             888             264               0               0
30 to 40........................             131             408             131               0               0
40 to 50........................              68             142              68               0               0
50 to 60........................              26              52              26               0               0
60 to 70........................               9              18               9               0               0
70 to 80........................               4               5               4               0               0
                                 -------------------------------------------------------------------------------
      Total.....................           3,147          32,554             965               0          2,182
----------------------------------------------------------------------------------------------------------------
Source: HCFA, CHPP.

    Counties where M+C payment rates are lower than their area-specific 
payment rate tend to be those that have received the minimum increase 
for each of the four years that the M+C payment formula has been in 
place, and also had relatively little medical education spending. The 
cumulative four-year increase of the national update was approximately 
9.3 percent, only a percentage point higher than the cumulative four-
year increase of 8.2 percent for those counties receiving the minimum 
update each year. The area-specific payment rate in 2001 reflects a 
reduction to the 1997 rate of 80 percent of spending attributable to 
medical education. Thus, a county with relatively high medical 
education spending will have a higher M+C payment rate than area-
specific payment rate even if it also had received the minimum update 
each year.
3. Reduce the Wide Disparities in Payments Between High and Low Payment 
Areas
    By changing how payment rates are calculated, the BBA also sought 
to even out the wide disparity in Medicare managed care payment rates 
across

[[Page 40304]]

counties, an issue that had been a concern for lower-payment areas. 
Table 2 shows the percentage of counties that received the floor, a 
blended rate, or the minimum 2 percent increase for each year 
calculated using the BBA methodology.

                   Table 2.--Percent of Counties Receiving Floor, Blend, or 2 Percent Increase
----------------------------------------------------------------------------------------------------------------
                                                                                                   2 percent
                          Year                             Floor counties     Blend counties        counties
                                                             (percent)          (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
1998...................................................               33.8               00.0               66.2
1999...................................................               39.7               00.0               60.3
2000...................................................               29.1               63.1                7.8
2001...................................................               30.7               00.0              69.3
----------------------------------------------------------------------------------------------------------------
Source: HCFA, CHPP.

    There were only limited payment increases for 1998 and 1999, with 
counties receiving either the floor payment or the minimum 2 percent 
update. This was due primarily to the combined effects of the amount of 
the national update and the budget neutrality provision affecting 
calculation of the blended rate. In 2000, however, well over half the 
counties are receiving the blended rate. The enrollment-weighted 
average increases in M+C payments nationwide in the year 2000 over 1999 
is slightly more than 5 percent. For 2001, all counties will receive 
the floor payment or the minimum 2 percent update, again because of the 
budget neutrality provision and a national update that reflects the 
extremely low rate of spending in original Medicare in 1999. Although 
most counties will receive the minimum increase in 2001, many of these 
had enjoyed relatively large increases due to the blended rates in 
2000, which the minimum increase essentially will preserve.
    As illustrated in the graph below (1997 Medicare+Choice Payment 
Rates Compared with 2001 Payment Rates), the new payment formulas have 
changed the distribution of payment rates across counties, although 
perhaps not as quickly as the Congress envisioned because of the 
unusually low national increases in spending. In 1997, county payment 
rates for aged beneficiaries ranged from $221 to $767. Through the 
implementation of the payment floor, blended payment rates, and minimum 
update, payments have increased substantially at the low end of the 
distribution, and increases at the high end have slowed. The range of 
payment rates in 2001 is only somewhat smaller: between $415 and $831, 
but the 2001 payment curve is straighter than the 1997 curve, 
indicating a narrower distribution.
BILLING CODE 4120-01-P

[[Page 40305]]

[GRAPHIC] [TIFF OMITTED] TR29JN00.000

BILLING CODE 4120-01-C

[[Page 40306]]

    While national numbers show the overall pattern, the impact is 
highlighted when examining the effect of the BBA on the payment rates 
at the State level. Table 3 shows the effect of the payment changes in 
two States: Oregon and Florida. Both States have significant M+C 
enrollment penetration, but Oregon's rates are low, and Florida's are 
high.
    The BBA payment changes have narrowed the regional difference. In 
1997, prior to the BBA payment changes, Florida's weighted average 
payment rates were 149 percent higher than those of Oregon. (Florida's 
statewide average payments were at 114 percent of the national average, 
while Oregon's were at 76 percent.) In 2001, Florida's rates will be 
136 percent of Oregon's, because many Oregon counties had benefited 
from blended payment rates in 2000, while many large Florida counties 
received the minimum update that year.
    Lower-paid States such as Oregon receive relatively higher rates of 
payment increases than higher-paid States such as Florida. These 
differential payment increases will bring both States' average payments 
closer to the national average payment rate.

                   Table 3.--Comparison of Medicare+Choice Payment Rates in Oregon and Florida
----------------------------------------------------------------------------------------------------------------
                                                                            Payment rate as a  Payment rate as a
                                       Weighted average   Weighted average      percent of         percent of
                State                 payment rate 2001   payment increase    national 1997      national 2001
                                                          97-01  (percent)      (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
Oregon..............................            $435.25               22.5                 76                 83
Florida.............................             581.15                9.6                114                111
National............................             523.85               12.4                100                100
----------------------------------------------------------------------------------------------------------------

    Despite the BBA changes, the levels of benefits and premiums 
between higher and lower payment counties continue to vary in 2000. In 
Oregon, for example, premiums range from $35 to $83 for benefit 
packages that do not include outpatient drug coverage, and between $81 
and $123 for packages including drug coverage. In Florida the 
enrollment-weighted average monthly premium is $84 per month, and all 
enrollees in Florida M+C plans have drug coverage in their basic 
package. Over time, the BBA payment changes may narrow this difference.
4. Establish a Fairer Payment System
    The BBA mandated that we ``implement a risk adjustment methodology 
that accounts for variations in per capita costs based on health status 
and other demographic factors for payment [to M+C organizations] 
starting no later than January 1, 2000.'' The BBA also gives us the 
authority to collect inpatient hospital data for discharges occurring 
on or after July 1, 1997, and allows us to require additional data from 
M+C organizations for services occurring on or after July 1, 1998.
    a. Description of the Inpatient Risk Adjustment Model. In 
implementing the BBA mandate, we selected the Principal Inpatient 
Diagnostic Cost Group (PIP-DCG) model as the risk adjustment method to 
implement in 2000. Under the PIP-DCG model, individuals are assigned to 
a single PIP-DCG group based on the principal inpatient diagnosis they 
were assigned during an inpatient stay, that has the greatest future 
cost implications. The model is prospectively based; in other words, 
base year inpatient diagnoses are used in the model to predict payment 
year health expenditures. The model also uses age, sex, original reason 
for Medicare entitlement (such as age or disability), and entitlement 
to state payments for Medicaid to derive a predicted expenditure level. 
This predicted expenditure amount is then converted to beneficiary 
relative risk factors by dividing an individual's predicted 
expenditures by the national mean. Because this model was developed and 
calibrated using a year of inpatient diagnoses, a full year of data is 
essential for assigning beneficiary risk factors. Beneficiaries ``new'' 
to Medicare (for whom no prior diagnosis information exists) have their 
payments based on the average expenditures for their age group. To 
determine risk adjusted monthly payment amounts for each M+C enrollee, 
individual risk factors will be multiplied by the appropriate payment 
rate for their county of enrollment.
    We decided to include a transition period as a component of our 
risk adjustment methodology, initially using a blend of payment amounts 
under the current demographic system and the PIP-DCG risk adjustment 
methodology. Under a blend, payment amounts for each enrollee will be 
separately determined using the demographic and risk methodologies 
(that is, taking the separate demographic and risk rate books and 
applying the demographic and risk adjustments, respectively). These 
payment amounts would then be blended according to the percentages for 
the transition year. This transition to full risk adjusted payment will 
be phased in over 5 years. Following is the transition schedule to 
comprehensive risk adjusted payment as mandated by the BBRA:

------------------------------------------------------------------------
                                              Demographic      PIP-DCG
               Calendar year                    method         method
                                               (percent)      (percent)
------------------------------------------------------------------------
2000......................................              90            10
2001......................................              90            10
2002......................................              80            20
------------------------------------------------------------------------

    b. Impact of Risk Adjustment. The impact analysis presented here 
employs a ``point in time'' approach. To estimate the payment impact of 
the risk adjustment change, we compared actual demographic-based 
payments to estimated risk adjusted payments for the exact same 
enrollees for September 1998. Aggregated to the M+C organization level, 
the difference in these amounts represents a reasonable estimate of 
change in payment due to risk adjustment. Projections on reduced 
payments assume a stable mix of enrollees. However, we assume that 
organizations will respond appropriately to the incentives to attract 
more seriously ill beneficiaries. As a result, organizations can do 
better under risk adjustment than they would if case mix stayed the 
same.
    This analysis uses the best data available at this time. The data 
to be used for actual payments (beginning January 1, 2000) will be 
based on hospital discharge data for the calendar year beginning on 
July 1, 1998 and ending June 30, 1999. The actual impact of the risk 
adjustment system relative to the current demographic system at the 
time of implementation may differ, due primarily to potential changes 
in M+C organization enrollment profiles and possible improvement in the 
quality and completeness of M+C organization data.

[[Page 40307]]

    The impacts presented here show estimated figures for both the full 
effects of the PIP-DCG based payment system (that is, with no 
transition period), and for the first implementation year during which 
a 10 percent phase-in was included as part of the methodology. To 
estimate impacts under phase-in years, full impact results can be 
multiplied by the appropriate proportion of the risk adjustment 
payments. For example, the first year risk adjusted payment phase-in 
level is 10 percent. Therefore, to estimate the impact under a 10 
percent risk adjusted phase-in, the impacts can be multiplied by .10.
    If our methodology did not include a transition period, payments to 
M+C organizations would decrease by approximately 5.7 percent. This is 
a revision over preliminary estimates of 7.6 percent, which were 
prepared using an earlier, more limited data set. The majority of M+C 
organizations would face payment decreases of between five and eight 
percent.
    The table below presents the simulated impacts aggregated to our 
administrative regions. None of our regions will experience increased 
payments under the proposed system. The variation between regions is 
not considerable. Organizations in the Atlanta region will see an 
average .7 percent reduction, and organizations in the Seattle region 
will see less than a .4 percent reduction.

                     Table 4.--Payment Summary for Selected M+C Organizations by HCFA Region
----------------------------------------------------------------------------------------------------------------
                                                                                      Percent         Percent
                              Region                                 Enrollees      difference      difference
                                                                                    (phase-in)     (full impact)
----------------------------------------------------------------------------------------------------------------
 Boston.........................................................         359,819           -0.55           -5.50
 New York.......................................................         564,252           -0.35           -3.47
 Philadelphia...................................................         583,740           -0.66           -6.61
 Atlanta........................................................         895,021           -0.70           -7.00
 Chicago........................................................         530,558           -0.50           -4.97
 Dallas.........................................................         472,627           -0.69           -6.93
 Kansas City....................................................         154,223           -0.61           -6.14
 Denver.........................................................         128,069           -0.62           -6.25
 San Francisco..................................................       1,710,117           -0.57           -5.69
 Seattle........................................................         282,765           -0.35           -3.45
                                                                 -----------------------------------------------
       Total....................................................       5,681,191           -0.57           -5.74
----------------------------------------------------------------------------------------------------------------

    In addition, we simulated impacts by M+C organization enrollment 
size. Table 5 reveals that the variation in impact between the small 
M+C organizations and the large M+C organizations does not appear to be 
systematic. M+C organizations of all sizes are very close to the 
national average, although smaller organizations will experience a 
slightly higher reduction.

                  Table 5.--Payment Summary for Selected M+C Organizations by Size of Enrollment
----------------------------------------------------------------------------------------------------------------
                                                                                      Percent         Percent
                         Enrollment size                             Enrollees      difference      difference
                                                                                    (phase-in)     (full impact)
----------------------------------------------------------------------------------------------------------------
 Less than 500..................................................           5,115           -0.71           -7.10
 500-2,999......................................................          88,594           -0.81           -8.10
 3,000-4,999....................................................         993,829           -0.69           -6.87
 5,000-9,999....................................................         354,271           -0.62           -6.22
 10,000-24,999..................................................       1,177,118           -0.58           -5.79
 25,000-49,999..................................................       1,029,859           -0.54           -5.41
 50,000-99,999..................................................       1,471,009           -0.52           -5.23
 100,000 or more................................................       1,455,843           -0.61           -6.09
                                                                 -----------------------------------------------
      Total.....................................................       5,681,843           -0.57           -5.74
----------------------------------------------------------------------------------------------------------------

5. M+C Organization Withdrawals
    At the end of 1998, approximately 100 organizations dropped 
Medicare managed care contracts or reduced the number of counties in 
which a plan was offered. The result of these withdrawals was that 
nearly 50,000 beneficiaries were left with no remaining M+C plan in 
their county. Likewise, the analysis of 1999 health plan departures 
shows that approximately 79,000 additional M+C beneficiaries were 
forced to leave the program because there was no plan offered in their 
area.
    Table 6 below shows the decline in beneficiaries' access to a M+C 
plan in their area (declining about 2 percentage points from the 1999 
level of almost 70 percent).

                           Table 6.--Percent of Beneficiaries With Access to M+C Plans
----------------------------------------------------------------------------------------------------------------
                          1999                                                     2000
----------------------------------------------------------------------------------------------------------------
      Urban              Rural              Total              Urban              Rural              Total
----------------------------------------------------------------------------------------------------------------
           84.2               22.5               69.7               82.0               20.8               67.7
----------------------------------------------------------------------------------------------------------------


[[Page 40308]]

    Of the 71 counties that had an M+C plan in 1999 but will no longer 
have an M+C option in 2000, 11 were considered high payment counties. 
In fact, the average increase in 2000 for these 71 counties is 6.2 
percent. The county in this situation with the greatest increase was 
Clallum County, in Washington State, which received a blended rate 
increase of 12.8 percent over their 1999 rate.
    Plan decisions to withdraw from M+C do not appear to be caused only 
by changes in payment amounts. Payment is rising in all counties this 
coming year by an average of 5 percent, and will rise by as much as 18 
percent in some areas. BBA payment reforms were designed to increase 
payment in counties that had the lowest rates, and therefore the fewest 
number of plans. Yet counties receiving the largest increases under the 
BBA payment system are experiencing the most disruption. Plan 
withdrawals are affecting 11.1 percent of enrollees in counties where 
rates are rising by 10 percent, but affecting only 2.3 percent of 
enrollees where rates are rising by just 2 percent.
    Table 7 shows the States with the largest percentage decrease since 
1997 (the start of the M+C program) of Medicare beneficiaries with 
access to an M+C plan.

            Table 7.--States With Largest Percent Decrease in Access to M+C Option in 2000 From 1997
----------------------------------------------------------------------------------------------------------------
                                                           Total Medicare      Decrease in      Percent decrease
                         State                               population       beneficiaries     in beneficiaries
----------------------------------------------------------------------------------------------------------------
Utah...................................................            207,838            183,541                 88
Louisiana..............................................            621,826            175,645                 28
Virginia...............................................            894,573            246,274                 28
New Hampshire..........................................            172,069             45,627                 27
South Carolina.........................................            575,890            130,118                 23
Maryland...............................................            652,599            119,392                 18
----------------------------------------------------------------------------------------------------------------

    While several States have experienced a significant loss of access 
to M+C plans, other States have seen access to M+C organizations 
increase. In addition, the M+C program continues to grow despite 
challenges that parallel those in the larger managed care market in the 
United States. As of January 2000, there were 6.2 million M+C enrollees 
representing over 16 percent of the more than 39 million seniors and 
disabled Americans in Medicare. Total Medicare managed care enrollment 
has more than doubled in the past four years from 3.1 million enrollees 
at the end of 1995 to 6.9 million enrollees as of April 1, 2000. (Total 
managed care enrollees consist of M+C enrollees and enrollees in 
Medicare Managed Care Cost Plans, Health Care Prepayment Plans, and 
managed care demonstrations.) However, the rate of growth has dropped 
significantly from earlier periods, and has grown by only 1 percent per 
month the last several months.
    Table 8 below shows the States with the largest percentage increase 
since 1997 (the start of the M+C program) of Medicare beneficiaries 
with access to an M+C plan.

            Table 8.--States With Largest Percent Increase in Access to M+C Option in 2000 From 1997
----------------------------------------------------------------------------------------------------------------
                                                           Total Medicare      Increase in      Percent increase
                         State                               population       beneficiaries     in beneficiaries
----------------------------------------------------------------------------------------------------------------
Maine..................................................            219,944            138,067                 63
Iowa...................................................            488,180            171,017                 62
South Dakota...........................................            122,220            118,493                 29
Oklahoma...............................................            519,239            114,185                 24
West Virginia..........................................            345,587             65,794                 20
North Carolina.........................................          1,149,374             54,040                 18
----------------------------------------------------------------------------------------------------------------

6. Premium Increases
    In our Impact Analysis that accompanied the Interim Final Rule we 
stated that ``Reductions in capitated payment amounts in what are now 
relatively higher payment areas may result in reduced benefits for 
beneficiaries.'' While higher premiums and reduced benefits were not 
intended effects of the BBA, they are also not surprising given the 
reduced payment increases in higher cost areas. While benefits, 
premiums, and cost sharing remained relatively stable in 1999, year 
2000 has been different.
    Analysis of the Adjusted Community Rate proposals submitted in July 
show that premiums for 2000 have increased, especially in rural areas. 
For example, in 1999, the enrollment-weighted average premium for a 
basic plan was $5.35. For 2000, this amount will almost triple to 
$15.84.
    Table 9 shows the percent of M+C beneficiaries living in the 
designated areas that have access to a plan with the associated 
premium. While the percent of beneficiaries with access to zero dollar 
premium plans is expected to be reduced by more than 3 percentage 
points, the percent of beneficiaries that must pay a $40-$100 premium 
has more than doubled. In 1999, only 50,000 Medicare beneficiaries 
lived in an area where the minimum premium is in the $80 to $100 range; 
however, in 2000, the number will rise to 207,000. The majority of 
these individuals (60 percent) are residents of rural counties.

[[Page 40309]]



   Table 9.--Percent of Beneficiaries Living in Designated Areas Having Access to an M+C Plan With Associated
                                                  Premium 1999
----------------------------------------------------------------------------------------------------------------
                                             1999                                2000
                             ------------------------------------------------------------------------    Total
       Premium amount            Urban       Rural       Total       Urban       Rural       Total      percent
                               (percent)   (percent)   (percent)   (percent)   (percent)   (percent)    change
----------------------------------------------------------------------------------------------------------------
$0..........................          79          63          78          78          40          75          -3
$0.01-$19.99................           1           2           2           3          11           4           2
$20.00-$39.99...............           5          14           5           9          18           9           4
$40.00-$59.99...............           4          11           5           6          17           6           2
$60.00-$79.99...............           1           8           2           1           7           2           0
$80.00-$99.99...............           0           0           0           0           0           1           1
----------------------------------------------------------------------------------------------------------------

    In addition, access to a zero premium plan for rural beneficiaries 
will be reduced by almost 50 percent. In 1999, 1.3 million rural 
beneficiaries (63 percent of those with any plan available) live in an 
area with at least one zero premium plan; in 2000, only 784,000 rural 
beneficiaries, (40 percent of those with any plan available), will have 
such an option. One-half million fewer rural beneficiaries will have 
access to a zero premium plan.
7. Premiums in Areas With Only One Plan
    Medicare beneficiaries who live in areas with only one plan will be 
particularly affected by premium increases. Approximately 8 percent of 
M+C beneficiaries (just over three million) live in areas with only one 
plan. Note also in Table 10 that of the 207,000 beneficiaries who live 
in areas where the minimum monthly premium available is over $80, 94 
percent (over 195,000) live in areas with only one plan available. 
There will be a nearly six-fold increase from 1.6 percent to 9.3 
percent in the percentage of beneficiaries who live in an area where 
the sole M+C plan available has a monthly premium in the $80 to $100 
range.

                   Table 10.--Medicare Beneficiary Population (Total), Access to Only One Plan
----------------------------------------------------------------------------------------------------------------
                                                              Year 1999                      Year 2000
                  Minimum premium                  -------------------------------------------------------------
                                                      Beneficiaries     Percent      Beneficiaries     Percent
----------------------------------------------------------------------------------------------------------------
Zero..............................................           803,162         31.6           599,553         28.4
$0.01-$19.99......................................            17,614          0.7                 0          0.0
$20.00-$39.99.....................................           467,284         18.4           410,662         19.5
$40.00-$59.99.....................................           716,662         28.2           683,029         32.4
$60.00-$79.99.....................................           499,095         19.6           220,237         10.4
$80.00-$99.99.....................................            39,742          1.6           195,432          9.3
                                                   -------------------------------------------------------------
      Total.......................................         2,543,559          100         2,108,913          100
----------------------------------------------------------------------------------------------------------------

    Premium increases in areas with only one plan will have the most 
pronounced impact in rural areas. From 1999 to 2000, roughly the same 
percentage of beneficiaries who live in rural areas will have only one 
plan available--28.4 percent and 29.6 percent in each year, 
respectively. However, Table 11 shows that zero premium plans are 
becoming less widely available in rural areas. It also shows that there 
will be a significant increase in the number of rural Medicare 
beneficiaries whose only M+C option is a relatively high cost plan.

                 Table 11.--Medicare Beneficiary Population (Rural Only) Access to Only One Plan
----------------------------------------------------------------------------------------------------------------
                                                              Year 1999                      Year 2000
                  Minimum premium                  -------------------------------------------------------------
                                                      Beneficiaries     Percent      Beneficiaries     Percent
----------------------------------------------------------------------------------------------------------------
Zero..............................................           271,833         37.7           174,956         28.1
$0.01-$19.99......................................            17,614          2.4                            0.0
$20.00-$39.99.....................................            96,131         13.3           104,796         16.8
$40.00-$59.99.....................................           135,440         18.8           146,425         23.5
$60.00-$79.99.....................................           160,647         22.3            81,774         13.1
$80.00-$99.99.....................................            39,742          5.5           115,669         18.5
                                                   -------------------------------------------------------------
    Total.........................................           721,407          100           623,620          100
----------------------------------------------------------------------------------------------------------------

8. Impact of BBRA
    The Balanced Budget Refinement Act (BBRA) made two changes to the 
payment methodology established by the BBA. First, Section 512 of the 
BBRA introduced bonus payments for M+C organizations that enter 
previously unserved counties. These organizations will receive an 
additional 5 percent payment for the first 12 months and an additional 
3 percent for the subsequent 12 months. The second change in section 
517 of the BBRA was to lower the reduction in the National per Capita 
Medicare +Choice Growth percentage

[[Page 40310]]

from a 5 percent reduction to a 3 percent reduction in calculating the 
2002 payment rates.
    The Congressional Budget Office (CBO) estimated that the bonus 
payments would amount to additional payments of $.1 billion over three 
years. Our experience to date suggests that this figure may be high, as 
currently there are only five M+C organizations receiving bonus 
payments and very few pending applications from prospective M+C 
organizations that would be eligible for the bonus. However, there is 
an application on file from a prospective M+C organization that 
envisions expanding into a large number of previously unserved 
counties. If this organization is extremely successful in enrolling 
beneficiaries, the CBO estimate could in fact be a low estimate.
    We estimate that lowering the reduction of the National per Capita 
Medicare+Choice Growth percentage in the year 2002 will provide an 
additional $80 million in payments to plans in 2002, and an additional 
$560 million over 5 years. Payments to plans in all subsequent years 
will be higher because of the effect of lowering the reduction on the 
baseline.

C. Response to Comments on Interim Final Rule

    Since the publication of our June 26, 1998 interim final rule, we 
have implemented several significant changes aimed at alleviating 
unnecessary administrative burdens. Examples of these changes include 
the less expansive provider participation requirements adopted in our 
February 17, 1999 rule, our December 1998 revisions to the QISMC 
standards as discussed below, and clarification of the attestation 
requirements through this final rule. Clearly the cumulative effect of 
these changes will be to reduce the administrative costs associated 
with these requirements. Although we continue to solicit quantifiable 
data that can help us to assess the costs of complying with particular 
provisions, we have not received any data in this regard. We remain 
particularly interested in detailed estimates of the administrative 
costs associated with the QISMC and HEDIS standards. Research of 
available literature/studies related to these administrative costs is 
presented below.
1. Quality Standards
    The BBA codified many existing quality assurance requirements that 
had been established through operational policy letters and other 
guidance issued under the Medicare risk and cost contracting programs.
    On September 28, 1998, we issued interim Quality Improvement 
Systems for Managed Care (QISMC) standards and guidance. QISMC is a 
system for ensuring that managed care organizations contracting with 
Medicare and Medicaid protect and improve the health and satisfaction 
of enrolled beneficiaries. It consists of a set of standards and 
guidelines developed around four domains--quality assessment and 
performance improvement, enrollee rights, health services management, 
and delegation.
    QISMC was developed in conjunction with federal and state 
officials, beneficiary advocates and the managed care industry to 
develop a coordinated quality oversight system to reduce duplicative or 
conflicting efforts, emphasize demonstrable and measurable improvement, 
and avoid reinventing the wheel. QISMC standards represent the 
evolution of existing quality standards being used by commercial, 
Medicare and Medicaid health plans or managed care organizations. We 
believe QISMC incorporates the currently accepted quality assurance 
elements and provides safeguards for vulnerable Medicare and Medicaid 
populations enrolled in managed care.
    We reviewed NCQA accreditation 1999 standards for their consistency 
with QISMC standards. This is an appropriate comparison because the 
National Committee for Quality Assurance has been recognized as a 
forerunner in assuring quality assurance in health plans through its 
accreditation processes, and development and implementation of HEDIS 
performance data reporting. Also, many Medicare+Choice organizations 
are NCQA accredited.
    Our findings are provided in the table below, which was reviewed by 
NCQA representatives in order to assure the highest level of technical 
accuracy. In general, almost two-thirds of NCQA accreditation 1999 
standards were determined to be either consistent with variation or 
highly consistent or identical to QISMC standards.

                                                                        Table 12
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Domain 1          Domain 2          Domain 3          Domain 4
                                                                                 -----------------------------------------------------------------------
                                                                                       Quality
                           NCQA 1999                                 Overall       assessment and                      Health services
                                                                                     performance     Enrollee rights     management        Delegation
                                                                                     improvement
--------------------------------------------------------------------------------------------------------------------------------------------------------
Substantially Greater Than QISMC..............................                12                 4                11                17  ................
Consistent with QISMC.........................................                62                65                68                53               100
Substantially Fewer Requirements..............................                26                30                21                29  ................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Beneficiaries will benefit significantly from information available 
to them about the performance of their health plans as well as through 
improvements in the delivery of care and services that evolve out of 
on-going quality improvement projects under QISMC. Beneficiaries 
already have access to health plan performance and consumer 
satisfaction measures about the M+C organizations available in their 
area through our beneficiary education campaign and individual plan 
marketing.
    We expect that as consumers become increasingly familiar with 
health plan performance and consumer satisfaction information, it will 
become an integral part of their decision-making process, in addition 
to cost and benefits, for selecting their M+C organization. It is our 
intent that as consumers become better informed and decide not to 
select plans of lower quality, such plans will be motivated to initiate 
improvements in the quality of care they provide.
    At the same time, we expect that plan's focus on one national and 
one plan-specific quality assessment and performance improvement 
project each year will improve the delivery of services to Medicare 
beneficiaries, especially beneficiaries suffering from chronic 
conditions. M+C organizations will need to be proactive in identifying 
and treating beneficiaries who suffer

[[Page 40311]]

from medical conditions which are the focus of their quality assessment 
and performance improvement projects in addition to their HEDIS 
measures. This will ultimately lead to improved care and services for 
Medicare beneficiaries through the institutionalization of these 
practices.
    a. QISMC Compliance. Purchaser demands have driven many managed 
care organizations to become NCQA accredited, implement quality 
measurement and performance improvement strategies, and report 
performance and satisfaction data. This has resulted in many managed 
care organizations becoming NCQA accredited, especially on the east and 
west coasts. We estimate that the cost of becoming NCQA accredited 
ranges between $300,000-$500,000.
    We do not believe that QISMC will present significant additional 
fixed costs for M+C organizations that have already received 
accreditation from the National Committee for Quality Assurance. While 
QISMC presents some subtle and significant differences from NCQA 
accreditation, we do not expect that organizations that have prepared 
for NCQA accreditation will incur significant additional costs to 
comply with QISMC. We recognize that there will be incremental costs 
associated with QISMC, such as costs associated with additional quality 
assessment and performance improvement projects, internal staff 
training expenses, and oversight and compliance.
    In addition, we expect that some M+C organizations that are not 
NCQA accredited may incur higher costs to comply with QISMC than 
organizations in other parts of the country.
    b. HEDIS Reporting. Since 1997, we have required M+C organizations 
to report HEDIS and consumer satisfaction data. Beginning in 1998, we 
required M+C organizations to begin reporting audited HEDIS data as a 
result of inconsistencies in HEDIS reporting.
    We do not expect that requirements for reporting HEDIS and consumer 
satisfaction measures are inconsistent with expectations that private 
purchasers have access to health plan performance data (GAO, June 
1998). As a result, we do not expect that organizations will incur 
significant new fixed costs as a result of requirements to report 
performance measurement and consumer satisfaction data, since we expect 
that M+C organizations will use audited HEDIS data. However, we do 
recognize that there may be incremental costs to reporting audited 
HEDIS data in terms of additional processes, audit fees, etc.
    In addition, requirements for M+C organizations to report audit 
HEDIS data will likely yield improved processes for collecting and 
reporting complete, accurate and timely data as a result of an 
independent third party review of their data collection, warehousing 
and production/reporting processes.
    c. Quality Assessment and Performance Improvement Projects. We 
recognize that a significant difference between QISMC and NCQA 
accreditation 1999 is that QISMC is much more prescriptive in defining 
the type, scope and measurement of quality assessment and performance 
improvement projects. In response to industry concerns, we have reduced 
the number and delayed the timeframe for implementing quality 
assessment and performance improvement projects.
    At the same time, specifying beginning and ending dates for QAPIs 
will ensure that plans do not become mired in projects that do not end. 
We expect that plans will focus their efforts on achieving results and 
institutionalizing improvements in the delivery of care, data 
collection and reporting and information system improvements gained 
from successful QAPI projects. Even in instances where demonstrable 
improvements were not obtained, we expect that, in many cases, some 
improvement will result.
    In addition, plans will have added incentives to initiate 
performance improvement projects that will lead to more cost-effective 
delivery of health care services, such as influenza immunization. For 
example, one national managed care organization increased the 
percentage of Medicare enrollees receiving flu shots from 27 percent to 
55 percent in one year. The organization reported a reduction of about 
30 percent in hospital admissions for pneumonia, savings of about 
$700,000, and fewer lives lost. (GAO, May 1996) We expect that 
investments in QAPI activities will lead to cost-savings over and above 
the initial investment.
    We recognize that some high-performing managed care organizations 
will have less ability to achieve additional improvements in some 
areas. Some organizations will respond to incentives to select projects 
where results may be more easily obtainable. We continue to believe, 
however, that there are significant gains that remain to be made in the 
delivery of quality services.
    We concur with industry comments that small plans may have 
difficulty in complying, since they may not have a statistically 
credible population for producing reliable and/or comparable measures. 
For example, a small plan with a healthier population than average may 
not have sufficient instances of myocardial infarction for which beta-
blocker treatment would be appropriate. We will work with these 
organizations to address these and other unique issues that may arise.
    We believe that requiring plans to participate in at least one 
national and one plan-specific QAPI project annually and to demonstrate 
a 10 percent improvement in their QAPI is in the best interest of 
beneficiaries. These requirements will improve the quality of care and 
services delivered to Medicare and other populations served by the M+C 
organization, as performance improvement practices become routine.
    d. Deeming. To avoid duplication of effort and unnecessary 
administrative burdens with respect to internal quality assurance 
requirements, we are recognizing accrediting by national, private 
accrediting organizations that we determine to be consistent with our 
QA requirements. We believe that this will significantly benefit a 
significant portion of M+C organizations that are already accredited, 
reducing costs, capitalizing on efficiencies, and avoiding duplicative 
processes.
2. Provider Procedures
    Much less information is available about other requirements cited 
by some commenters as entailing significant administrative burdens. For 
example, we received many public comments regarding provider 
participation requirements. We responded to many of those comments in 
our February 17, 1999, final rule (64 FR 7968), under which we narrowed 
many of the requirements set forth in our June 26, 1998 interim final 
rule (63 FR 34968). Modifications to the interim final rule included:
    <bullet> Applying the applicable notice and appeal rights and 
consultation requirements only to physicians, as defined under section 
1861 of the Act;
    <bullet> Adopting a narrower interpretation of what constitute 
``rules regarding participation'' to focus on whether a physician can 
participate under a given M+C plan;
    <bullet> Clarifying that an M+C organization need only have 
reasonable procedures for notifying potential participating physicians 
of participation rules, which may include providing the information 
upon request;
    <bullet> Clarifying that an M+C organization is not required to 
release information that an organization considers proprietary 
information;
    <bullet> Clarifying that in the event that immediate changes are 
mandated

[[Page 40312]]

through Federal law or regulation, an organization should be exempt 
from the requirement that written notice be provided before the changes 
are put into effect;
    <bullet> Clarifying that there is no requirement that an 
organization obtain signatures acknowledging receipt of a notice of 
changes;
    <bullet> Limiting the applicability of the appeals process to 
appealing adverse participation decisions;
    <bullet> Clarifying that the availability of the provider appeals 
process applies only to cases involving suspension or termination of 
participation privileges, rather than including initial denials of an 
application to participate; and
    <bullet> Clarifying that the information to be included in a 
notification of a decision to suspend or terminate an agreement with a 
physician is limited to information relevant to the decision.
    Since publication of our February 17, 1999 final rule, we have 
subsequently communicated with several M+C organizations about the 
costs and benefits associated with the requirements included in this 
final rule. We believe that the steps taken in our February 17, 1999 
final rule significantly reduced the burden on M+C organizations and 
also ensured that providers and beneficiaries receive the protections 
intended by Congress under the Act. For example, by narrowing the scope 
of the requirement for advance notice of changes in participation 
rules, an M+C organization need not prepare an advance notice for 
administrative and other changes that do not affect whether a physician 
can participate in a plan. Notification of most changes made by a M+C 
organization can be made via usual communication methods, such as 
regular newsletters, rather than through the preparation of special 
mailings or other more burdensome methods.
    In addition, the M+C organization must consult with the physicians 
who have agreed to provide services under the M+C plan offered by the 
organization, regarding the organization's medical policy, quality 
assurance program, and medical management procedures, and ensure that 
the following standards are met. We understand that these requirements 
are consistent with current operational practices by M+C organizations 
and pose little additional burden, and that the costs associated with 
incremental changes would be marginal.
    We also understand that our requirements concerning credentialing 
processes and prohibitions on discrimination reflect current practices 
and similar requirements from other entities (for example, accrediting 
bodies) and do not impose additional burden.
3. Attestation Requirements
    Similarly, commenters objected to attestation requirements as 
discussed in detail above (See Subpart K). To receive a monthly payment 
under subpart F, the chief executive officer (CEO) or chief financial 
officer (CFO) of a M+C organization must request payment under the 
contract on a document that certifies the accuracy, completeness, and 
truthfulness of relevant data that we request. Such data include 
specified enrollment information, encounter data, and other information 
that we may specify. The CEO or CFO must certify that each enrollee for 
whom the organization is requesting payment is validly enrolled in an 
M+C plan offered by the organization, and the information relied upon 
by us in determining payment is accurate. The CEO or CFO must certify 
that the encounter data it submits under Sec. 422.257 are accurate, 
complete, and truthful. If such encounter data are generated by a 
related entity, contractor, or subcontractor of an M+C organization, 
such entity, contractor, or subcontractor must similarly certify the 
accuracy, completeness, and truthfulness of the data. In addition, the 
M+C organization must certify that the information in its ACR 
submission is accurate and fully conforms to the requirements in 
Sec. 422.310 in order to retain payment amounts below the amount of its 
ACR.
    We understand that the collection and dissemination of this 
information by M+C organizations is undertaken in a manner that 
reflects an M+C organization's best efforts to ensure its accuracy, 
completeness, and truthfulness. Accordingly, we do not believe that 
this requirement imposes significant new burdens on an M+C organization 
that operates in good faith to comply with requirements under the M+C 
program. We realize that mistakes and errors may occur even under an 
organization's best efforts, and these attestation requirements are not 
intended to penalize an M+C organization that operates in good faith. 
We believe these requirements are important to safeguard the integrity 
of the M+C program against those few M+C organizations that do not 
utilize the kind of business and operational practices of most M+C 
organizations. We also believe the requirements will provide an 
important tool for seeking out the few bad actors that could harm the 
M+C program, beneficiaries, providers, and other M+C organizations. As 
suggested by many commenters, we have revised the requirements to 
establish a ``good faith'' compliance standard as opposed to requiring 
an attestation of 100 percent accuracy for encounters and enrollment 
(payment related) data. We believe this change should alleviate 
commenters concerns over the undue financial burdens associated with 
attestation requirements.

VI. Other Required Information

A. Federalism Summary Impact Statement

    On August 4, 1999, the president signed Executive Order 13132 
(effective November 2, 1999) establishing certain requirements that an 
agency must meet when it promulgates regulations that impose 
substantial direct compliance costs on State and local governments, 
preempt State law, or otherwise have federalism implications. Any such 
regulations must include a federalism summary impact statement that 
describes the agency's consultation with State and local officials and 
summarizes the nature of their concerns, the extent to which these 
concerns have been met, and the agency's position supporting the need 
to issue the regulation.
    In this final rule, we are not promulgating any changes to the 
existing M+C regulations that meet any of the criteria mentioned above 
that would require the inclusion of a federalism impact statement under 
Executive Order 13132. However, the M+C interim final rule published on 
June 26, 1998 (63 FR 34968) did contain provisions that have a 
federalism impact, and we respond to comments on these provisions from 
States and other interested parties in this rule. Thus, in keeping with 
the intent of the Executive Order that we closely examine any policies 
that have federalism implications or would limit the policy making 
discretion of the States, we have prepared the following voluntary 
federalism impact statement.
    In establishing the M+C program, the BBA included two provisions 
that have significant implications for States. First, under section 
1855(a)(1) of the Act, an organization that wishes to participate in 
the M+C program generally is required to be organized and licensed 
under State law as a risk-bearing entity eligible to offer health 
benefits coverage in each State in which it offers an M+C plan. This 
statutory requirement is codified at Sec. 422.400(a) and 
Sec. 422.501(b)(1) of the M+C regulations, and we do not believe it 
interferes with State functions or limits their policy making 
discretion. The requirement does not imposes any significant

[[Page 40313]]

additional burdens on States, who for are already carrying out this 
licensing function. We received no comments from States on this 
provision.
    The other aspect of the M+C statute and regulations that has 
significant federalism implications involves the Federal preemption 
provisions set forth under section 1856(b) of the Act and Sec. 422.402. 
Section 1856(b)(3)(A) provides for Federal preemption of State laws, 
regulations, and standards affecting any M+C standard if the state 
provisions are inconsistent with Federal standards. As discussed in the 
preamble to the interim final rule (63 FR 35012), and in section II.I 
of this preamble, we are applying this ``general preemption'' in much 
the same way that we previously applied Executive Order 12612 on 
Federalism. That is, State laws or standards that are more strict than 
the M+C standards would not be preempted unless they prevented 
compliance with the M+C requirements.
    In addition to this general preemption, the Congress also provided 
(under section 1856(b)(3)(B) for a ``specific preemption'' whereby M+C 
standards supersede any State laws and standards in the following three 
areas:
    <bullet> Benefit requirements;
    <bullet> Requirements relating to the inclusion or treatment of 
providers; and
    <bullet> Coverage determinations (including related appeals and 
grievance processes).
    During the development of the June 26, 1998 interim final rule, we 
consulted with the National Association of Insurance Commissioners 
(NAIC) regarding the proper interpretation of these provisions. (The 
NAIC is the organization of the chief insurance regulators from the 50 
states, the District of Columbia, and four U.S. territories.) The 
interim final rule contained an extensive discussion of this subject, 
including providing examples both of State laws that would be preempted 
under the M+C statue (such as ``any willing provider laws'' that would 
mandate the inclusion of specific types of providers or practitioners) 
and of State requirements that would continue to apply (such as a 
requirement that all providers and practitioners be licensed by the 
State and comply with scope of practice laws). We asserted our 
intention to adopt a narrow interpretation of the applicability of the 
three areas of specific preemption in order to ensure that any 
regulatory preemption of State law would be restricted to the minimum 
level necessary consistent with the BBA. State and local officials then 
had an opportunity to participate in the rulemaking process through 
their public comments on the M+C interim final rule.
    For the most part, commenters representing State governments 
supported HCFA's narrow interpretation of the BBA's specific preemption 
provisions. (See section II.I of this final rule for a full discussion 
of comments on these provisions.) The most notable exception to this 
general support was the contention by one State that its mandatory drug 
benefit laws should not be preempted by the M+C benefit provisions; but 
we continue to believe that the specific preemption of ``benefit 
requirements'' under section 1856(b)(3)(B) of the Act clearly 
contradicts the State's contention. Moreover, we believe that our 
general approach is fully consistent with the ``Special Requirements 
for Preemption'' set forth in section 4 of Executive Order 13132. This 
section directs that an agency take action to preempt State law only 
where the exercise of State authority directly conflicts with the 
exercise of Federal authority under Federal law or there is other clear 
evidence (such as an express statutory preemption provision) to 
conclude that Congress intended the agency to have the authority to 
preempt State law. It also provides that any regulatory preemption of 
State law be restricted to the minimum level necessary to achieve the 
objectives of the relevant statute. In conclusion, we believe that the 
concerns of State and local officials have been met to the greatest 
possible extent, consistent with the BBA's preemption provisions.

B. Waiver of Notice of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to afford a period for public comments before issuing 
a regulation in final form. However, we may waive that procedure if we 
find good cause that prior notice and comment are impractical, 
unnecessary, or contrary to the public interest. In addition, section 
1871(b)(2)(B) of the Act provides that a notice of proposed rulemaking 
is not required if a statute establishes a specific deadline for 
implementation of a provision that is less than 150 days after the 
enactment of the statute in which the deadline is contained. Finally, 
Congress provides in certain cases by statute for the publication of a 
final rule without prior notice and comment.
    For the most part, the changes to the M+C regulations set forth in 
this final rule with comment period result from our review of the 
public comments on the June 26, 1998 interim final rule that 
established the M+C program. Congress expressly authorized the 
publication of that final rule without prior notice and comment in 
section 1856(b)(1) of the Act. To the extent the provisions of this 
final rule respond to comments on that rule, they will have been 
subjected to prior notice and comment. However, as discussed in detail 
in section I.C of this preamble, this rule also makes conforming 
revisions to the regulations that are necessary to reflect changes to 
the M+C statute resulting from the BBRA (Pub. L. 106-113) which was 
enacted on November 29, 1999. These changes in requirements and new 
requirements or provisions were enacted by Congress, and would be in 
effect without regard to whether they are reflected in conforming 
changes to the regulations text, since a statute controls over a 
regulation. In this final rule, we merely have revised the regulations 
text to reflect these new statutory provisions, as we interpret them. 
In most cases, the BBRA provisions have merely been incorporated 
virtually verbatim, with no interpretation necessary. Examples of such 
provisions include: the earlier availability of alternative Medicare 
enrollment options and the elimination of the lock-in rules for 
institutionalized individuals under section 501 of the BBRA, changes in 
the effective date of elections under section 502, the extension of 
Medicare cost contracts under section 503, the modification of the 5-
year re-entry rule after contract terminations under section 513, 
flexibility to tailor benefits under an M+C plan under section 515, the 
delay until July 1 in the deadline for ACR submissions under section 
516, the reduction in the adjustment in the national per capita M+C 
growth percentage under section 517, the new deeming provisions in 
section 518, the revised quality assurance requirements for PPOs under 
section 520, and the user fee provisions in section 522. For these 
types of provisions, we do not believe that publishing a notice a 
proposed rulemaking is necessary, nor would it be practical given that 
a number of the provisions have already taken effect consistent with 
effective dates established under the BBRA. (For example, the changes 
in the effective date of elections and the new quality assurance 
requirements for PPOs took effect on January 1, 2000, and several other 
provisions were effective upon enactment of the BBRA.) In addition, we 
believe that it would be contrary to the public interest to delay 
implementation of these provisions until the process of publishing both 
a proposed and a final

[[Page 40314]]

rule could be completed. Finally, we note that the BBRA was enacted on 
November 29, 1999; thus publication of a notice of proposed rulemaking 
is not required under section 1871(b) of the Act before implementing 
any new statutory provisions that took effect upon enactment or on 
January 1, 2000. Thus, we find good cause to waive proposed rulemaking 
for these provisions. We are, however, providing a 60-day period for 
public comment on those provisions.
    In the case of two BBRA provisions, we have reflected our 
interpretation of the provisions in the regulations text. This 
interpretation is already in effect, and has been applied, as the 
provisions in question are already in effect. These provisions are 
section 501(c) of the BBRA, which permits an M+C organization that has 
reduced a plan service area to offer continued enrollment to current 
enrollees in all or a portion of the reduced areas, and section 512 
that introduces ``bonus payments'' to encourage organizations to offer 
M+C plans in areas without such plans. Both of these provisions are 
discussed in detail in section I.C of this preamble, and both required 
a limited amount of interpretation of the statute in order to implement 
the provisions on a timely basis. For example, with regard to the 
continuation of enrollment option (which was effective upon enactment 
of the BBRA), we have clarified that an M+C organization may offer 
enrollment in any plan it offers in the affected area, rather than 
solely the plan in which an individual was previously enrolled. This 
clarification results in greater flexibility for M+C enrollees and is 
consistent with our interpretation of a similar statutory provision 
affecting individuals with ESRD. Similarly, with regard to the bonus 
payment provisions (which took effect as of January 1, 2000), we have 
indicated that if an M+C organization or organizations offers two or 
more new plans simultaneously in a given area, the organization could 
receive the bonus payments for each new plan. We believe this 
interpretation of the statute clearly is consistent with legislative 
intent to promote the availability of more M+C alternatives for 
Medicare beneficiaries.
    Policy clarifications of this limited nature were essential to 
implement these BBRA provisions in a clear and timely manner. Again, it 
would have been impractical and contrary to the public interest to 
proceed with proposed rulemaking before implementing the interpretive 
policies linked with these provisions, nor is such rulemaking required 
under section 1871(b) of the Act. Thus, we believe that the ``good 
cause'' exemption to notice and comment rulemaking is equally 
applicable for these BBRA provisions as for the others discussed above, 
and the same 60-day period for public comment applies.

C. Responses to Comments

    As discussed above, a limited number of the provisions set forth in 
this final rule are subject to a 60-day comment period. Because of the 
large number of items of correspondence we normally receive on a rule, 
we are not able to acknowledge or respond to them individually. We 
will, however, consider all comments that we receive by the date 
specified in the DATES section of this preamble and, if we proceed with 
subsequent rulemaking, we will respond to the comments in that 
document.

List of Subjects

42 CFR Part 417

    Administrative practice and procedure, Grant programs-health, 
Health care, health facilities, Health insurance, Health maintenance 
organizations (HMO), Loan programs-health, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health 
maintenance organizations (HMO), Medicare+Choice, Penalties, Privacy, 
Provider-sponsored organizations (PSO), Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, HCFA amends 42 CFR 
chapter IV as set forth below:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

    1. The authority citation for part 417 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public 
Health Service Act (2 U.S.C. 300e, 300e-5, 300e-9), and 31 U.S.C. 
9701.


    2. Revise Sec. 417.402(b) to read as follows:


Sec. 417.402  Effective date of initial regulations.

* * * * *
    (b) The changes made to section 1876 of the Act by section 4002 of 
the Balanced Budget Act (BBA) of 1997 are incorporated in section 422 
except for 1876 cost contracts. Upon enactment of the BBA (August 5, 
1997) no new cost contracts or service area expansions are accepted by 
HCFA except for current Health Care Prepayment Plans that may convert 
to 1876 cost contracts. Also, 1876 cost contracts may not be extended 
or renewed beyond December 31, 2004.

PART 422--MEDICARE+CHOICE PROGRAM

    1. The authority citation for part 422 continues to read as 
follows:

    Authority: Secs. 1102, 1851 through 1857, 1859, and 1871 of the 
Social Security Act (42 U.S.C. 1302, 1395w-21 through 1395w-27, and 
1395hh ).


    2. Section 422.2 is amended by:
    A. Revising the definitions of ``Basic benefits,'' ``Benefits,'' 
``M+C plan,'' ``Mandatory supplemental benefits,'' ``Optional 
supplemental benefits,'' ``Religious and fraternal (RFB) society,'' 
``RFB plan,'' and ``Service area.''
    B. Adding the definition of ``National coverage determination.''
    C. Removing the definitions of ``Emergency medical condition,'' 
``Emergency services,'' and ``Urgently needed services.''


Sec. 422.2  Definitions.

* * * * *
    Basic benefits means all Medicare-covered benefits (except hospice 
services) and additional benefits.
    Benefits are health care services that are intended to maintain or 
improve the health status of enrollees, for which the M+C organization 
incurs a cost or liability under an M+C plan (not solely an 
administrative processing cost). Benefits are submitted and approved 
through the ACR process.
* * * * *
    M+C plan means health benefits coverage offered under a policy or 
contract by an M+C organization that includes a specific set of health 
benefits offered at a uniform premium and uniform level of cost-sharing 
to all Medicare beneficiaries residing in the service area of the M+C 
plan (or in individual segments of a service area, under 
Sec. 422.304(b)(2)).
* * * * *
    Mandatory supplemental benefits are health services not covered by 
Medicare that an M+C enrollee must purchase as part of an M+C plan that 
are paid for in full, directly by (or on behalf of) Medicare enrollees, 
in the form of premiums or cost-sharing.
* * * * *
    National coverage determination (NCD) means a national policy 
determination regarding the coverage status of a particular service 
that HCFA makes under section 1862(a)(1) of the

[[Page 40315]]

Act, and publishes as a Federal Register notice or HCFA ruling. (The 
term does not include coverage changes mandated by statute.)
* * * * *
    Optional supplemental benefits are health services not covered by 
Medicare that are purchased at the option of the M+C enrollee and paid 
for in full, directly by (or on behalf of) the Medicare enrollee, in 
the form of premiums or cost-sharing. These services may be grouped or 
offered individually.
* * * * *
    Religious and fraternal benefit (RFB) society means an organization 
that--
    (1) Is described in section 501(c)(8) of the Internal Revenue Code 
of 1986 and is exempt from taxation under section 501(a) of that Act; 
and
    (2) Is affiliated with, carries out the tenets of, and shares a 
religious bond with, a church or convention or association of churches 
or an affiliated group of churches.
    RFB plan means an M+C plan that is offered by an RFB society.
    Service area means a geographic area approved by HCFA within which 
an M+C-eligible individual may enroll in a particular M+C plan offered 
by an M+C organization. Each M+C plan must be available to all M+C-
eligible individuals within the plan's service area. In deciding 
whether to approve an M+C plan's proposed service area, HCFA considers 
the following criteria:
    (1) Whether the area meets the ``county integrity rule'' that a 
service area generally consists of a full county or counties. However, 
HCFA may approve a service area that includes a portion of a county if 
it determines that the ``partial county'' area is necessary, 
nondiscriminatory, and in the best interests of the beneficiaries.
    (2) The extent to which the proposed services area mirrors service 
areas of existing commercial health care plans or M+C plans offered by 
the organization.
    (3) For M+C coordinated care plans and network M+C MSA plans, 
whether the contracting provider network meets the access and 
availability standards set forth in Sec. 422.112. Although not all 
contracting providers must be located within the plan's service area, 
HCFA must determine that all services covered under the plan are 
accessible from the service area.
    (4) For non-network M+C MSA plans, HCFA may approve single county 
non-network M+C MSA plans even if the M+C organization's commercial 
plans have multiple county service areas.

    3. In Sec. 422.4, revise paragraph (a)(1)(iii) and add a new 
paragraph (a)(1)(iv), to read as follows:


Sec. 422.4  Types of M+C plans.

    (a) * * *
    (1) * * *
    (iii) Coordinated care plans include plans offered by health 
maintenance organizations (HMOs), provider-sponsored organizations 
(PSOs), preferred provider organizations (PPOs) as specified in 
paragraph (a)(1)(iv) of this section, RFBs, and other network plans 
(except network MSA plans).
    (iv) A PPO plan is a plan that has a network of providers that have 
agreed to a contractually specified reimbursement for covered benefits 
with the organization offering the plan; provides for reimbursement for 
all covered benefits regardless of whether the benefits are provided 
within the network of providers; and is offered by an organization that 
is not licensed or organized under State law as an HMO.
* * * * *

    4. Revise Sec. 422.8 to read as follows:


Sec. 422.8  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) HCFA evaluates an 
application for an M+C contract on the basis of information contained 
in the application itself and any additional information that HCFA 
obtains through on-site visits, public hearings, and any other 
appropriate procedures.
    (2) If the application is incomplete, HCFA notifies the contract 
applicant and allows 60 days from the date of the notice for the 
contract applicant to furnish the missing information.
    (3) After evaluating all relevant information, HCFA determines 
whether the contract applicant's application meets the applicable 
requirements of Sec. 422.6.
    (b) Use of information from a prior contracting period. If an M+C 
organization, HMO, competitive medical plan, or health care prepayment 
plan has failed to comply with the terms of a previous year's contract 
with HCFA under title XVIII of the Act, or has failed to complete a 
corrective action plan during the term of the contract, HCFA may deny 
an application from a contract applicant based on the contract 
applicant's failure to comply with that prior contract with HCFA even 
if the contract applicant meets all of the current requirements.
    (c) Notice of determination. HCFA notifies each applicant that 
applies for an M+C contract under this part of its determination and 
the basis for the determination. The determination may be approval, 
intent to deny, or denial.
    (d) Approval of application. If HCFA approves the application, it 
gives written notice to the contract applicant, indicating that it 
meets the requirements for an M+C contract.
    (e) Intent to deny. (1) If HCFA finds that the contract applicant 
does not appear to meet the requirements for an M+C organization and 
appears to be able to meet those requirements within 60 days, HCFA 
gives the contract applicant notice of intent to deny the application 
for an M+C contract and a summary of the basis for this preliminary 
finding.
    (2) Within 60 days from the date of the notice, the contract 
applicant may respond in writing to the issues or other matters that 
were the basis for HCFA's preliminary finding and may revise its 
application to remedy any defects HCFA identified.
    (f) Denial of application. If HCFA denies the application, it gives 
written notice to the contract applicant indicating--
    (1) That the contract applicant does not meet the contract 
requirements under part C of title XVIII of the Act;
    (2) The reasons why the contract applicant does not meet the 
contract requirements; and
    (3) The contract applicant's right to request reconsideration in 
accordance with the procedures specified in subpart N of this part.
    (g) Oversight of continuing compliance. (1) HCFA oversees an M+C 
organization's continued compliance with the requirements for an M+C 
organization.
    (2) If an M+C organization no longer meets those requirements, HCFA 
terminates the contract in accordance with Sec. 422.510.

    5. Revise Sec. 422.10 to read as follows:


Sec. 422.10  Cost-sharing in enrollment-related costs (M+C user fee).

    (a) Basis and scope. This section implements that portion of 
section 1857 of the Act that pertains to cost-sharing in enrollment-
related costs. It sets forth the procedures that HCFA follows to 
determine the aggregate annual ``user fee'' to be contributed by M+C 
organizations and to assess the required user fees for M+C plans 
offered by M+C organizations.
    (b) Purpose of assessment. Section 1857(e)(2) of the Act authorizes 
HCFA to charge and collect from each M+C plan offered by an M+C 
organization its pro rate share of fees for administering section 1851 
of the Act, relating to dissemination of enrollment information; and 
section 4360 of the Omnibus Budget Reconciliation Act of 1990, relating 
to the health insurance counseling and assistance program.

[[Page 40316]]

    (c) Applicability. The fee assessment also applies to those 
demonstrations for which enrollment is effected or coordinated under 
section 1851 of the Act.
    (d) Collection of fees. (1) Timing of collection. HCFA collects the 
fees over 9 consecutive months beginning with January of each fiscal 
year.
    (2) Amount to be collected. The aggregate amount of fees for a 
fiscal year is the lesser of--
    (i) The estimated costs to be incurred by HCFA in that fiscal year 
to carry out the activities described in paragraph (b) of this section; 
or
    (ii) For fiscal year 2000, $100 million and for fiscal year 2001 
and each succeeding year, the M+C portion (as defined in paragraph (e) 
of this section) of $100 million.
    (e) M+C portion. In this section, the term ``M+C portion'' means, 
for a fiscal year, the ratio, as estimated by the Secretary of the 
average number of individuals enrolled in M+C plans during the fiscal 
year to the average number of individuals entitled to benefits under 
part A, and enrolled under part B, during the fiscal year.
    (f) Assessment methodology. (1) The amount of the M+C portion of 
the user fee each M+C organization must pay is assessed as a percentage 
of the total Medicare payments to each organization. HCFA determines 
this percentage rate using the following formula:

    A times B divided by C where--
    A is the total estimated January payments to all organizations 
subject to the assessment;
    B is the 9-month (January through September) assessment period; 
and
    C is the total fiscal year M+C user fee assessment amount 
determined in accordance with paragraph (d)(2) of this section.

    (2) HCFA determines each organization's pro rata share of the 
annual fee on the basis of the organization's calculated monthly 
payment amount during the 9 consecutive months beginning with January. 
HCFA calculates each organization's monthly pro rata share by 
multiplying the established percentage rate by the total monthly 
calculated Medicare payment amount to the organization as recorded in 
HCFA's payment system on the first day of the month.
    (3) HCFA deducts the organization's fee from the amount of Federal 
funds otherwise payable to the organization for that month under the 
M+C program.
    (4) If assessments reach the amount authorized for the year before 
the end of September, HCFA discontinues assessment.
    (5) If there are delays in determining the amount of the annual 
aggregate fees specified in paragraph (d)(2) of this section, or the 
fee percentage rate specified in paragraph (f)(2), HCFA may adjust the 
assessment time period and the fee percentage amount.
    6. Revise Sec. 422.50(a) to read as follows:


Sec. 422.50  Eligibility to elect an M+C plan.

    (a) An individual is eligible to elect an M+C plan if he or she--
    (1) Is entitled to Medicare under Part A and enrolled in Part B 
(except that an individual entitled only to Part B and who was enrolled 
in an HMO or CMP with a risk contract under part 417 of this chapter on 
December 31, 1998 may continue to be enrolled in the M+C organization 
as an M+C plan enrollee);
    (2) Has not been medically determined to have end-stage renal 
disease, except that an individual who develops end-stage renal disease 
while enrolled in an M+C plan or in a health plan offered by the M+C 
organization is eligible to elect an M+C plan offered by that 
organization;
    (3) Meets either of the following residency requirements:
    (i) Resides in the service area of the M+C plan.
    (ii) Resides outside of the service area of the M+C plan and is 
enrolled in a health plan offered by the M+C organization during the 
month immediately preceding the month in which the individual is 
entitled to both Medicare Part A and Part B, provided that an M+C 
organization chooses to offer this option and that HCFA determines that 
all applicable M+C access requirements of Sec. 422.112 are met for that 
individual through the M+C plan's established provider network. The M+C 
organization must furnish the same benefits to these enrollees as to 
enrollees who reside in the service area;
    (4) Has been a member of an Employer Group Health Plan (EGHP) that 
includes the elected M+C plan, even if the individual lives outside of 
the M+C plan service area, provided that an M+C organization chooses to 
offer this option and that HCFA determines that all applicable M+C 
access requirements at Sec. 422.12 are met for that individual through 
the M+C plan's established provider network. The M+C organization must 
furnish the same benefits to all enrollees, regardless of whether they 
reside in the service area;
    (5) Completes and signs an election form and gives information 
required for enrollment; and
    (6) Agrees to abide by the rules of the M+C organization after they 
are disclosed to him or her in connection with the election process.
* * * * *

    7. In Sec. 422.54, the heading of paragraph (b) and paragraphs 
(c)(2), (d)(1), and (d)(3) are revised to read as follows:


Sec. 422.54  Continuation of enrollment.

* * * * *
    (b) Basic rule. * * *
    (c) * * *
    (2) An enrollee who moves out of the service area into the 
geographic area designated as the continuation area has the choice of 
continuing enrollment or disenrolling from the plan. The enrollee must 
make the choice of continuing enrollment in a manner specified by HCFA. 
If no choice is made, the enrollee must be disenrolled from the plan.
* * * * *
    (d) * * *
    (1) Continuation of enrollment benefits. The M+C organization must, 
at a minimum, provide or arrange for the Medicare-covered benefits as 
described in Sec. 422.101(a).
* * * * *
    (3) Reasonable cost-sharing. For services furnished in the 
continuation area, an enrollee's cost-sharing liability is limited to 
the cost-sharing amounts required in the M+C plan's service area (in 
which the enrollee no longer resides).
* * * * *
    8. Section Sec. 422.60 is amended by:
    A. Revising paragraph (b)(1).
    B. Adding paragraph (b)(3).
    C. Revising paragraphs (e)(6), (f)(1), and (f)(3).


Sec. 422.60  Election process.

* * * * *
    (b) Capacity to accept new enrollees. (1) M+C organizations may 
submit information on enrollment capacity of plans they offer by July 1 
of each year as provided by Sec. 422.306(a)(1).
* * * * *
    (3) HCFA considers enrollment limit requests for an M+C plan 
service area, other than those submitted with the adjusted community 
rate proposal, or for a portion of the plan service area, only if the 
health and safety of beneficiaries is at risk, such as if the provider 
network is not available to serve the enrollees in all or a portion of 
the service area.
* * * * *
    (e) * * *
    (6) Upon receipt of the election form or from the date a vacancy 
occurs for an individual who was accepted for future enrollment, the 
M+C organization transmits, within the timeframes

[[Page 40317]]

specified by HCFA, the information necessary for HCFA to add the 
beneficiary to its records as an enrollee of the M+C organization.
    (f) * * *
    (1) In cases in which an M+C organization has both a Medicare 
contract and a contract with an employer group health plan, and in 
which the M+C organization arranges for the employer to process 
election forms for Medicare-entitled group members, who wish to enroll 
under the Medicare contract, the effective date of the election may be 
retroactive. Consistent with Sec. 422.250(b), payment adjustments based 
on a retroactive effective date may be made for up to a 90-day period.
* * * * *
    (3) Upon receipt of the election form from the employer, the M+C 
organization must submit the enrollment within timeframes specified by 
HCFA.

    9. Section 422.62 is amended by:
    A. Removing, in paragraph (a)(3), the phrase ``as provide under'' 
and adding in its place the phrase ``as provided under''.
    B. Revising paragraphs (a)(4)(i) and (a)(5)(i).
    C. Adding new paragraph (a)(6).
    D. Revising paragraph (b)(1).


Sec. 422.62  Election of coverage under an M+C plan.

    (a) * * *
    (4) * * *
    (i) Except as provided in paragraphs (a)(4)(ii), (a)(4)(iii), and 
(a)(6) of this section, an individual who is eligible to elect an M+C 
plan in 2002 may elect an M+C plan or change his or her election from 
an M+C plan to original Medicare or to a different M+C plan, or from 
original Medicare to an M+C plan, but only once during the first 6 
months of the year.
* * * * *
    (5) * * *
    (i) For 2003 and subsequent years, except as provided in paragraphs 
(a)(5)(ii), (a)(5)(iii), and (a)(6) of this section, an individual who 
is eligible to elect an M+C plan may elect an M+C plan, change his or 
her election from an M+C plan to original Medicare or to a different 
M+C plan, or from original Medicare to an M+C plan, but only once 
during the first 3 months of the year.
* * * * *
    (6) Open enrollment period for institutionalized individuals. After 
2001, an individual who is eligible to elect an M+C plan and who is 
institutionalized, as defined by HCFA, is not limited (except as 
provided for in paragraph (d) of this section for M+C MSA plans) in the 
number of elections or changes he or she may make. Subject to the M+C 
plan being open to enrollees as provided under Sec. 422.60(a)(2), an 
M+C eligible institutionalized individual may at any time elect an M+C 
plan or change his or her election from an M+C plan to original 
Medicare, to a different M+C plan, or from original Medicare to an M+C 
plan.
    (b) * * *
    (1) HCFA or the organization has terminated the organization's 
contract for the plan, discontinued the plan in the area in which the 
individual resides, or the organization has notified the individual of 
the impending termination of the plan, or the impending discontinuation 
of the plan in the area in which the individual resides.
* * * * *

    10. Section 422.64 is revised to read as follows:


Sec. 422.64  Information about the M+C program.

    Each M+C organization must provide, on an annual basis, and in a 
format and using standard terminology that may be specified by HCFA, 
the information necessary to enable HCFA to provide to current and 
potential beneficiaries the information they need to make informed 
decisions with respect to the available choices for Medicare coverage.

    11. Section Sec. 422.66 is amended by:
    A. Republishing the heading of paragraph (b) and the introductory 
text for paragraph (b)(3).
    B. Revising paragraphs (b)(3)(i), (d)(1), (d)(3), the introductory 
text for paragraph (e), and paragraphs (e)(2), and (f).


Sec. 422.66  Coordination of enrollment and disenrollment through M+C 
organizations.

* * * * *
    (b) Disenrollment--
* * * * *
    (3) Responsibilities of the M+C organization. The M+C organization 
must--
    (i) Submit a disenrollment notice to HCFA within timeframes 
specified by HCFA;
* * * * *
    (d) * * *
    (1) Basic rule. An M+C plan offered by an M+C organization must 
accept any individual (regardless of whether the individual has end-
stage renal disease) who is enrolled in a health plan offered by the 
M+C organization during the month immediately preceding the month in 
which he or she is entitled to both Part A and Part B, and who meets 
the eligibility requirements at Sec. 422.50.
* * * * *
    (3) Effective date of conversion. If an individual chooses to 
remain enrolled with the M+C organization as an M+C enrollee, the 
individual's conversion to an M+C enrollee is effective the month in 
which he or she is entitled to both Part A and Part B in accordance 
with the requirements in paragraph (d)(5) of this section.
* * * * *
    (e) Maintenance of enrollment. An individual who has made an 
election under this section is considered to have continued to have 
made that election until either of the following, which ever occurs 
first:
* * * * *
    (2) The elected M+C plan is discontinued or no longer serves the 
area in which the individual resides, the organization does not offer, 
or the individual does not elect, the option of continuing enrollment, 
as provided under either Sec. 422.54 or Sec. 422.74(b)(3)(ii).
    (f) Exception for employer group health plans. (1) In cases when an 
M+C organization has both a Medicare contract and a contract with an 
employer group health plan, and in which the M+C organization arranges 
for the employer to process election forms for Medicare-entitled group 
members who wish to disenroll from the Medicare contract, the effective 
date of the election may be retroactive. Consistent with 
Sec. 422.250(b), payment adjustments based on a retroactive effective 
date may be made for up to a 90-day period.
    (2) Upon receipt of the election form from the employer, the M+C 
organization must submit a disenrollment notice to HCFA within 
timeframes specified by HCFA.

    12. Revise Sec. 422.68(c) to read as follows:


Sec. 422.68  Effective dates of coverage and change of coverage.

* * * * *
    (c) Open enrollment periods. For an election, or change in 
election, made during an open enrollment period as described in 
Sec. 422.62(a)(3) through (a)(6), coverage is effective as of the first 
day of the first calendar month following the month in which the 
election is made, except that, if the election or change in election is 
made after the 10th day of any calendar month, then the election shall 
not take effect until the first day of the second calendar month 
following the date on which the election is made.
* * * * *
    13. Section 422.74 is amended by revising paragraphs (b)(2)(i), 
(b)(3), (c),

[[Page 40318]]

(d)(1), the heading of paragraph (d)(3), (d)(4), and (d)(7) to read as 
follows:


Sec. 422.74  Disenrollment by the M+C organization.

* * * * *
    (b) * * *
    (2) * * *
    (i) The individual no longer resides in the M+C plan's service area 
as specified under paragraph (d)(4) of this section, is no longer 
eligible under Sec. 422.50(a)(3)(ii), and optional continued enrollment 
has not been offered or elected under Sec. 422.54.
* * * * *
    (3) Plan termination or reduction of area where plan is available. 
(i) General rule. An M+C organization that has its contract for an M+C 
plan terminated, that terminates an M+C plan, or that discontinues 
offering the plan in any portion of the area where the plan had 
previously been available, must disenroll affected enrollees in 
accordance with the procedures for disenrollment set forth at paragraph 
(d)(7) of this section, unless the exception in paragraph (b)(3)(ii) of 
this section applies.
    (ii) Exception. When an M+C organization discontinues offering an 
M+C plan in a portion of its service area, the M+C organization may 
elect to offer enrollees residing in all or portions of the affected 
area the option to continue enrollment in an M+C plan offered by the 
organization, provided that there is no other M+C plan offered in the 
affected area at the time of the organization's election. The 
organization may require an enrollee who chooses to continue enrollment 
to agree to receive the full range of basic benefits (excluding 
emergency and urgently needed care) exclusively through facilities 
designated by the organization within the plan service area.
    (c) Notice requirement. If the disenrollment is for any of the 
reasons specified in paragraphs (b)(1), (b)(2)(i), or (b)(3) of this 
section (that is, other than death or loss of entitlement to Part A or 
Part B) the M+C organization must give the individual a written notice 
of the disenrollment with an explanation of why the M+C organization is 
planning to disenroll the individual. Notices for reasons specified in 
paragraphs (b)(1) through (b)(2)(i) must--
    (1) Be mailed to the individual before submission of the 
disenrollment notice to HCFA; and
    (2) Include an explanation of the individual's right to a hearing 
under the M+C organization's grievance procedures.
    (d) * * *
    (1) Monthly basic and supplementary premiums are not paid timely. 
An M+C organization may disenroll an individual from the M+C plan for 
failure to pay any basic and supplementary premiums under the following 
circumstances:
    (i) The M+C organization makes a reasonable effort to collect 
unpaid premium amounts by sending a written notice of nonpayment to the 
enrollee within 20 days after the date the delinquent charges were 
due--
    (A) Alerting the individual that the premiums are delinquent;
    (B) Providing the individual with an explanation of the 
disenrollment procedures and any lock-in requirements of the M+C plan; 
and
    (C) Advising that failure to pay the premiums within the 90-day 
grace period will result in termination of M+C coverage;
    (ii) The M+C organization only disenrolls a Medicare enrollee when 
the organization has not received payment within 90 days after the date 
it has sent the notice of nonpayment to the enrollee.
    (iii) The M+C organization gives the individual a written notice of 
disenrollment that meets the requirement set forth in paragraph (c) of 
this section.
    (iv) If the enrollee fails to pay the premium for optional 
supplemental benefits (that is, a package of benefits that an enrollee 
is not required to accept), but pays the basic premium and any 
mandatory supplemental premium, the M+C organization has the option to 
discontinue the optional supplemental benefits and retain the 
individual as an M+C enrollee.
* * * * *
    (3) Individual commits fraud or permits abuse of enrollment card. * 
* *
* * * * *
    (4) Individual no longer resides in the M+C plan's service area. 
(i) Basis for disenrollment. Unless continuation of enrollment is 
elected under Sec. 422.54, the M+C organization must disenroll an 
individual if the M+C organization establishes, on the basis of a 
written statement from the individual or other evidence acceptable to 
HCFA, that the individual has permanently moved out of a plan's service 
area. If the individual has not moved from the M+C plan's service area, 
but has left the plan's service area for more than 6 months, the M+C 
organization must disenroll the individual.
    (ii) Special rule. The M+C organization must disenroll an 
individual who is enrolled in the M+C plan, under the eligibility 
requirements at Sec. 422.50(a)(3)(ii) or (a)(4), if the organization 
establishes, on the basis of a written statement from the individual or 
other evidence acceptable to HCFA, that the individual has permanently 
moved from the residence in which she or he resided at the time of 
enrollment in the M+C plan, to an area outside the M+C plan service 
area (unless continuation of enrollment is elected under Sec. 422.54). 
If the individual has not permanently moved from the residence in which 
she or he resided at the time of enrollment in the M+C plan, but has 
left the residence for over 6 months, the M+C organization must 
disenroll the individual.
    (iii) Notice of disenrollment. The M+C organization must give the 
individual a written notice of the disenrollment that meets the 
requirements set forth in paragraph (c) of this section.
* * * * *
    (7) Plan termination or area reduction. (i) When an M+C 
organization has its contract for an M+C plan terminated, terminates an 
M+C plan, or discontinues offering the plan in any portion of the area 
where the plan had previously been available, the M+C organization must 
give each affected M+C plan enrollee a written notice of the effective 
date of the plan termination or area reduction and a description of 
alternatives for obtaining benefits under the M+C program.
    (ii) The notice must be sent before the effective date of the plan 
termination or area reduction, and in the timeframes specified in 
Sec. 422.506(a)(2).
* * * * *

    14. Section 422.80 is amended by:
    A. Republishing the introductory text in paragraph (b)(5).
    B. Revising paragraph (b)(5)(v).
    C. Republishing the introductory text in paragraph (c).
    D. Revising paragraph (c)(4).
    E. Adding new paragraphs (e)(1)(vi), (e)(1)(vii), and (e)(1)(viii).
    F. Revising paragraph (f).


Sec. 422.80  Approval of marketing materials and election forms.

* * * * *
    (b) *  *  *
    (5) Examples of marketing materials include, but are not limited 
to:
* * * * *
    (v) Membership communication materials such as membership rules, 
subscriber agreements (evidence of coverage), member handbooks and 
wallet card instructions to enrollees.
* * * * *
    (c) Guidelines for HCFA review. In reviewing marketing material or 
election

[[Page 40319]]

forms under paragraph (a) of this section, HCFA determines that the 
marketing materials:
* * * * *
    (4) Are not materially inaccurate or misleading or otherwise make 
material misrepresentations.
* * * * *
    (e) * * *
    (1) * * *
    (vi) Use providers or provider groups to distribute printed 
information comparing the benefits of different health plans unless the 
materials have the concurrence of all M+C organizations involved and 
have received prior approval by HCFA. Physicians or providers may 
distribute health plan brochures (exclusive of application forms) at a 
health fair or in their offices. Physicians may discuss, in response to 
an individual patient's inquiry, the various benefits in different 
health plans.
    (vii) Accept plan applications in provider offices or other places 
where health care is delivered.
    (viii) Employ M+C plan names that suggest that a plan is not 
available to all Medicare beneficiaries. This prohibition shall not 
apply to M+C plan names in effect on July 31, 2000.
* * * * *
    (f) Employer group retiree marketing. M+C organizations may develop 
marketing materials designed for members of an employer group who are 
eligible for employer-sponsored benefits through the M+C organization, 
and furnish these materials only to the group members. While the 
materials must be submitted for approval under paragraph (a) of this 
section, HCFA will not review portions of these materials that relate 
to employer group benefits.

    15. Revise Sec. 422.100 to read as follows:


Sec. 422.100  General requirements.

    (a) Basic rule. Subject to the conditions and limitations set forth 
in this subpart, an M+C organization offering an M+C plan must provide 
enrollees in that plan with coverage of the basic benefits described in 
paragraph (c) of this section (and, to the extent applicable, the 
benefits described in Sec. 422.102) by furnishing the benefits directly 
or through arrangements, or by paying for the benefits. HCFA reviews 
these benefits subject to the requirements of Sec. 422.100(g) and the 
requirements in subpart G of this part.
    (b) Services of noncontracting providers and suppliers. (1) An M+C 
organization must make timely and reasonable payment to or on behalf of 
the plan enrollee for the following services obtained from a provider 
or supplier that does not contract with the M+C organization to provide 
services covered by the M+C plan:
    (i) Ambulance services dispatched through 911 or its local 
equivalent as provided in Sec. 422.113.
    (ii) Emergency and urgently needed services as provided in 
Sec. 422.113.
    (iii) Maintenance and post-stabilization care services as provided 
in Sec. 422.113.
    (iv) Renal dialysis services provided while the enrollee was 
temporarily outside the plan's service area.
    (v) Services for which coverage has been denied by the M+C 
organization and found (upon appeal under subpart M of this part) to be 
services the enrollee was entitled to have furnished, or paid for, by 
the M+C organization.
    (2) An M+C plan (other than an M+C MSA plan) offered by an M+C 
organization satisfies paragraph (a) of this section with respect to 
benefits for services furnished by a noncontracting provider if that 
M+C plan provides payment in an amount the provider would have received 
under original Medicare (including balance billing permitted under 
Medicare Part A and Part B).
    (c) Types of benefits. An M+C plan includes at a minimum basic 
benefits, and also may include mandatory and optional supplemental 
benefits.
    (1) Basic benefits are all Medicare-covered services, except 
hospice services, and additional benefits as defined in Sec. 422.2 and 
meeting all requirements in Sec. 422.312.
    (2) Supplemental benefits, which consist of--
    (i) Mandatory supplemental benefits are services not covered by 
Medicare that an M+C enrollee must purchase as part of an M+C plan that 
are paid for in full, directly by (or on behalf of) Medicare enrollees, 
in the form of premiums or cost-sharing.
    (ii) Optional supplemental benefits are health services not covered 
by Medicare that are purchased at the option of the M+C enrollee and 
paid for in full, directly by (or on behalf of) the Medicare enrollee, 
in the form of premiums or cost-sharing. These services may be grouped 
or offered individually.
    (d) Availability and structure of plans. An M+C organization 
offering an M+C plan must offer it--
    (1) To all Medicare beneficiaries residing in the service area of 
the M+C plan;
    (2) At a uniform premium, with uniform benefits and cost-sharing 
throughout the plan's service area, or segment of service area as 
provided in Sec. 422.304(b)(2).
    (e) Terms of M+C plans. Terms of M+C plans described in 
instructions to beneficiaries, as required by Sec. 422.111, will 
include basic and supplemental benefits and terms of coverage for those 
benefits.
    (f) Multiple plans in one service area. An M+C organization may 
offer more than one M+C plan in the same service area subject to the 
conditions and limitations set forth in this subpart for each M+C plan.
    (g) HCFA review and approval of M+C benefits. HCFA reviews and 
approves M+C benefits using written policy guidelines and requirements 
in this part, operational policy letters, and other HCFA instructions 
to ensure that--
    (1) Medicare-covered services meet HCFA fee-for-service guidelines;
    (2) M+C organizations are not designing benefits to discriminate 
against beneficiaries; and
    (3) Benefit design meets other M+C program requirements.
    (h) Benefits affecting screening mammography, influenza vaccine, 
and pneumoccal vaccine. (1) Enrollees of M+C organizations may directly 
access (through self-referral) screening mammography and influenza 
vaccine.
    (2) M+C organizations may not impose cost-sharing for influenza 
vaccine and pneumococcal vaccine on their M+C plan enrollees.
    (i) Requirements relating to Medicare conditions of participation. 
Basic benefits must be furnished through providers meeting the 
requirements in Sec. 422.204(b)(3).
    (j) Provider networks. The M+C plans offered by an M+C organization 
may share a provider network as long as each M+C plan independently 
meets the access and availability standards described at Sec. 422.112, 
as determined by HCFA.

    16. Revise Sec. 422.101 to read as follows:


Sec. 422.101  Requirements relating to basic benefits.

    Except as specified in Sec. 422.264 (for entitlement that begins or 
ends during a hospital stay) and Sec. 422.266 (with respect to hospice 
care), each M+C organization must meet the following requirements:
    (a) Provide coverage of, by furnishing, arranging for, or making 
payment for, all services that are covered by Part A and Part B of 
Medicare (if the enrollee is entitled to benefits under both parts) or 
by Medicare Part B (if entitled only under Part B) and that are 
available to beneficiaries residing in the plan's

[[Page 40320]]

service area. Services may be provided outside of the service area of 
the plan if the services are accessible and available to enrollees.
    (b) Comply with--
    (1) HCFA's national coverage determinations;
    (2) General coverage guidelines included in original Medicare 
manuals and instructions unless superseded by operational policy 
letters or regulations in this part; and
    (3) Written coverage decisions of local carriers and intermediaries 
with jurisdiction for claims in the geographic area in which services 
are covered under the M+C plan.

    17. Revise Sec. 422.102 to read as follows:


Sec. 422.102  Supplemental benefits.

    (a) Mandatory supplemental benefits. (1) Subject to HCFA's 
approval, an M+C organization may require Medicare enrollees of an M+C 
plan other than an MSA plan to accept and pay for services in addition 
to Medicare-covered services described in Sec. 422.101 and additional 
benefits described in Sec. 422.312.
    (2) If the M+C organization imposes mandatory supplemental 
benefits, it must impose them on all Medicare beneficiaries enrolled in 
the M+C plan.
    (3) HCFA approves mandatory supplemental benefits if the benefits 
are designed in accordance with HCFA's guidelines and requirements as 
stated in this part and instructions and operational policy letters.
    (b) Optional supplemental benefits. Except as provided in 
Sec. 422.104 in the case of MSA plans, each M+C organization may offer 
(for election by the enrollee and without regard to health status) 
services that are not included in the basic benefits as described in 
Sec. 422.100(c) and any mandatory supplemental benefits described in 
paragraph (a) of this section. Optional supplemental benefits are 
purchased at the discretion of the enrollee and must be offered to all 
Medicare beneficiaries enrolled in the M+C plan.
    (c) Payment for supplemental services. All supplemental benefits 
are paid for in full, directly by (or on behalf of) the enrollee of the 
M+C plan.
    (d) Marketing of supplemental benefits. M+C organizations may offer 
enrollees a group of services as one optional supplemental benefit, 
offer services individually, or offer a combination of groups and 
individual services.

    18. Section 422.105 is amended by:
    A. Revising the introductory text for paragraph (a).
    B. Revising paragraph (f).


Sec. 422.105  Special rules for point of service option.

    (a) General rule. A POS benefit is an option that an M+C 
organization may offer in an M+C coordinated care plan or network M+C 
MSA plan to provide enrollees with additional choice in obtaining 
specified health care services. The organization may offer a POS 
option--
* * * * *
    (f) POS-related data. An M+C organization that offers a POS benefit 
through an M+C 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 HCFA.

    19. Revise Sec. 422.106 to read as follows:


Sec. 422.106  Coordination of benefits with employer group health plans 
and Medicaid.

    (a) General rule. If an M+C organization contracts with an employer 
group health plan (EGHP) that covers enrollees in an M+C plan, or 
contracts with a State Medicaid agency to provide Medicaid benefits to 
individuals who are eligible for both Medicare and Medicaid, and who 
are enrolled in an M+C plan, the enrollees must be provided the same 
benefits as all other enrollees in the M+C plan, with the EGHP or 
Medicaid benefits supplementing the M+C plan benefits. Jurisdiction 
regulating benefits under these circumstances is as follows:
    (1) All requirements of this part that apply to the M+C program 
apply to the M+C plan coverage provided to enrollees eligible for 
benefits under an EGHP or Medicaid contract.
    (2) Employer benefits that complement an M+C plan, and the 
marketing materials associated with the benefits, are not subject to 
review or approval by HCFA. M+C plan benefits provided to members of 
the EGHP, and the associated marketing materials, are subject to HCFA 
review and approval.
    (3) Medicaid benefits are not reviewed under this part, but are 
subject to appropriate HCFA review under the Medicaid program. M+C plan 
benefits provided to individuals entitled to Medicaid benefits provided 
by the M+C organization under a contract with the State Medicaid agency 
are subject to M+C rules and requirements.
    (b) Examples. Employer/Medicaid benefits, permissible EGHP or 
Medicaid plan benefits include the following:
    (1) Payment of a portion or all of the M+C basic and supplemental 
premiums.
    (2) Payment of a portion or all of other cost-sharing amounts 
approved for the M+C plan.
    (3) Other employer-sponsored benefits that may require additional 
premium and cost-sharing, or other benefits provided by the 
organization under a contract with the State Medicaid agency.

    20. Section 422.108 is amended by:
    A. Republishing the introductory text for paragraph (b).
    B. Revising paragraphs (b)(2), (c), the introductory text in 
paragraph (d), and paragraph (e).
    C. Adding a new paragraph (f).


Sec. 422.108  Medicare secondary payer (MSP) procedures.

* * * * *
    (b) Responsibilities of the M+C organization. The M+C organization 
must, for each M+C plan--
* * * * *
    (2) Identify the amounts payable by those payers; and * * * * *
* * * * *
    (c) Collecting from other entities. The M+C organization may bill, 
or authorize a provider to bill, other individuals or entities for 
covered Medicare services for which Medicare is not the primary payer, 
as specified in paragraphs (d) and (e) of this section.
    (d) Collecting from other insurers or the enrollee. If a Medicare 
enrollee receives from an M+C organization covered services that are 
also covered under State or Federal workers' compensation, any no-fault 
insurance, or any liability insurance policy or plan, including a self-
insured plan, the M+C organization may bill, or authorize a provider to 
bill any of the following--
* * * * *
    (e) Collecting from group health plans (GHPs) and large group 
health plans (LGHPs). An M+C organization may bill a GHP or LGHP for 
services it furnishes to a Medicare enrollee who is also covered under 
the GHP or LGHP and may bill the Medicare enrollee to the extent that 
he or she has been paid by the GHP or LGHP.
    (f) MSP rules and State laws. Consistent with Sec. 422.402 
concerning the Federal preemption of State law, the rules established 
under this section supersede any State laws, regulations, contract 
requirements, or other standards that would otherwise apply to M+C 
plans only to the extent that those State laws are inconsistent with 
the standards established under this part. A State cannot take away an 
M+C organization's right under Federal law and the MSP regulations to 
bill, or to authorize providers and suppliers to

[[Page 40321]]

bill, for services for which Medicare is not the primary payer. Section 
1852(a)(4) of the Social Security Act does not prohibit a State from 
limiting the amount of the recovery; thus, State law could modify, but 
not negate, an M+C organization's rights in this regard.

    21. In 422.109, the introductory text for paragraph (b) and 
paragraph (b)(5) are revised to read as follows:


Sec. 422.109  Effect of national coverage determinations (NCDs).

* * * * *
    (b) The M+C organization must furnish, arrange or pay for an NCD 
``significant cost'' service before the adjustment of the annual M+C 
capitation rate. The following rules apply to these services:
* * * * *
    (5) Beneficiaries are liable for any applicable coinsurance 
amounts, but are not responsible for the Part A deductible.
* * * * *

    22. Revise Sec. 422.110(c) to read as follows:


Sec. 422.110  Discrimination against beneficiaries prohibited.

* * * * *
    (c) Additional requirements. An M+C organization is required to 
observe the provisions of the Civil Rights Act, Age Discrimination Act, 
Rehabilitation Act of 1973, and Americans with Disabilities Act (see 
Sec. 422.502(h)).

    23. Section 422.111 is amended by:
    A. Revising the introductory text in paragraph (a).
    B. Revising paragraphs (b)(2)(i), (b)(4), and (b)(5)(i).
    C. Republishing the introductory text in paragraph (c) and revising 
paragraph (c)(1).
    D. Revising paragraph (e).
    E. Adding new paragraph (f).


Sec. 422.111  Disclosure requirements.

    (a) Detailed description. An M+C organization must disclose the 
information specified in paragraph (b) of this section--
* * * * *
    (b) * * *
    (2) * * *
    (i) The benefits offered under original Medicare, including the 
content specified in paragraph (f)(1) of this section;
* * * * *
    (4) Out-of-area coverage provided under the plan, including 
coverage provided to individuals eligible to enroll in the plan under 
Sec. 422.50(a)(3)(ii).
    (5) * * *
    (i) Explanation of what constitutes an emergency, referencing the 
definitions of emergency services and emergency medical condition at 
Sec. 422.113;
* * * * *
    (c) Disclosure upon request. Upon request of an individual eligible 
to elect an M+C plan, an M+C organization must provide to the 
individual the following information:
    (1) The information required paragraph (f) of this section.
* * * * *
    (e) Changes to provider network. The M+C organization must make a 
good faith effort to provide written notice of a termination of a 
contracted provider at least 30 calendar days before the termination 
effective date to all enrollees who are patients seen on a regular 
basis by the provider whose contracted is terminating, irrespective of 
whether the termination was for cause or without cause. When a contract 
termination involves a primary care professional, all enrollees who are 
patients of that primary care professional must be notified.
    (f) Disclosable information--(1) Benefits under original Medicare. 
(i) Covered services.
    (ii) Beneficiary cost-sharing, such as deductibles, coinsurance, 
and copayment amounts.
    (iii) Any beneficiary liability for balance billing.
    (2) Enrollment procedures. Information and instructions on how to 
exercise election options under this subpart.
    (3) Rights. A general description of procedural rights (including 
grievance and appeals procedures) under original Medicare and the M+C 
program and the right to be protected against discrimination based on 
factors related to health status in accordance with Sec. 422.110.
    (4) Medigap and Medicare Select. A general description of the 
benefits, enrollment rights, and requirements applicable to Medicare 
supplemental policies under section 1882 of the Act, and provisions 
relating to Medicare Select policies under section 1882(t) of the Act.
    (5) Potential for contract termination. The fact that an M+C 
organization may terminate or refuse to renew its contract, or reduce 
the service area included in its contract, and the effect that any of 
those actions may have on individuals enrolled in that organization's 
M+C plan.
    (6) Comparative information. A list of M+C plans that are or will 
be available to residents of the service area in the following calendar 
year, and, for each available plan, information on the aspects 
described in paragraphs (c)(7) through (c)(11) of this section, 
presented in a manner that facilitates comparison among the plans.
    (7) Benefits. (i) Covered services beyond those provided under 
original Medicare.
    (ii) Any beneficiary cost-sharing.
    (iii) Any maximum limitations on out-of-pocket expenses.
    (iv) In the case of an M+C MSA plan, the amount of the annual MSA 
deposit and the differences in cost-sharing, enrollee premiums, and 
balance billing, as compared to M+C plans.
    (v) In the case of an M+C private fee-for-service plan, differences 
in cost-sharing, enrollee premiums, and balance billing, as compared to 
M+C plans.
    (vi) The extent to which an enrollee may obtain benefits through 
out-of-network health care providers.
    (vii) The types of providers that participate in the plan's network 
and the extent to which an enrollee may select among those providers.
    (viii) The coverage of emergency and urgently needed services.
    (8) Premiums. (i) The M+C monthly basic beneficiary premiums.
    (ii) The M+C monthly supplemental beneficiary premium.
    (9) The plan's service area.
    (10) Quality and performance indicators for benefits under a plan 
to the extent they are available as follows (and how they compare with 
indicators under original Medicare):
    (i) Disenrollment rates for Medicare enrollees for the 2 previous 
years, excluding disenrollment due to death or moving outside the 
plan's service area, calculated according to HCFA guidelines.
    (ii) Medicare enrollee satisfaction.
    (iii) Health outcomes.
    (iv) Plan-level appeal data.
    (v) The recent record of plan compliance with the requirements of 
this part, as determined by the Secretary.
    (vi) Other performance indicators.
    (11) Supplemental benefits. Whether the plan offers mandatory 
supplemental benefits or offers optional supplemental benefits and the 
premiums and other terms and conditions for those benefits.

    24. Section 422.112 is amended by:
    A. Republishing the introductory text to paragraph (a).
    B. Revising paragraphs (a)(2), (a)(3) and (a)(9).
    C. Adding new paragraph (a)(10).
    D. Removing paragraph (c).


Sec. 422.112  Access to services.

    (a) Rules for coordinated care plans and network M+C MSA plans. An 
M+C

[[Page 40322]]

organization that offers an M+C coordinated care plan or network M+C 
MSA plan may specify the networks of providers from whom enrollees may 
obtain services if the M+C organization ensures that all covered 
services, including additional or supplemental services contracted for 
by (or on behalf of) the Medicare enrollee, are available and 
accessible under the plan. To accomplish this, the M+C organization 
must meet the following requirements:
* * * * *
    (2) PCP panel. Establish a panel of PCPs from which the enrollee 
may select a PCP. If an M+C organization requires its enrollees to 
obtain a referral in most situations before receiving services from a 
specialist, the M+C organization must either assign a PCP for purposes 
of making the needed referral or make other arrangements to ensure 
access to medically necessary specialty care.
    (3) Specialty care. Provide or arrange for necessary specialty 
care, and in particular give women enrollees the option of direct 
access to a women's health specialist within the network for women's 
routine and preventive health care services provided as basic benefits 
(as defined in Sec. 422.2). The M+C organization arranges for specialty 
care outside of the plan provider network when network providers are 
unavailable or inadequate to meet an enrollee's medical needs.
* * * * *
    (9) Cultural considerations. Ensure that services are provided in a 
culturally competent manner to all enrollees, including those with 
limited English proficiency or reading skills, and diverse cultural and 
ethnic backgrounds.
    (10) Ambulance services, emergency and urgently needed services, 
and post-stabilization care services coverage. Provide coverage for 
ambulance services, emergency and urgently needed services, and post-
stabilization care services in accordance with Sec. 422.113.
* * * * *

    25. Add new Sec. 422.113 to read as follows:


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

    (a) Ambulance services. The M+C organization is financially 
responsible for ambulance services, including ambulance services 
dispatched through 911 or its local equivalent, where other means of 
transportation would endanger the beneficiary's health.
    (b) Emergency and urgently needed services. (1) Definitions.
    (i) Emergency medical condition means a medical condition 
manifesting itself by acute symptoms of sufficient severity (including 
severe pain) such that a prudent layperson, with an average knowledge 
of health and medicine, could reasonably expect the absence of 
immediate medical attention to result in--
    (A) Serious jeopardy to the health of the individual or, in the 
case of a pregnant woman, the health of the woman or her unborn child;
    (B) Serious impairment to bodily functions; or
    (C) Serious dysfunction of any bodily organ or part.
    (ii) Emergency services means covered inpatient and outpatient 
services that are--
    (A) Furnished by a provider qualified to furnish emergency 
services; and
    (B) Needed to evaluate or stabilize an emergency medical condition.
    (iii) Urgently needed services means covered services that are not 
emergency services as defined this section, provided when an enrollee 
is temporarily absent from the M+C plan's service (or, if applicable, 
continuation) area (or, under unusual and extraordinary circumstances, 
provided when the enrollee is in the service or continuation area but 
the organization's provider network is temporarily unavailable or 
inaccessible) when the services are medically necessary and immediately 
required--
    (A) As a result of an unforeseen illness, injury, or condition; and
    (B) It was not reasonable given the circumstances to obtain the 
services through the organization offering the M+C plan.
    (2) M+C organization financial responsibility. The M+C organization 
is financially responsible for emergency and urgently needed services--
    (i) Regardless of whether the services are obtained within or 
outside the M+C organization;
    (ii) Regardless of whether there is prior authorization for the 
services.
    (A) Instructions to seek prior authorization for emergency or 
urgently needed services may not be included in any materials furnished 
to enrollees (including wallet card instructions), and enrollees must 
be informed of their right to call 911.
    (B) Instruction to seek prior authorization before the enrollee has 
been stabilized may not be included in any materials furnished to 
providers (including contracts with providers);
    (iii) In accordance with the prudent layperson definition of 
emergency medical condition regardless of final diagnosis;
    (iv) For which a plan provider or other M+C organization 
representative instructs an enrollee to seek emergency services within 
or outside the plan; and
    (v) With a limit on charges to enrollees for emergency services of 
$50 or what it would charge the enrollee if he or she obtained the 
services through the M+C organization, whichever is less.
    (3) Stabilized condition. The physician treating the enrollee must 
decide when the enrollee may be considered stabilized for transfer or 
discharge, and that decision is binding on the M+C organization.
    (c) Maintenance care and post-stabilization care services 
(hereafter together referred to as ``post-stabilization care 
services'').
    (1) Definition. Post-stabilization care services means covered 
services, related to an emergency medical condition, that are provided 
after an enrollee is stabilized in order to maintain the stabilized 
condition, or, under the circumstances described in paragraph 
(c)(2)(iii) of this section, to improve or resolve the enrollee's 
condition.
    (2) M+C organization financial responsibility. The M+C 
organization--
    (i) Is financially responsible (consistent with Sec. 422.214) for 
post-stabilization care services obtained within or outside the M+C 
organization that are pre-approved by a plan provider or other M+C 
organization representative;
    (ii) Is financially responsible for post-stabilization care 
services obtained within or outside the M+C organization that are not 
pre-approved by a plan provider or other M+C organization 
representative, but administered to maintain the enrollee's stabilized 
condition within 1 hour of a request to the M+C organization for pre-
approval of further post-stabilization care services;
    (iii) Is financially responsible for post-stabilization care 
services obtained within or outside the M+C organization that are not 
pre-approved by a plan provider or other M+C organization 
representative, but administered to maintain, improve, or resolve the 
enrollee's stabilized condition if--
    (A) The M+C organization does not respond to a request for pre-
approval within 1 hour;
    (B) The M+C organization cannot be contacted; or
    (C) The M+C organization representative and the treating physician 
cannot reach an agreement concerning the enrollee's care and a plan 
physician is not available for consultation. In this situation, the M+C

[[Page 40323]]

organization must give the treating physician the opportunity to 
consult with a plan physician and the treating physician may continue 
with care of the patient until a plan physician is reached or one of 
the criteria in Sec. 422.113(c)(3) is met; and
    (iv) Must limit charges to enrollees for post-stabilization care 
services to an amount no greater than what the organization would 
charge the enrollee if he or she had obtained the services through the 
M+C organization.
    (3) End of M+C organization's financial responsibility. The M+C 
organization's financial responsibility for post-stabilization care 
services it has not pre-approved ends when--
    (i) A plan physician with privileges at the treating hospital 
assumes responsibility for the enrollee's care;
    (ii) A plan physician assumes responsibility for the enrollee's 
care through transfer;
    (iii) An M+C organization representative and the treating physician 
reach an agreement concerning the enrollee's care; or
    (iv) The enrollee is discharged.

    26. Revise Sec. 422.118 to read as follows:


Sec. 422.118  Confidentiality and accuracy of enrollee records.

    For any medical records or other health and enrollment information 
it maintains with respect to enrollees, an M+C organization must 
establish procedures to do the following:
    (a) Abide by all Federal and State laws regarding confidentiality 
and disclosure of medical records, or other health and enrollment 
information. The M+C organization must safeguard the privacy of any 
information that identifies a particular enrollee and have procedures 
that specify--
    (1) For what purposes the information will be used within the 
organization; and
    (2) To whom and for what purposes it will disclose the information 
outside the organization.
    (b) Ensure that medical information is released only in accordance 
with applicable Federal or State law, or pursuant to court orders or 
subpoenas.
    (c) Maintain the records and information in an accurate and timely 
manner.
    (d) Ensure timely access by enrollees to the records and 
information that pertain to them.

    27. Section 422.152 is amended by:
    A. Revising the heading and introductory text for paragraph (b).
    B. Revising the heading and introductory text for paragraph (e).
    C. Revising paragraph (e)(1).
    D. Republishing the heading of paragraph (f).
    E. Adding new paragraph (f)(3).


Sec. 422.152  Quality assessment and performance improvement program.

* * * * *
    (b) Requirements for network M+C MSA plans and M+C coordinated care 
plans other than PPO plans. An organization offering a network M+C MSA 
plan or M+C coordinated care plan other than a PPO plan must do the 
following:
* * * * *
    (e) Requirements for M+C PPO plans, non-network MSA plans, and M+C 
private fee-for-service plans. An organization offering an M+C plan, 
non-network MSA plan, or private fee-for-service plan must do the 
following:
    (1) Measure performance under the plan using standard measures 
required by HCFA and report its performance to HCFA. The standard 
measures may be specified in uniform data collection and reporting 
instruments required by HCFA and will relate to--
    (i) Clinical areas including effectiveness of care, enrollee 
perception of care, and use of services; and
    (ii) Nonclinical areas including access to and availability of 
services, appeals and grievances, and organizational characteristics.
* * * * *
    (f) Requirements for all types of plans-- 
* * * * *
    (3) Remedial action. For each plan, the organization must correct 
all problems that come to its attention through internal surveillance, 
complaints, or other mechanisms.

    28. In Sec. 422.154, the introductory text for paragraph (b) is 
republished, and paragraph (b)(2) is revised to read as follows:


Sec. 422.154  External review.

* * * * *
    (b) Terms of the agreement. The agreement must be consistent with 
HCFA guidelines and include the following provisions:
* * * * *
    (2) Except in the case of complaints about quality, exclude review 
activities that HCFA determines would duplicate review activities 
conducted as part of an approved accreditation process or as part of 
HCFA monitoring.
* * * * *

    29. Revise paragraphs (a) and (b) in Sec. 422.156 to read as 
follows:


Sec. 422.156  Compliance deemed on the basis of accreditation.

    (a) General rule. An M+C organization is deemed to meet all of the 
requirements of any of the areas described in paragraph (b) of this 
section if--
    (1) The M+C organization is fully accredited (and periodically 
reaccredited) for the standards related to the applicable area under 
paragraph (b) of this section by a private, national accreditation 
organization approved by HCFA; and
    (2) The accreditation organization used the standards approved by 
HCFA for the purposes of assessing the M+C organization's compliance 
with Medicare requirements.
    (b) Deemable requirements. The requirements relating to the 
following areas are deemable:
    (1) Quality assurance.
    (2) Antidiscrimination.
    (3) Access to services.
    (4) Confidentiality and accuracy of enrollee records.
    (5) Information on advance directives.
    (6) Provider participation rules.
* * * * *

    30. Section 422.157 is amended by republishing the introductory 
text for paragraph (a) and revising paragraphs (a)(3) and (b)(1) to 
read as follows:


Sec. 422.157  Accreditation organizations.

    (a) Conditions for approval. HCFA may approve an accreditation 
organization with respect to a given standard under this part if it 
meets the following conditions:
* * * * *
    (3) It ensures that:
    (i) Any individual associated with it, who is also associated with 
an entity it accredits, does not influence the accreditation decision 
concerning that entity.
    (ii) The majority of the membership of its governing body is not 
comprised of managed care organizations or their representatives.
    (iii) Its governing body has a broad and balanced representation of 
interests and acts without bias.
* * * * *
    (b) Notice and comment--(1) Proposed notice. HCFA publishes a 
notice in the Federal Register whenever it is considering granting an 
accreditation organization's application for approval. The notice--
    (i) Announces HCFA's receipt of the accreditation organization's 
application for approval;
    (ii) Describes the criteria HCFA will use in evaluating the 
application; and

[[Page 40324]]

    (iii) Provides at least a 30-day comment period.
* * * * *

    31. Revise the introductory text of Sec. 422.158(e) to read as 
follows:


Sec. 422.158  Procedures for approval of accreditation as basis for 
deeming compliance.

* * * * *
    (e) Notice of determination. HCFA gives the accreditation 
organization, within 210 days of receipt of its completed application, 
a formal notice that--
* * * * *

    32. Section 422.202 is amended by:
    A. Revising the introductory text of paragraph (b).
    B. Adding a heading to paragraph (c).
    C. Adding a new paragraph (d)


Sec. 422.202  Participation procedures.

* * * * *
    (b) Consultation. The M+C organization must establish a formal 
mechanism to consult with the physicians who have agreed to provide 
services under the M+C plan offered by the organization, regarding the 
organization's medical policy, quality assurance programs and medical 
management procedures and ensure that the following standards are met:
* * * * *
    (c) Subcontracted groups. * * *
* * * * *
    (d) Suspension or termination of contract. An M+C organization that 
operates a coordinated care plan or network MSA plan providing benefits 
through contracting providers must meet the following requirements:
    (1) Notice to physician. An M+C organization that suspends or 
terminates an agreement under which the physician provides services to 
M+C plan enrollees must give the affected individual written notice of 
the following:
    (i) The reasons for the action, including, if relevant, the 
standards and profiling data used to evaluate the physician and the 
numbers and mix of physicians needed by the M+C organization.
    (ii) The affected physician's right to appeal the action and the 
process and timing for requesting a hearing.
    (2) Composition of hearing panel. The M+C organization must ensure 
that the majority of the hearing panel members are peers of the 
affected physician.
    (3) Notice to licensing or disciplinary bodies. An M+C organization 
that suspends or terminates a contract with a physician because of 
deficiencies in the quality of care must give written notice of that 
action to licensing or disciplinary bodies or to other appropriate 
authorities.
    (4) Timeframes. An M+C organization and a contracting provider must 
provide at least 60 days written notice to each other before 
terminating the contract without cause.

    33. Revise Sec. 422.204 to read as follows:


Sec. 422.204  Provider selection and credentialing.

    (a) General rule. An M+C organization must have written policies 
and procedures for the selection and evaluation of providers. These 
policies must conform with the credential and recredentialing 
requirements set forth in paragraph (b) of this section and with the 
antidiscrimination provisions set forth in Sec. 422.205.
    (b) Basic requirements. An M+C organization must follow a 
documented process with respect to providers and suppliers who have 
signed contracts or participation agreements that--
    (1) For providers (other than physicians and other health care 
professionals) requires determination, and redetermination at specified 
intervals, that each provider is--
    (i) Licensed to operate in the State, and in compliance with any 
other applicable State or Federal requirements; and
    (ii) Reviewed and approved by an accrediting body, or meets the 
standards established by the organization itself;
    (2) For physicians and other health care professionals, including 
members of physician groups, covers--
    (i) Initial credentialing that includes written application, 
verification of licensure or certification from primary sources, 
disciplinary status, eligibility for payment under Medicare, and site 
visits as appropriate. The application must be signed and dated and 
include an attestation by the applicant of the correctness and 
completeness of the application and other information submitted in 
support of the application;
    (ii) Recredentialing at least every 2 years that updates 
information obtained during initial credentialing and considers 
performance indicators such as those collected through quality 
assurance programs, utilization management systems, handling of 
grievances and appeals, enrollee satisfaction surveys, and other plan 
activities, and that includes an attestation of the correctness and 
completeness of the new information; and
    (iii) A process for consulting with contracting health care 
professionals with respect to criteria for credentialing and 
recredentialing.
    (3) Specifies that basic benefits must be provided through, or 
payments must be made to, providers and suppliers that meet applicable 
requirements of title XVIII and part A of title XI of the Act. In the 
case of providers meeting the definition of ``provider of services'' in 
section 1861(u) of the Act, basic benefits may only be provided through 
these providers if they have a provider agreement with HCFA permitting 
them to provide services under original Medicare.
    (4) Ensures compliance with the requirements at Sec. 422.752(a)(8) 
that prohibit employment or contracts with individuals (or with an 
entity that employs or contracts with such an individual) excluded from 
participation under Medicare and with the requirements at Sec. 422.220 
regarding physicians and practitioners who opt out of Medicare.

    34. Add Sec. 422.205 to read as follows:


Sec. 422.205  Provider antidiscrimination rules.

    (a) General rule. Consistent with the requirements of this section, 
the policies and procedures concerning provider selection and 
credentialing established under Sec. 422.204, and with the requirement 
under Sec. 422.100(c) that all Medicare-covered services be available 
to M+C plan enrollees, an M+C organization may select the practitioners 
that participate in its plan provider networks. In selecting these 
practitioners, an M+C organization may not discriminate, in terms of 
participation, reimbursement, or indemnification, against any health 
care professional who is acting within the scope of his or her license 
or certification under State law, solely on the basis of the license or 
certification. If an M+C organization declines to include a given 
provider or group of providers in its network, it must furnish written 
notice to the effected provider(s) of the reason for the decision.
    (b) Construction. The prohibition in paragraph (a)(1) of this 
section does not preclude any of the following by the M+C organization:
    (1) Refusal to grant participation to health care professionals in 
excess of the number necessary to meet the needs of the plan's 
enrollees (except for M+C private-fee-for-service plans, which may not 
refuse to contract on this basis).
    (2) Use of different reimbursement amounts for different 
specialties or for different practitioners in the same specialty.
    (3) Implementation of measures designed to maintain quality and

[[Page 40325]]

control costs consistent with its responsibilities.

    35. In Sec. 422.206, the heading for paragraph (b) is republished 
and paragraph (b)(2) is revised to read as follows:


Sec. 422.206  Interference with health care professionals' advice to 
enrollees prohibited.

* * * * *
    (b) Conscience protection. * * *
    (2) Through appropriate written means, makes available information 
on these policies as follows:
    (i) To HCFA, with its application for a Medicare contract, within 
10 days of submitting its ACR proposal or, for policy changes, in 
accordance with Sec. 422.80 (concerning approval of marketing materials 
and election forms) and with Sec. 422.111.
    (ii) To prospective enrollees, before or during enrollment.
    (iii) With respect to current enrollees, the organization is 
eligible for the exception provided in paragraph (b)(1) of this section 
if it provides notice of such change within 90 days after adopting the 
policy at issue; however, under Sec. 422.111(d), notice of such a 
change must be given in advance.
* * * * *

    36. Section 422.208 is amended by:
    A. Republishing the introductory text for paragraph (c).
    B. Revising paragraph (c)(2).
    C. Adding a heading to paragraph (e).


Sec. 422.208  Physician incentive plans: requirements and limitations.

* * * * *
    (c) Basic requirements. Any physician incentive plan operated by an 
M+C organization must meet the following requirements:
* * * * *
    (2) If the physician incentive plan places a physician or physician 
group at substantial financial risk (as determined under paragraph (d) 
of this section) for services that the physician or physician group 
does not furnish itself, the M+C organization must assure that all 
physicians and physician groups at substantial financial risk have 
either aggregate or per-patient stop-loss protection in accordance with 
paragraph (f) of this section, and conduct periodic surveys in 
accordance with paragraph (h) of this section.
* * * * *
    (e) Prohibition for private M+C fee-for-service plans. * * *
* * * * *

    37. In Sec. 422.214, the heading for paragraph (a) is republished 
and paragraphs (a)(1) and (b) are revised to read as follows:


Sec. 422.214  Special rules for services furnished by noncontract 
providers.

    (a) Services furnished by non-section 1861(u) providers. (1) Any 
provider (other than a provider of services as defined in section 
1861(u) of the Act) that does not have in effect a contract 
establishing payment amounts for services furnished to a beneficiary 
enrolled in an M+C coordinated care plan or M+C private fee-for-service 
plan must accept, as payment in full, the amounts that the provider 
could collect if the beneficiary were enrolled in original Medicare.
* * * * *
    (b) Services furnished by section 1861(u) providers of service. Any 
provider of services as defined in section 1861(u) of the Act that does 
not have in effect a contract establishing payment amounts for services 
furnished to a beneficiary enrolled in an M+C coordinated care plan or 
M+C private fee-for-service plan must accept as payment in full the 
amounts (less any payments under Secs. 412.105(g) and 413.86(d)) of 
this chapter that it could collect if the beneficiary were enrolled in 
original Medicare. (Section 412.105(g) concerns indirect medical 
education payment to hospitals for managed care enrollees. Section 
413.86(d) concerns calculating payment for direct graduate medical 
education costs.)

    38. In Sec. 422.216, paragraphs (a)(4), (b)(2), (c)(2), and the 
introductory text for paragraph (f) are revised to read as follows:


Sec. 422.216  Special rules for M+C private fee-for-service plans.

    (a) * * *
    (4) Service furnished by providers of service. Any provider of 
services as defined in section 1861(u) of the Act that does not have in 
effect a contract establishing payment mounts for services furnished to 
a beneficiary enrolled in an M+C private fee-for-service plan must 
accept as payment in full the amounts (less any payments under 
Secs. 412.105(g) and 413.86(d) of this chapter) that it could collect 
if the beneficiary were enrolled in original Medicare.
    (b) * * *
    (2) Noncontract providers. A noncontract provider may not collect 
from an enrollee more than the cost-sharing established by the M+C 
private fee-for-service plan as specified in Sec. 422.308(b), unless 
the provider has opted out of Medicare as described in part 405, 
subpart D of this chapter.
    (c) * * *
    (2) Noncontract providers. An M+C organization that offers an M+C 
private fee-for-service plan must monitor the amount collected by 
noncontract providers to ensure that those amounts do not exceed the 
amounts permitted to be collected under paragraph (b)(2) of this 
section, unless the provider has opted out of Medicare as described in 
part 405, subpart D of this chapter. The M+C organization must develop 
and document violations specified in instructions and must forward 
documented cases to HCFA.
* * * * *
    (f) Rules describing deemed contract providers. Any provider 
furnishing health services, except for emergency services furnished in 
a hospital pursuant to Sec. 489.24 of this chapter, to an enrollee in 
an M+C private fee-for-service plan, and who has not previously entered 
into a contract or agreement to furnish services under the plan, is 
treated as having a contract in effect and is subject to the 
limitations of this section that apply to contract providers if the 
following conditions are met:
* * * * *

    39. Section 422.250 is amended by:
    A. In paragraph (a)(1), removing the phrase ``in paragraph (a)(2)'' 
and adding in its place the phrase ``in paragraphs (a)(2) or (f)''.
    B. Revising paragraph (a)(2)(i)(B).
    C. Adding new paragraph (g).


Sec. 422.250  General provisions.

    (a) * * *
    (2) * * *
    (i) * * *
    (B) HCFA reduces the payment rate for each renal dialysis treatment 
by the same amount that the Secretary is authorized to reduce the 
amount of each composite rate payment for each treatment as set forth 
in section 1881(b)(7) of the Act. These funds are to be used to help 
pay for the ESRD network program in the same manner as similar 
reductions are used in original Medicare.
* * * * *
    (g) Bonus payments. (1) HCFA provides bonus payments to the M+C 
organization(s) that first offers a plan in a previously unserved 
county on or after January 1, 2000 and no later than December 31, 2001. 
The bonus payment amounts equal--
    (i) For the first 12 months after a plan is offered in a previously 
unserved county, 5 percent of the monthly capitation rate otherwise 
payable under this section; and
    (ii) For the subsequent 12 months, 3 percent of the monthly 
capitation rate otherwise payable under this section.
    (2) A previously unserved county is defined as--

[[Page 40326]]

    (i) A county in which no M+C plan has been offered; or
    (ii) A county in which an M+C plan or plans has been offered, but 
where any M+C organization offering an M+C plan notified HCFA by 
October 13, 1999, that it will no longer offer plans in the county as 
of January 1, 2000.
    (3) A plan is considered to be offered when--
    (i) The M+C organization sponsoring the plan has a contract in 
effect to serve beneficiaries in the previously unserved area; and
    (ii) The M+C plan is open for enrollment.

    40. Revise Sec. 422.254(b)(2) to read as follows:


Sec. 422.254  Calculation and adjustment factors.

* * * * *
    (b) * * *
    (2) The percentage points that HCFA uses to reduce its estimates 
are as follows:
    (i) For 1998, 0.8 percentage points.
    (ii) For years 1999 through 2001, 0.5 percentage points.
    (iii) For 2002, 0.3 percentage points.
    (iv) For years after 2002, 0 percentage points.
* * * * *

    41. In Sec. 422.257, revise paragraph (d) and add paragraph (g) to 
read as follows:


Sec. 422.257  Encounter data.

* * * * *
    (d) Other data requirements. (1) M+C organizations must submit data 
that conform to the requirements for equivalent data for Medicare fee-
for-service when appropriate, and to all relevant national standards.
    (2) The data must be submitted electronically to the appropriate 
HCFA contractor.
    (3) M+C organizations must obtain the encounter data required by 
HCFA from the provider, supplier, physician, or other practitioner that 
rendered the services.
    (4) M+C organizations may include in their contracts with 
providers, suppliers, physicians, and other practitioners, provisions 
that require submission of complete and accurate encounter data as 
required by HCFA. These provisions may include financial penalties for 
failure to submit complete data, or for failure to submit data that 
conform to the requirements for equivalent data for Medicare fee-for-
service.
* * * * *
    (g) Deadlines for submission of encounter data. Risk adjustment 
factors for each payment year are based on encounter data submitted for 
services furnished during the 12 month period ending 6 months before to 
the payment year (for example, risk adjustment factors for CY 2000 are 
based on data for services furnished during the period July 1, 1998 
through June 30, 1999).
    (1) The annual deadline for encounter data submission is September 
10 for encounter data reflecting services furnished during the 12 month 
period ending the prior June 30 (for example, the deadline for 
submission of data for the period July 1, 1998 through June 30, 1999 is 
September 10, 1999).
    (2) HCFA allows a reconciliation process to account for late data 
submissions. HCFA continues to accept encounter data submitted after 
the September 10 deadline until June 30 of the payment year (for 
example, until June 30, 2000 for data from the period July 1, 1998 
through June 30, 1999). After the payment year is completed, HCFA 
recalculates the risk factors for affected individuals to determine if 
adjustments to payments are necessary.

    42. Revise Sec. 422.300(b)(2) to read as follows:


Sec. 422.300  Basis and scope.

* * * * *
    (b) * * *
    (2) For contracts beginning on a date other than January 1 
(according to Sec. 422.504(d)), M+C organizations may submit ACRs on a 
date other than July 1 approved by HCFA.

    43. Revise Sec. 422.304(b) to read as follows:


Sec. 422.304  Rules governing premiums and cost-sharing.

* * * * *
    (b) Uniformity. (1) General rule. The M+C monthly basic beneficiary 
premium, the M+C monthly supplemental beneficiary premiums, and the M+C 
monthly MSA premium of an M+C organization may not vary among 
individuals enrolled in an M+C plan (or segment of the plan as provided 
under paragraph (b)(2) of this section). In addition, the M+C 
organization may not vary the level of cost-sharing charged for basic 
benefits or supplemental benefits (if any), among individuals enrolled 
in an M+C plan (or segment of the plan as provided under paragraph 
(b)(2) of this section).
    (2) Segmented service area option. An M+C organization may apply 
the uniformity requirements in paragraph (b)(1) of this section to 
segments of an M+C plan service area (rather than to the entire service 
area) as long as any such segment is composed of one or more M+C 
payment areas, and the information specified under Sec. 422.306 is 
submitted separately, as provided in that section, for each such 
segment.
* * * * *

    44. Revise the introductory text in Sec. 422.306(a)(1) to read as 
follows:


Sec. 422.306  Submission of proposed premiums and related information.

    (a) General rule. (1) Not later than July 1 of each year, each M+C 
organization and any organization intending to contract as an M+C 
organization in the subsequent year must submit to HCFA, in the manner 
and form prescribed by HCFA, for each M+C plan (or service area 
segment, under Sec. 422.304(b)(2)) it intends to offer in the following 
year--
* * * * *

    45. Section 422.310 is amended by:
    A. In the introductory text for paragraph (d), removing the phrase 
``paragraphs (a)(1) and (a)(2) of this section'' and adding in its 
place the phrase ``paragraphs (d)(1) and (d)(2) of this section''.
    B. Revising paragraph (c)(3).


Sec. 422.310  Adjusted community rate (ACR) approval process.

* * * * *
    (c) * * *
    (3) Additional revenues. The relative cost ratio for total revenues 
for an M+C plan is determined by comparing the total revenues charged 
on an accrual basis during the most recently ended calendar year prior 
to submission of the ACR for Medicare enrollees (including payments 
from HCFA without any needed offsets or reductions, such as, those 
required by Sec. 422.250(a)(2)(i)(B) for ESRD enrollees) that elected 
the M+C plan to the total revenues charged for non-Medicare enrollees 
over the same period. The non-Medicare enrollees included in this 
computation must be consistent with the non-Medicare enrollees included 
in the initial rate computation. When the relative cost ratio for total 
revenues is applied to the total initial rate, the value of additional 
revenues is the remaining value after removing the value of direct 
medical costs (as adjusted by paragraph (c)(1) of this section) and the 
value of Administration (as adjusted by paragraph (c)(2) of this 
section).

    46. In Sec. 422.312, the introductory text for paragraph (b) is 
republished and paragraph (b)(1) is revised to read as follows:


Sec. 422.312  Requirement for additional benefits.

* * * * *
    (b) Requirement for additional benefits. If there is an adjusted 
excess amount for the plan it offers, the M+C organization must--

[[Page 40327]]

    (1) Provide additional benefits with an actuarial value (less the 
actuarial value of any cost-sharing associated with the benefit) which 
HCFA determines is at least equal to the adjusted excess amount; and
* * * * *

    47-50. In Sec. 422.352, the introductory text for paragraph (a) is 
republished and paragraph (a)(1) is revised to read as follows:


Sec. 422.352  Basic requirements.

    (a) General rule. An organization is considered a PSO for purposes 
of an M+C contract if the organization--
    (1) Has obtained a waiver of State licensure as provided for under 
Sec. 422.370;
* * * * *

    51. Section 422.500 is amended by:
    A. Revising the definition of ``clean claim.''
    B. Adding definitions for ``downstream entity'' and ``first tier 
entity.''


Sec. 422.500  Definitions.

* * * * *
    Clean claim means--
    (1) A claim that has no defect, impropriety, lack of any required 
substantiating documentation (consistent with Sec. 422.257(d)) or 
particular circumstance requiring special treatment that prevents 
timely payment; and
    (2) A claim that otherwise conforms to the clean claim requirements 
for equivalent claims under original Medicare.
    Downstream entity means any party that enters into an acceptable 
written arrangement below the level of the arrangement between an M+C 
organization (or contract applicant) and a first tier entity. These 
written arrangements continue down to the level of the ultimate 
provider of both health and administrative services.
    First tier entity means any party that enters into an acceptable 
written arrangement with an M+C organization or contract applicant to 
provide administrative services or health care services for a Medicare 
eligible individual.
* * * * *

    52. Section 422.501 is amended by:
    A. Republishing the introductory text in paragraphs (b), (b)(3), 
and (b)(3)(vi).
    B. Revising paragraphs (b)(3)(vi)(G) and (b)(5).
    C. Removing paragraph (b)(3)(vi)(H).
    D. Republishing the introductory text in (d)(2) and (d)(2)(iii).
    E. Revising paragraph (d)(2)(iii)(A).


Sec. 422.501  General provisions.

* * * * *
    (b) Conditions necessary to contract as an M+C organization. Any 
entity seeking to contract as an M+C organization must:
* * * * *
    (3) Have administrative and management arrangements satisfactory to 
HCFA, as demonstrated by at least the following:
* * * * *
    (vi) A compliance plan that consists of the following:
* * * * *
    (G) Procedures for ensuring prompt response to detected offenses 
and development of corrective action initiatives relating to the 
organization's M+C contract.
* * * * *
    (5) The M+C organization's contract must not have been terminated 
by HCFA under Sec. 422.510 within the past 2 years unless--
    (i) During the 6-month period beginning on the date the 
organization notified HCFA of the intention to terminate the most 
recent previous contract, there was a change in the statute or 
regulations that had the effect of increasing M+C payments in the 
payment area or areas at issue; or
    (ii) HCFA has otherwise determined that circumstances warrant 
special consideration.
* * * * *
    (d) * * *
    (2) Each contract under this section must provide that HCFA, or any 
person or organization designated by HCFA has the right to:
* * * * *
    (iii) Audit and inspect any books, contracts, and records of the 
M+C organization that pertain to--
    (A) The ability of the organization or its first tier or downstream 
providers to bear the risk of potential financial losses; or
* * * * *

    53. Section 422.502 is amended by:
    A. In paragraph (a)(12), removing the phrase ``To comply will all 
requirements'' and adding in its place the phrase ``To comply with all 
requirements''.
    B. Republishing the introductory text for paragraph (g).
    C. Revising the introductory text for paragraph (g)(1) and the 
introductory text for paragraph (g)(3).
    D. Revising paragraph (i)(3).
    E. Revising paragraph (l).


Sec. 422.502  Contract provisions.

* * * * *
    (g) Beneficiary financial protections. The M+C organization agrees 
to comply with the following requirements:
    (1) Each M+C organization must adopt and maintain arrangements 
satisfactory to HCFA to protect its enrollees from incurring liability 
(for example, as a result of an organization's insolvency or other 
financial difficulties) for payment of any fees that are the legal 
obligation of the M+C organization. To meet this requirement, the M+C 
organization must--
* * * * *
    (3) In meeting the requirements of this paragraph, other than the 
provider contract requirements specified in paragraph (g)(1)(i) of this 
section, the M+C organization may use--
* * * * *
    (i) * * *
    (3) All contracts or written arrangements between M+C organizations 
and providers, related entities, contractors, subcontractors, first 
tier and downstream entities must contain the following:
    (i) Enrollee protection provisions that provide, consistent with 
paragraph (g)(1) of this section, arrangements that prohibit providers 
from holding an enrollee liable for payment of any fees that are the 
obligation of the M+C organization.
    (ii) Accountability provisions that indicate that--
    (A) The M+C organization oversees and is accountable to HCFA for 
any functions or responsibilities that are described in these 
standards; and
    (B) The M+C organization may only delegate activities or functions 
to a provider, related entity, contractor, or subcontractor in a manner 
consistent with requirements set forth at paragraph (i)(4) of this 
section.
    (iii) A provision requiring that any services or other activity 
performed by a related entity, contractor, subcontractor, or first-tier 
or downstream entity in accordance with a contract or written agreement 
are consistent and comply with the M+C organization's contractual 
obligations.
* * * * *
    (1) Certification of data that determine payment. As a condition 
for receiving a monthly payment under subpart F of this part, the M+C 
organization agrees that its chief executive officer (CEO), chief 
financial officer (CFO), or an individual delegated the authority to 
sign on behalf of one of these officers, and who reports directly to 
such officer, must request payment under the contract on a document 
that certifies (based on best knowledge, information, and belief) the 
accuracy,

[[Page 40328]]

completeness, and truthfulness of relevant data that HCFA requests. 
Such data include specified enrollment information, encounter data, and 
other information that HCFA may specify.
    (1) The CEO, CFO, or an individual delegated the authority to sign 
on behalf of one of these officers, and who reports directly to such 
officer, must certify that each enrollee for whom the organization is 
requesting payment is validly enrolled in an M+C plan offered by the 
organization and the information relied upon by HCFA in determining 
payment (based on best knowledge, information, and belief) is accurate, 
complete, and truthful.
    (2) The CEO, CFO, or an individual delegated with the authority to 
sign on behalf of one of these officers, and who reports directly to 
such officer, must certify (based on best knowledge, information, and 
belief) that the encounter data it submits under Sec. 422.257 are 
accurate, complete, and truthful.
    (3) If such encounter data are generated by a related entity, 
contractor, or subcontractor of an M+C organization, such entity, 
contractor, or subcontractor must similarly certify (based on best 
knowledge, information, and belief) the accuracy, completeness, and 
truthfulness of the data.
    (4) The CEO, CFO, or an individual delegated the authority to sign 
on behalf of one of these officers, and who reports directly to such 
officer, must certify (based on best knowledge, information, and 
belief) that the information in its ACR submission is accurate, 
complete, and truthful and fully conforms to the requirements in 
Sec. 422.310.

    54. In Sec. 422.504, revise paragraph (b) and remove paragraph (d) 
to read as follows:


Sec. 422.504  Effective date and term of contract.

* * * * *
    (b) Term of contract. Each contract is for a period of at least 12 
months.
* * * * *

    55. Section 422.506 is amended by:
    A. Republishing the introductory text of paragraph (a)(2).
    B. Revising paragraph (a)(2)(i) and the introductory text of 
paragraph (a)(3).
    C. Removing paragraph (b)(1)(ii).
    D. Redesignating paragraphs (b)(1)(iii) and (b)(1)(iv) as 
(b)(1)(ii) and (b)(1)(iii), respectively.


Sec. 422.506  Nonrenewal of contract.

    (a) * * *
    (2) If an M+C organization does not intend to renew its contract, 
it must notify--
    (i) HCFA in writing, by July 1 of the year in which the contract 
would end;
* * * * *
    (3) HCFA may accept a nonrenewal notice submitted after July 1 if--
* * * * *

    56. Section 422.510 is amended by adding paragraph (a)(12) and 
revising paragraph (c)(1) to read as follows:


Sec. 422.510  Termination of contract by HCFA.

    (a) * * *
    (12) The M+C organization substantially fails to comply with the 
marketing requirements in Sec. 422.80.
* * * * *
    (c) * * *
    (1) General. Before terminating a contract for reasons other than 
the grounds specified in paragraph (a)(5) of this section, HCFA 
provides the M+C organization with reasonable opportunity to develop 
and receive HCFA approval of a corrective action plan to correct the 
deficiencies that are the basis of the proposed termination.

    57. Revise Sec. 422.514(b)(1) to read as follows:


Sec. 422.514  Minimum enrollment requirements.

* * * * *
    (b) * * *
    (1) For a contract applicant or M+C organization that does not meet 
the applicable requirement of paragraph (a) of this section at 
application for an M+C contract or during the first 3 years of the 
contract, HCFA may waive the minimum enrollment requirement as provided 
for below. To receive a waiver, a contract applicant or M+C 
organization must demonstrate to HCFA's satisfaction that it is capable 
of administering and managing an M+C contract and is able to manage the 
level of risk required under the contract. Factors that HCFA takes into 
consideration in making this evaluation include the extent to which--
    (i) The contract applicant or M+C organization's management and 
providers have previous experience in managing and providing health 
care services under a risk-based payment arrangement to at least as 
many individuals as the applicable minimum enrollment for the entity as 
described in paragraph (a) of this section, or
    (ii) The contract applicant or M+C organization has the financial 
ability to bear financial risk under an M+C contract. In determining 
whether an organization is capable of bearing risk, HCFA considers 
factors such as the organization's management experience as described 
in paragraph (b)(1)(i) of this section and stop-loss insurance that is 
adequate and acceptable to HCFA; and
    (iii) The contract applicant or M+C organization is able to 
establish a marketing and enrollment process that allows it to meet the 
applicable enrollment requirement specified in paragraph (a) of this 
section before completion of the third contract year.
* * * * *

    58. Revise Sec. 422.520(a)(3) to read as follows:


Sec. 422.520  Prompt payment by M+C organization.

* * * * *
    (a) * * *
    (3) All other claims must be paid or denied within 60 calendar days 
from the date of the request.
* * * * *


Sec. 422.550  [Amended]

    59. In Sec. 422.550(a)(2), the heading ``Unincorporated sole 
proprietor'' is removed and the heading ``Asset Sale'' is added in its 
place.
    60. In Sec. 422.561, the introductory text is republished and the 
definitions of ``Appeal'' and ``Authorized representative'' are revised 
to read as follows:


Sec. 422.561  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Appeal means any of the procedures that deal with the review of 
adverse organization determinations on the health care services the 
enrollee believes he or she is entitled to receive, including delay in 
providing, arranging for, or approving the health care services (such 
that a delay would adversely affect the health of the enrollee), or on 
any amounts the enrollee must pay for a service, as defined under 
Sec. 422.566(b). These procedures include reconsiderations by the M+C 
organization, and if necessary, an independent review entity, hearings 
before ALJs, review by the Departmental Appeals Board (DAB), and 
judicial review.
    Authorized representative means an individual authorized by an 
enrollee, or under State law, to act on his or her behalf in obtaining 
an organization determination or in dealing with any of the levels of 
the appeal process, subject to the rules described in 20 CFR part 404, 
subpart R, unless otherwise stated in this subpart.
* * * * *

    61. Section 422.562 is amended by republishing the introductory 
text for paragraphs (a) and (a)(1) and revising paragraph (a)(1)(ii).

[[Page 40329]]

Sec. 422.562  General provisions.

    (a) Responsibilities of the M+C organization. (1) An M+C 
organization, with respect to each M+C plan that it offers, must 
establish and maintain--
* * * * *
    (ii) A procedure for making timely organization determinations;
* * * * *

    62. Revise Sec. 422.566(b) to read as follows:


Sec. 422.566  Organization determinations.

* * * * *
    (b) Actions that are organization determinations. An organization 
determination is any determination made by an M+C organization with 
respect to any of the following:
    (1) Payment for temporarily out of the area renal dialysis 
services, emergency services, post-stabilization care, or urgently 
needed services.
    (2) Payment for any other health services furnished by a provider 
other than the M+C organization that the enrollee believes--
    (i) Are covered under Medicare; or
    (ii) If not covered under Medicare, should have been furnished, 
arranged for, or reimbursed by the M+C organization.
    (3) The M+C organization's refusal to provide or pay for services, 
in whole or in part, including the type or level of services, that the 
enrollee believes should be furnished or arranged for by the M+C 
organization.
    (4) Discontinuation of a service if the enrollee believes that 
continuation of the services is medically necessary.
    (5) Failure of the M+C organization to approve, furnish, arrange 
for, or provide payment for health care services in a timely manner, or 
to provide the enrollee with timely notice of an adverse determination, 
such that a delay would adversely affect the health of the enrollee.
* * * * *

    63. Section 422.568 is revised to read as follows:


Sec. 422.568  Standard timeframes and notice requirements for 
organization determinations.

    (a) Timeframe for requests for service. When a party has made a 
request for a service, the M+C organization must notify the enrollee of 
its determination as expeditiously as the enrollee's health condition 
requires, but no later than 14 calendar days after the date the 
organization receives the request for a standard organization 
determination. The M+C organization may extend the timeframe by up to 
14 calendar days if the enrollee requests the extension or if the 
organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an 
M+C organization's decision to deny). When the M+C organization extends 
the timeframe, it must notify the enrollee in writing of the reasons 
for the delay, and inform the enrollee of the right to file a grievance 
if he or she disagrees with the M+C organization's decision to grant an 
extension. The M+C organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
    (b) Timeframe for requests for payment. The M+C organization must 
process requests for payment according to the ``prompt payment'' 
provisions set forth in Sec. 422.520.
    (c) Written notification by practitioners. At each patient 
encounter with an M+C enrollee, a practitioner must notify the enrollee 
of his or her right to receive, upon request, a detailed written notice 
from the M+C organization regarding the enrollee's services, consistent 
with paragraph (d) of this section. The practitioner's notification 
must--
    (1) Provide the enrollee with the information necessary to contact 
the M+C organization; and
    (2) Comply with any other requirements specified by HCFA.
    (d) Written notice for M+C organization denials. If an enrollee 
requests an M+C organization to provide a detailed notice of a 
practitioner's decision to deny a service in whole or in part, or if an 
M+C organization decides to deny service or payment in whole or in 
part, it must give the enrollee written notice of the determination.
    (e) Form and content of the M+C organization notice. The notice of 
any denial under paragraph (d) of this section must--
    (1) Use approved notice language in a readable and understandable 
form;
    (2) State the specific reasons for the denial;
    (3) Inform the enrollee of his or her right to a reconsideration;
    (4)(i) For service denials, describe both the standard and 
expedited reconsideration processes, including the enrollee's right to, 
and conditions for, obtaining an expedited reconsideration and the rest 
of the appeal process; and
    (ii) For payment denials, describe the standard reconsideration 
process and the rest of the appeal process; and
    (5) Comply with any other notice requirements specified by HCFA.
    (f) Effect of failure to provide timely notice. If the M+C 
organization fails to provide the enrollee with timely notice of an 
organization determination as specified in this section, this failure 
itself constitutes an adverse organization determination and may be 
appealed.

    64. Section 422.570 is amended by:
    A. Revising paragraph (a).
    B. Republishing the introductory text for paragraph (d).
    C. Revising the introductory text to paragraph (d)(2) and revising 
paragraph (d)(2)(iii).
    D. Adding a new paragraph (d)(2)(iv).


Sec. 422.570  Expediting certain organization determinations.

    (a) Request for expedited determination. An enrollee or a physician 
(regardless of whether the physician is affiliated with the M+C 
organization) may request that an M+C organization expedite an 
organization determination involving the issues described in 
Sec. 422.566(b)(3) and (b)(4). (This does not include requests for 
payment of services already furnished.)
* * * * *
    (d) Actions following denial. If an M+C organization denies a 
request for expedited determination, it must take the following 
actions:
* * * * *
    (2) Give the enrollee prompt oral notice of the denial and 
subsequently deliver, within 3 calendar days, a written letter that--
* * * * *
    (iii) Informs the enrollee of the right to resubmit a request for 
an expedited determination with any physician's support; and
    (iv) Provides instructions about the grievance process and its 
timeframes.
* * * * *

    65. In Sec. 422.572, revise paragraphs (b), (c), and (d) to read as 
follows:


Sec. 422.572  Timeframes and notice requirements for expedited 
organization determinations.

* * * * *
    (b) Extensions. The M+C organization may extend the 72-hour 
deadline by up to 14 calendar days if the enrollee requests the 
extension or if the organization justifies a need for additional 
information and how the delay is in the interest of the enrollee (for 
example, the receipt of additional medical evidence from noncontract 
providers may change an M+C organization's decision to deny). When the 
M+C organization extends the deadline, it must notify the enrollee in 
writing of the reasons for the delay and

[[Page 40330]]

inform the enrollee of the right to file a grievance if he or she 
disagrees with the M+C organization's decision to grant an extension. 
The M+C organization must notify the enrollee of its determination as 
expeditiously as the enrollee's health condition requires, but no later 
than upon expiration of the extension.
    (c) Confirmation of oral notice. If the M+C organization first 
notifies an enrollee of its expedited determination orally, it must 
mail written confirmation to the enrollee within 3 calendar days of the 
oral notification.
    (d) How the M+C organization must request information from 
noncontract providers. If the M+C organization must receive medical 
information from noncontract providers, the M+C organization must 
request the necessary information from the noncontract provider within 
24 hours of the initial request for an expedited organization 
determination. Noncontract providers must make reasonable and diligent 
efforts to expeditiously gather and forward all necessary information 
to assist the M+C organization in meeting the required timeframe. 
Regardless of whether the M+C organization must request information 
from noncontract providers, the M+C organization is responsible for 
meeting the timeframe and notice requirements of this section.
* * * * *

    66. Section 422.584 is amended by:
    A. Revising paragraph (a).
    B. Republishing the introductory text to paragraph (d).
    C. Revising paragraph (d)(2).


Sec. 422.584  Expediting certain reconsiderations.

    (a) Who may request an expedited reconsideration. An enrollee or a 
physician (regardless of whether he or she is affiliated with the M+C 
organization) may request that an M+C organization expedite a 
reconsideration of a determination that involves the issues described 
in Sec. 422.566(b)(3) and (b)(4). (This does not include requests for 
payment of services already furnished.)
* * * * *
    (d) Actions following denial. If an M+C organization denies a 
request for expedited reconsideration, it must take the following 
actions:
* * * * *
    (2) Give the enrollee prompt oral notice, and subsequently deliver, 
within 3 calendar days, a written letter that--
    (i) Explains that the M+C organization will process the enrollee's 
request using the 30-day timeframe for standard reconsiderations;
    (ii) Informs the enrollee of the right to file a grievance if he or 
she disagrees with the organization's decision not to expedite;
    (iii) Informs the enrollee of the right to resubmit a request for 
an expedited reconsideration with any physician's support; and
    (iv) Provides instructions about the grievance process and its 
timeframes.
* * * * *

    67. Section 422.590 is amended by:
    A. Republishing the heading for paragraph (a) and revising 
paragraph (a)(1).
    B. Republishing the heading for paragraph (d) and revising 
paragraphs (d)(2), (d)(3), and (d)(4).
    C. Republishing the heading for paragraph (g) and revising 
paragraph (g)(2).


Sec. 422.590  Timeframes and responsibility for reconsiderations.

    (a) Standard reconsideration: Request for services. (1) If the M+C 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the M+C organization must issue the 
determination (and effectuate it in accordance with Sec. 422.618(a)) as 
expeditiously as the enrollee's health condition requires, but no later 
than 30 calendar days from the date it receives the request for a 
standard reconsideration. The M+C organization may extend the timeframe 
by up to 14 calendar days if the enrollee requests the extension or if 
the organization justifies a need for additional information and how 
the delay is in the interest of the enrollee (for example, the receipt 
of additional medical evidence from noncontract providers may change an 
M+C organization's decision to deny). When the M+C organization extends 
the timeframe, it must notify the enrollee in writing of the reasons 
for the delay, and inform the enrollee of the right to file a grievance 
if he or she disagrees with the M+C organization's decision to grant an 
extension. For extensions, the M+C organization must issue and 
effectuate its determination as expeditiously as the enrollee's health 
condition requires, but no later than upon expiration of the extension.
* * * * *
    (d) Expedited reconsideration--* * *
    (2) Extensions. The M+C organization may extend the 72-hour 
deadline by up to 14 calendar days if the enrollee requests the 
extension or if the organization justifies a need for additional 
information and how the delay is in the interest of the enrollee (for 
example, the receipt of additional medical evidence from noncontract 
providers may change an M+C organization's decision to deny). When the 
M+C organization extends the timeframe, it must notify the enrollee in 
writing of the reasons for the delay, and inform the enrollee of the 
right to file a grievance if he or she disagrees with the M+C 
organization's decision to grant an extension. The M+C organization 
must notify the enrollee of its determination as expeditiously as the 
enrollee's health condition requires but no later than upon expiration 
of the extension.
    (3) Confirmation of oral notice. If the M+C organization first 
notifies an enrollee of a completely favorable expedited 
reconsideration, it must mail written confirmation to the enrollee 
within 3 calendar days.
    (4) How the M+C organization must request information from 
noncontract providers. If the M+C organization must receive medical 
information from noncontract providers, the M+C organization must 
request the necessary information from the noncontract provider within 
24 hours of the initial request for an expedited reconsideration. 
Noncontract providers must make reasonable and diligent efforts to 
expeditiously gather and forward all necessary information to assist 
the M+C organization in meeting the required timeframe. Regardless of 
whether the M+C organization must request information from noncontract 
providers, the M+C organization is responsible for meeting the 
timeframe and notice requirements.
* * * * *
    (g) Who must reconsider an adverse organization determination. * * 
*
    (2) When the issue is the M+C organization's denial of coverage 
based on a lack of medical necessity (or any substantively equivalent 
term used to describe the concept of medical necessity), the 
reconsidered determination must be made by a physician with expertise 
in the field of medicine that is appropriate for the services at issue. 
The physician making the reconsidered determination need not, in all 
cases, be of the same specialty or subspecialty as the treating 
physician.

    68. In Sec. 422.594, the introductory text for paragraph (b) is 
republished, and paragraph (b)(1) is revised to read as follows:


Sec. 422.594  Notice of reconsidered determination by the independent 
entity.

* * * * *
    (b) Content of the notice. The notice must--
    (1) State the specific reasons for the entity's decisions in 
understandable language;
* * * * *

[[Page 40331]]


    69. Revise Sec. 422.596 to read as follows:


Sec. 422.596  Effect of a reconsidered determination.

    A reconsidered determination is final and binding on all parties 
unless a party other than the M+C organization files a request for a 
hearing under the provisions of Sec. 422.602, or unless the 
reconsidered determination is revised under Sec. 422.616.

    70. Revise Sec. 422.612(b) to read as follows:


Sec. 422.612  Judicial review.

* * * * *
    (b) Review of Board decision. Any party, including the M+C 
organization, may request judicial review (upon notifying the other 
parties) of the Board decision if it is the final decision of HCFA and 
the amount in controversy is $ 1,000 or more.
* * * * *

    71. Section 422.618 is amended by:
    A. Revising the section heading.
    B. Redesignating paragraph (b) as paragraph (c).
    C. Adding a new paragraph (b).
    D. Revising newly designated paragraph (c).


Sec. 422.618  How an M+C organization must effectuate standard 
reconsidered determinations or decisions.

* * * * *
    (b) Reversals by the independent outside entity. (1) Requests for 
service. If, on reconsideration of a request for service, the M+C 
organization's determination is reversed in whole or in part by the 
independent outside entity, the M+C organization must authorize the 
service under dispute within 72 hours from the date it receives notice 
reversing the determination, or provide the service under dispute as 
expeditiously as the enrollee's health condition requires, but no later 
than 14 calendar days from that date. The M+C organization must inform 
the independent outside entity that the organization has effectuated 
the decision.
    (2) Requests for payment. If, on reconsideration of a request for 
payment, the M+C organization's determination is reversed in whole or 
in part by the independent outside entity, the M+C organization must 
pay for the service no later than 30 calendar days from the date it 
receives notice reversing the organization determination. The M+C 
organization must inform the independent outside entity that the 
organization has effectuated the decision.
    (c) Reversals other than by the M+C organization or the independent 
outside entity. If the independent outside entity's determination is 
reversed in whole or in part by the ALJ, or at a higher level of 
appeal, the M+C organization must pay for, authorize, or provide the 
service under dispute as expeditiously as the enrollee's health 
condition requires, but no later than 60 calendar days from the date it 
receives notice reversing the determination. The M+C organization must 
inform the independent outside entity that the organization has 
effectuated the decision.

    72. Add new Sec. 422.619 to read as follows:


Sec. 422.619  How an M+C organization must effectuate expedited 
reconsidered determinations.

    (a) Reversals by the M+C organization. If on reconsideration of an 
expedited request for service, the M+C organization completely reverses 
its organization determination, the M+C organization must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 72 hours after the date 
the M+C organization receives the request for reconsideration (or no 
later than upon expiration of an extension described in 
Sec. 422.590(d)(2)).
    (b) Reversals by the independent outside entity. If the M+C 
organization's determination is reversed in whole or in part by the 
independent outside entity, the M+C organization must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires but no later than 72 hours from the date it 
receives notice reversing the determination. The M+C organization must 
inform the independent outside entity that the organization has 
effectuated the decision.
    (c) Reversals other than by the M+C organization or the independent 
outside entity. If the independent review entity's expedited 
determination is reversed in whole or in part by the ALJ, or at a 
higher level of appeal, the M+C organization must authorize or provide 
the service under dispute as expeditiously as the enrollee's health 
condition requires, but no later than 60 days from the date it receives 
notice reversing the determination. The M+C organization must inform 
the independent outside entity that the organization has effectuated 
the decision.

    73. Section 422.620 is revised to read as follows:


Sec. 422.620  How enrollees of M+C organizations must be notified of 
noncoverage of inpatient hospital care.

    (a) Enrollee's entitlement. Where an M+C organization has 
authorized coverage of the inpatient admission of an enrollee, either 
directly or by delegation (or the admission constitutes emergency or 
urgently needed care, as described in Secs. 422.2 and 422.113), written 
notice of noncoverage under paragraph (c) of this section must be 
provided to each enrollee. An enrollee is entitled to coverage until at 
least noon the day after such notice is provided. If PRO review is 
requested under Sec. 422.622, coverage is extended as provided in that 
section.
    (b) Physician concurrence required. Before notice of noncoverage is 
provided as described in paragraph (c) of this section, the entity that 
makes the noncoverage/discharge determination (that is, the hospital by 
delegation or the M+C organization) must obtain the concurrence of the 
physician who is responsible for the enrollee's hospital care.
    (c) Notice to the enrollee. In all cases in which a determination 
is made that inpatient hospital care is no longer necessary, no later 
than the day before hospital coverage ends, written notice must be 
provided to the enrollee that includes the following elements:
    (1) The reason why inpatient hospital care is no longer needed.
    (2) The effective date and time of the enrollee's liability for 
continued inpatient care.
    (3) The enrollee's appeal rights.
    (4) Additional information specified by HCFA.

    74. Revise Sec. 422.648(b) to read as follows:


Sec. 422.648  Reconsideration: Applicability.

* * * * *
    (b) HCFA reconsiders the specified determinations if the contract 
applicant or the M+C organization files a written request in accordance 
with Sec. 422.650.

    75. In Sec. 422.650, paragraphs (c) and (d) are revised to read as 
follows:


Sec. 422.650  Request for reconsideration.

* * * * *
    (c) Proper party to file a request. Only an authorized official of 
the contract applicant or M+C organization that was the subject of a 
contract determination may file the request for reconsideration.
    (d) Withdrawal of a request. The M+C organization or contract 
applicant who filed the request for a reconsideration may withdraw it 
at any time before the notice of the reconsidered determination is 
mailed. The request for

[[Page 40332]]

withdrawal must be in writing and filed with HCFA.

    76. Revise Sec. 422.652 to read as follows:


Sec. 422.652  Opportunity to submit evidence.

    HCFA provides the M+C organization or contract applicant and the 
HCFA official or officials who made the contract determination 
reasonable opportunity, not to exceed the timeframe in which an M+C 
organization could choose to request a hearing as described at 
Sec. 422.662, to present as evidence any documents or written 
statements that are relevant and material to the matters at issue.

    77. Revise Sec. 422.656 to read as follows:


Sec. 422.656  Notice of reconsidered determination.

    (a) HCFA gives the M+C organization or contract applicant written 
notice of the reconsidered determination.
    (b) The notice--
    (1) Contains findings with respect to the contract applicant's 
qualifications to enter into, or the M+C organization's qualifications 
to remain under, a contract with HCFA under Part C of title XVIII of 
the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the M+C organization or contract applicant of its right 
to a hearing if it is dissatisfied with the determination.

    78. In Sec. 422.660, the introductory text is republished and 
paragraph (a) is revised to read as follows:


Sec. 422.660  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) A contract applicant that has been determined in a reconsidered 
determination to be unqualified to enter into a contract with HCFA 
under Part C of title XVIII of the Act.
* * * * *

    79. In Sec. 422.662, paragraphs (a) and (b) are revised to read as 
follows:


Sec. 422.662  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
contract applicant or M+C organization that was the party to the 
determination under appeal. The request for a hearing must be filed 
with any HCFA office.
    (b) Time for filing a request. A request for a hearing must be 
filed within 15 days after the date of the reconsidered determination.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: June 15, 2000.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.
    Approved: June 16, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-15648 Filed 6-19-00; 12:00 pm]
BILLING CODE 4120-01-P