40170 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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.

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, pointof-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-forservice 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 (§ 422.4)

c. Application Requirements and

Procedures (§§ 422.6 and 422.8)

d. User Fees (§ 422.10)

B. Eligibility, Election and Enrollment

(Subpart B)

1. Eligibility to Elect an M+C Plan

(§ 422.50)

2. Continuation of Enrollment (§ 422.54)

3. Election Process (§ 422.60)

4. Enrollment Capacity (§ 422.60(b))

5. Election of Coverage Under an M+C Plan

(§ 422.62)

6. Information about the M+C Program

(§ 422.64)

7. Coordination of Enrollment and

Disenrollment Through M+C

Organizations (§ 422.66)

8. Effective Dates of Coverage and Change

of Coverage (§ 422.68)

9. Disenrollment by the M+C Organization

(§ 422.74)

10. Approval of Marketing Materials and

Election Forms (§ 422.80)

C. Benefits and Beneficiary Protections

(Subpart C)

1. Introduction

2. Emergency, Urgently Needed, and PostStabilization Care Services (§§ 422.2,

422.100, 422.112, and new § 422.113)

a. Definitions

b. Enforcement of Emergency

Requirements

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40171

c. Access to Emergency and Urgently

Needed Services

d. Post-Stabilization Care Services

3. Service Area Requirements (§§ 422.2,

422.100)

4. Benefits (§§ 422.2, 422.100, 422.101,

422.106)

5. Special Rules for Screening

Mammography, Influenza Vaccine, and

Pneumococcal Vaccine (§ 422.100(h))

6. Special Rules for Point-of-Service (POS)

Option (§ 422.105)

7. Medicare Secondary Payer (MSP)

Procedures (§ 422.108)

8. National Coverage Determinations

(§ 422.109)

9. Discrimination Against Beneficiaries

Prohibited (§ 422.110)

10. Disclosure Requirements (§ 422.111)

11. General Access Requirements

(§ 422.112)

a. Introduction

b. Provider Network (§ 422.112(a)(1))

c. Primary Care Providers (PCP) Panels

(§ 422.112(a)(2))

d. Specialty Care (§ 422.112(a)(3))

e. Serious Medical Conditions

(§ 422.112(a)(4))

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

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

12. Confidentiality and Accuracy of

Enrollee Records (§ 422.118)

13. Information on Advance Directives

(§ 422.128)

D. Quality Assurance (Subpart D)

1. Overview

2. Quality Assessment and Performance

Improvement Requirements (§ 422.152)

3. External Review (§ 422.154)

4. Deemed Compliance Based on

Accreditation (§ 422.156)

5. Accreditation Organizations (§ 422.157)

6. Procedures for Approval of

Accreditation as a Basis for Deeming

Compliance (§ 422.158)

E. Relationships With Providers (Subpart

E)

1. Provider Participation Procedures

(§§ 422.202(a), and 422.204(c))

2. Consultation Requirements

(§ 422.202(b))

3. Treatment of Subcontracted Networks

(§ 422.202(c))

4. Provider Antidiscrimination

(§§ 422.100(j), 422.204(b), and new

§ 422.205)

5. Provider Credentialing (§ 422.204(a))

6. Prohibition on Interference with Health

Care Professionals’ Communication with

Enrollees (§ 422.206)

7. Physician Incentive Plans (§§ 422.208

and 422.210)

8. Special Rules for Services Furnished by

Noncontract Providers (§ 422.214)

9. Exclusion of Services Furnished Under

a Private Contract (§ 422.220)

10. M+C Plans and the Physician Referral

Prohibition

F. Payments to M+C Organizations

(Subpart F)

1. General Provisions (§ 422.250)

2. Risk Adjustment and Encounter Data

(§ 422.256 through § 422.258)

3. Special Rules for Hospice Care

(§ 422.266)

G. Premiums and Cost-Sharing (Subpart G)

1. General Provisions (§ 422.300)

2. Rules Governing Premiums and CostSharing (§ 422.304)

3. Submission Requirements of the

Proposed Premiums and Related

Information (§ 422.306)

4. Limits on Premiums and Cost-Sharing

Amounts (§ 422.308)

5. Incorrect Collections of Premiums and

Cost-Sharing Amounts (§ 422.309)

6. ACR Approval Process (§ 422.310)

7. Requirement for Additional Benefits

(§ 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

(§ 422.400)

2. Federal Preemption of State Law

(§ 422.402)

a. General Preemption (§ 422.402(a))

b. Specific Preemption (§ 422.402(b))

3. Prohibition on State Premium Taxes

(§ 422.404)

4. Medigap

J. (Subpart J—Reserved)

K. Contracts with M+C Organizations

(Subpart K)

1. Definitions (§ 422.500)

2. National Contracting (§ 422.501)

3. Compliance Plan (§ 422.501(b)(3)(vi))

4. Access to Facilities and Records

(§ 422.502(e))

5. Disclosure of Information

(§ 422.502(f)(2)(v))

6. Beneficiary Financial Protection

(§ 422.502(g))

7. Requirements of Other Laws and

Regulations (§ 422.502(h))

8. Contracting/Subcontracting Issues

(§ 422.502(i))

9. Certification of Data that Determine

Payment/Certification of Accuracy of

ACR (§ 422.502(l))

10. Effective Date and Term of Contract

(§ 422.504)

11. Nonrenewal of M+C Contracts

(§ 422.506)

12. Provider Prior Notification and

Disclosure (§§ 422.506(a), 422.508,

422.510(b), and 422.512)

13. Mutual Termination of a Contract

(§ 422.508)

14. Termination of Contract by HCFA

(§ 422.510)

15. Minimum Enrollment Requirements

(§ 422.514)

16. Reporting Requirements (§ 422.516)

17. Prompt Payment by M+C Organization

(§ 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

(§§ 422.560, 422.561, and 422.562)

2. Grievance Procedures (§ 422.564)

3. Organization Determinations (§§ 422.566

through 422.576)

4. Reconsiderations by an M+C

Organization or Independent Review

Entity (§§ 422.578 through 422.616)

5. Effectuation of a Reconsidered

Determination (§ 422.618)

6. Notification of Noncoverage in Inpatient

Hospital Settings (§§ 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 (§ 422.56)

b. Election (§ 422.62)

4. Benefits (Subpart C)

a. Basic Benefits Under an M+C MSA Plan

(§ 422.102)

b. Supplemental Benefits (§§ 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

(§ 422.4(a)(3))

2. Beneficiary Issues

3. Provider Payment Issues

4. Noncontracting Provider

5. Quality Assurance (§§ 422.152 and

422.154)

6. Access to Services (§ 422.214)

7. Physician Incentive Plans (§§ 422.208)

8. Special Rules for M+C Private Fee-forService Plans (§ 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

40172 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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:

• M+C coordinated care plans,

including HMO plans (with or without

point of service options), providersponsored organization (PSO) plans,

and preferred provider organization

(PPO) plans.

• 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).

• 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:

• Establishment of an expanded array

of quality assurance standards and other

consumer protection requirements;

• 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;

• 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

• 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:

• Subpart A—Definitions, including

definitions of types of plans, application

process, and user fees.

• Subpart B—Requirements

concerning beneficiary eligibility,

election, enrollment and disenrollment

procedures, and plan information and

marketing materials.

• 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.

• Subpart D—Quality assurance

standards, external review, and deeming

of accredited organizations.

• Subpart E—Provider participation

rules and the prohibition against

interference with health care

professionals’ advice to enrollees.

• Subpart F—Payment methodology

for M+C organizations, risk adjustment,

and encounter data requirements.

• Subpart G—Requirements

concerning premiums, cost-sharing, and

determination of adjusted community

rate.

• Subpart H—Requirements

concerning PSOs.

• Subpart I—Organization

compliance with State law and

preemption by Federal law.

• Subpart K—Contract requirements.

• Subpart L—Change of ownership

rules.

• Subpart M—Beneficiary grievances,

organization determinations, and

appeals.

• Subpart N—Contractor appeals of

nonrenewals or terminations of

contracts.

• 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 § 422.62(b)(1) to reflect this

earlier opportunity for an affected

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40173

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+Celigible 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

§ 422.62(a)(6) to reflect this provision,

with conforming changes at

§ 422.62(a)(4)(i) and § 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

§ 422.74(b)(3), with a conforming

change made in § 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 § 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

§ 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, § 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:

Year

Demographic

method

(percent)

Risk method

(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:

Year

Demographic

method

(percent)

Risk method

(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

§ 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

40174 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 reentering 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

§ 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 §§ 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 § 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

§ 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

§ 422.158(e).

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

§ 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-forservice plans. Thus, as set forth under

revised § 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

§ 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 § 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 § 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:

• 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.

• Quality improvement standards.

• Payment rates and service area

policy.

• Provider participation rules.

• Beneficiary appeals and grievances.

Among the other issues that generated

substantial numbers of comments were:

• Eligibility, election, and enrollment

policies.

• Marketing restrictions.

• Risk adjustment methodology and

encounter data submission.

• Contractual requirements.

• Preemption of State law by Federal

law.

• 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

40176 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 accessrelated 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 § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 (§ 422.4)

i. M+C Coordinated Care Plans

(§ 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 § 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

§ 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 (§ 422.4(a)(2))

The comments received regarding

M+C MSA plans are discussed in

section III of this preamble. iv. Multiple

Plans (§ 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 (§§ 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

§§ 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 §§ 422.8(d)

40178 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 422.8 to uniformly use the term

‘‘M+C organization’’ to refer to an

existing contractor under the

Medicare+Choice program.

d. User Fees (§ 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 § 422.10, for purposes of the M+C

program, the user fee provisions

previously set forth in § 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, § 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 § 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

§ 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

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

(§ 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, § 422.50 specifies that

an individual is eligible to elect an M+C

plan if he or she:

• 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);

• Has not been medically determined

to have end-stage renal disease, except

that an individual who develops endstage 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;

• 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;

• Completes and signs an election

form and gives information required for

enrollment; and

• 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

40180 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

only if the plan serves the geographic

area in which the individual resides.’’ In

accordance with the statute, existing

§ 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

§ 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 § 422.50 (with conforming

changes to §§ 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 § 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

§ 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+Celigible 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 longterm 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 § 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

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

§ 422.50(a)(3)(ii) applies.) For purposes

of § 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 (§ 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

§ 422.112, and provide services either

through written agreements with

providers or by making payments that

satisfy the requirements in

§ 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 § 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 § 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

40182 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 422.204(a)(3) apply equally to

services furnished in a continuation

area. Under § 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 § 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 § 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 § 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 § 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 (§ 422.60)

The general rule for acceptance of

enrollees is that, except for the

limitations on enrollment in an M+C

MSA plan (§ 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 §§ 422.62(a)(1), (a)(2), and

(b).

Additionally, M+C organizations must

accept elections during the open

enrollment periods specified in

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40183

§§ 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 § 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

§ 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 § 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 § 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, § 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+Celigible individuals.

Comment: One commenter found

§ 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

40184 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

should not be limited to these time

frames.

Response: The new enrollees being

referred to in § 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, §§ 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

§ 422.60(e)(6).

Response: Based on this comment, we

are amending § 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 § 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 § 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 (§ 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

§§ 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

§ 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 § 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 (§ 422.62)

All M+C plans must be open to M+Celigible 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+Celigible 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+Celigible individual may make is not

limited (except for M+C MSA plans).

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40185

Subject to the M+C plan being open to

enrollees as provided under

§ 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:

• When the individual is no longer

eligible to be enrolled in a certain plan

due to a change of residence,

• 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,

• 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

• 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 ‘‘lockin’’ 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 §§ 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

§§ 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-forservice 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

§ 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

40186 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

other exceptional conditions as

provided by us. In addition, § 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 § 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

§ 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

§ 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

§ 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 ‘‘lockin,’’ 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 § 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

(§ 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 § 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 § 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

§ 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 § 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+Celigible 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

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

§ 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:

• Internet at www.Medicare.gov.

Local libraries or senior centers may be

able to help the person find the

information on their computers.

• Medicare Choices Help line at 1–

800–MEDICAR(E) and TTY for the

speech and hearing impaired at 1–877–

486–2048.

• State Health Insurance Assistance

Program (SHIP) in the beneficiary’s area.

• 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

40188 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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:

• 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.

• 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.

• 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 (§ 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 § 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

§ 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 § 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 §§ 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

§ 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

§ 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 § 422.74. The M+C

organization must transmit the

information necessary for us to add the

individual to our records as specified in

§ 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

§ 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

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

§ 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

§ 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 § 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 § 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 § 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 § 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

40190 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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 § 422.66(d). The

commenter reads § 422.66(d)(3) to

provide that the individual will convert

to the M+C plan unless he disenrolls,

while § 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

§ 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 § 422.66(d)(5).’’

We also have deleted a reference in

§ 422.66(e)(2) to an individual being

‘‘deemed’’ to have made an election,

since this reference is inconsistent with

the requirement in § 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 § 422.66(d)(3), the

coverage may begin only if the

individual completes and signs an

election form, as required at

§ 422.66(d)(5).

Comment: One commenter believes

that § 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 § 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,

§ 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

§ 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

§ 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

§ 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 (§ 422.68)

An election made during an initial

coverage election period as described in

§ 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

§ 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40191

enrollment periods described in

§ 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 § 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 § 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

§ 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 § 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

§ 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 § 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,

40192 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 (§ 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,

§ 422.74(b) describes the conditions

under which the M+C organization may

either be permitted or required to

disenroll an individual. Under

§ 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 § 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 § 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,

§ 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 § 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

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

§ 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 § 417.460(d) have been largely

adopted in § 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

§ 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 §§ 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 § 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 §§ 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 § 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 § 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 § 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

40194 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 outof-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

§ 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 § 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 § 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 § 422.506(a)(2).

Accordingly, we have revised

§ 422.74(d)(7)(ii) to reference the time

frames in § 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

§ 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 § 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 § 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 § 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 § 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

§§ 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40195

situations. The notice requirements for

plan termination are outlined in

§§ 422.74(d)(7) and 422.506(a)(2).

Comment: One commenter noted that

§ 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 §§ 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 wellprotected 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 (§ 422.80)

Section 1851(h) of the Act outlines

the requirements related to marketing by

M+C organizations. These provisions

are implemented in § 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 § 422.80(c) include existing

marketing guidelines for HMOs and

CMPs (from § 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

§ 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, § 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

§ 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 § 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 § 422.80(c)(1) to require

the use of ‘‘a format * * * and * * *

standard terminology * * * specified

by HCFA,’’ we required M+C

40196 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 preenrollment 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

§ 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 preenrollment 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

§ 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 § 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

§ 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 § 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

§ 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

§ 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

§ 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.

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

§ 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 § 422.304. If coupons are for

VAIS in excess of nominal value, they

cannot be distributed or advertised preenrollment. 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

§ 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 §§ 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 § 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, § 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 § 422.111.

Further, we agree that the wording of

§ 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 § 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

40198 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 nonemergency/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 § 422.112, discussed below.

2. Emergency, Urgently Needed, and

Post-Stabilization Care Services

(§§ 422.2, 422.100, 422.112, and new

§ 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 § 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:

• Emergency services;

• Urgently needed services;

• Renal dialysis services provided

while the enrollee was temporarily

outside the M+C plan’s service area;

• Post-stabilization care services; and

• 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 poststabilization 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 § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40199

urgently needed services were provided

at § 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 § 422.100;

and special coverage rules for

emergency services and urgently needed

services were provided at § 422.112. In

this final rule, general requirements for

financial responsibility for services

provided outside the M+C organization

remain at § 422.100, while definitions

and policies relating to all types of

emergency episodes of care, including

ambulance services, emergency services,

urgently needed services, and poststabilization care services, have been

consolidated at § 422.113. Comments on

these aspects of the subpart C

regulations are discussed below.

a. Definitions (§ 422.2 and new

§ 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 inarea 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 § 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 § 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 (§§ 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

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enrollment member materials for

enrollees. For example, § 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 § 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

§ 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

§§ 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

§ 410.40.

c. Access to Emergency and Urgently

Needed Services (§§ 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 outof-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

§ 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,

§ 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 § 422.112

in the June 26, 1998 interim final rule,

long-standing Medicare managed care

manual policy (§ 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 § 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

§ 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

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

(§§ 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

§§ 422.100(b)(1)(iii) and 422.113(c)

specify that an M+C organization is

financially responsible for poststabilization 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 poststabilization 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 § 422.113. The

requirement for financial responsibility

for post-stabilization care services

provided outside the organization

remains at § 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 poststabilization 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 poststabilization 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

40202 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 poststabilization care replaces the pre-BBA

term ‘‘follow-up’’ care, which includes

only routine care following an out-ofarea 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 poststabilization 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 § 422.113(c)). Under the poststabilization 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 § 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

§ 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 § 422.214) for poststabilization 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 preapproved 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 § 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 § 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 § 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

§ 422.113(c)(3): ‘‘The M+C

organization’s financial responsibility

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 422.100 and § 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 § 422.214 and discussed

in detail in section II.E of this preamble.

We have made this explicit at

§ 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 § 422.113(c)(2)(iv)

provides that cost-sharing for poststabilization 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 poststabilization 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 § 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 poststabilization 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

40204 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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

§ 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, ‘‘Preapproved by a plan provider or other

organization representative.’’ (See

§ 422.113(c)(2)(i).)

3. Service Area Requirements (§§ 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 § 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

§ 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 § 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,

§ 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 multicounty 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 § 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

§ 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

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

§ 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 § 422.2, and to § 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 § 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 § 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 § 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 nonnetwork 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 ‘‘redlining’’ 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

§ 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 § 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 § 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

40206 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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

§ 422.112) as determined by HCFA. We

note that under § 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 (§§ 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 benefitrelated definitions set forth in § 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

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

§ 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

§ 422.101(a) that an M+C organization

provide coverage for all Medicarecovered 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 § 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

§ 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.

• The national requirements which

must be followed, and the meaning of

‘‘HCFA’s national coverage decisions’’.

• General confusion about the

relationship between national coverage

decisions and local medical review

policy.

• 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.

• 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

40208 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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

§ 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 § 422.106 by

reorganizing its requirements for clarity.

Revised § 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

§ 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 § 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 § 422.106 that M+C

organizations may contract with

employers to furnish benefits that

complement those that an employee or

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 422.206(b), the

prohibition on interference with

provider advice to enrollees in section

1852(j)(3)(A) of the Act (reflected in

§ 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 § 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 § 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

§ 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 Medicarecovered 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 (§ 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 selfreferral, 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 innetwork 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 § 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-ofservice (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 costeffective 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 (§ 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

40210 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 innetwork 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 inplan 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

§ 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 overutilization 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 § 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 § 422.106, such

enhancements to the Medicareapproved benefit package are not subject

to our review or approval.

Comment: A commenter expressed

concern about the requirement at

§ 422.105(d)(2)(iv) that a POS benefit

must have a maximum annual out-ofpocket cap on enrollee liability. The

commenter questioned whether capping

enrollee out-of-pocket expenses would

leave the plan at risk for all out-ofnetwork 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 § 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.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40211

7. Medicare Secondary Payer (MSP)

Procedures (§ 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 § 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 § 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 § 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

§ 422.100(b)(1) (for example, emergency

or urgently needed services, out-of-area

dialysis) and § 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 § 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

§ 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

(§ 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 feefor-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

40212 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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 § 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 § 422.109.

Under these payment rules, a

beneficiary is liable for deductible and

cost-sharing amounts, which is why

§ 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 § 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 (§ 422.110)

Consistent with section 1852(b)(1) of

the Act, § 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

§ 422.80(e)(2) regarding marketing to the

disabled population.

10. Disclosure Requirements (§ 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 § 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, § 422.64 no longer lists

the information that we must provide to

beneficiaries. However, because

§ 422.111 referred to this material in

several places, we are revising § 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

§ 422.64(c) (now set forth in

§ 422.111(f)) combined with the

requirements in § 422.111 concerning

information that an M+C organization

must disclose to its enrollees. The

commenters viewed these requirements

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

40214 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 planspecific 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

§ 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

§ 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

(§ 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

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

(§ 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,

§ 422.112(a)(1) requires that the M+C

organization have an adequate network

of providers and § 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 nonMedicare covered services as an

additional or supplemental benefit,

these requirements do not apply.

d. Specialty Care (§ 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 (§ 422.112(a)(1)),

offer to provide each enrollee with an

ongoing source of primary care

(§ 422.112(b)(2)), and provide a primary

source of care to each enrollee who

requests one. In addition, § 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 § 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 § 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

40216 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

(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 § 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

(§ 422.112(a)(4))

Under § 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 (§ 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 Federallydeveloped 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.

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

(§ 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 § 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

40218 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 ethnicallyrelated 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

§§ 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 (§ 422.118)

Consistent with section 1852(h) of the

Act, § 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 § 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

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

(§ 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 § 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 § 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 (§ 422.152)

Section 422.152 incorporates each of

the explicit statutory requirements of

40220 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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

§ 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

§ 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 § 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 § 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

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

§ 422.152(e) to specify that the standard

measures on which reporting will be

required for M+C PFFS plans, nonnetwork 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 longterm 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

40222 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 PROsponsored 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

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

40224 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 riskadjusted 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

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

40226 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 ‘‘highrisk’’ 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 highrisk 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 § 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.

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

40228 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 decisionmaking 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 (§ 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 § 422.154(a) of

the interim final rule. The terms of the

agreement are described in § 422.154(b),

and the exceptions to the general

requirement are stated in § 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 Medicaidcontracting 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.

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

40230 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 (§ 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 § 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 § 422.152, and the requirements of

§ 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, § 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 § 422.156.

The comments and responses

regarding § 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

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

§ 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 § 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

40232 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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

§ 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 § 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

§ 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

(§ 422.157)

In § 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 § 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

§ 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 § 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.

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

§ 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

§ 422.157(b)(1) on the original Medicare

deeming regulation at § 488.8(b)(1).

However, § 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 § 488.8 to

conform with the Act. If we do not

revise § 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

§ 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

40234 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 wellinformed and appropriate. This change

appears at § 422.157(c)(6).

Comment: One commenter requested

that we clarify the term ‘‘enforces’’ as it

is used in §§ 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 (§ 422.158)

The requirements of § 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 § 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

(§§ 422.202(a) and 422.204(c))

For the most part, we responded to

comments on issues related to

§§ 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

§ 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

§ 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

§ 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 § 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

§ 422.204(c) to new § 422.202(d).

Comment: Two commenters objected

to the requirement in existing

§ 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 § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 § 422.204(c)(4) applies only for

terminations ‘‘without cause,’’ rather

than in situations addressed by the law

in question.

2. Consultation Requirements

(§ 422.202(b))

In accordance with section 1852(j)(2)

of the Act, § 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

§ 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 § 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

(§ 422.202(c))

Under § 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

§ 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 § 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

40236 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 § 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

(§§ 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 §§ 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 (§ 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-ofpractitioners 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

§ 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 § 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

§ 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

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

§ 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 § 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

§ 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, § 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 § 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-ofpractitioners 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

40238 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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, § 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 § 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 (§ 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,

§ 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 § 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 § 422.204.

Section 422.204 will now be entitled

‘‘Provider selection and credentialing’’

and will include a new § 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

§ 422.204(b), as well as the

antidiscrimination procedures now

contained under new § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 (§ 422.200) explicitly

mentions both providers and suppliers,

while § 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

§ 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 § 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

§ 422.204(a)(3)(i) (now redesignated as

§ 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 § 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 § 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

40240 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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

(§ 422.206)

Consistent with section 1852(j)(3)(A)

of the Act, § 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 § 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

§ 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 § 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 § 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 § 422.80.)

Comment: Two commenters

recommended that we either delete or

clarify the requirement in

§ 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

§ 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

§ 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

§ 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 § 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 § 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 § 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 (§§ 422.208

and 422.210)

Sections 422.208 and 422.210 outline

the limitations and disclosure rules for

physician incentive plans. Specifically,

§ 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 § 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 § 422.208(c)(2), the regulation

specifies that the M+C organization

provides stop-loss protection; while at

§ 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 § 422.208(c)(2) to eliminate

this discrepancy. We note that

paragraph (f) incorporates the language

from § 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 §§ 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, stoploss 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

40242 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

(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 (§ 422.214)

Consistent with sections 1852(k)(1)

and 1866(a)(1)(O) of the Act, § 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

§§ 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 § 422.214(a)(1) of our

regulations. We received three

comments regarding this section.

Comment: Several commenters

suggested that we revise § 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

§§ 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-forservice 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

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

§ 422.214. In order to implement the

payment limits in § 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 § 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 noncontracting 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

§§ 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 (§ 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

§ 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 noncontracting providers be revised to

indicate that these payment restrictions

do not apply if the provider has opted

out under § 422.220.

Response: We have included a

clarification by cross reference.

40244 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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

§ 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

§ 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 feefor-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 outof-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.

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

• 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.

• 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 § 422.254(b).

• 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

1⁄12th of the annual M+C capitation rate

for the payment area described in

§ 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

§ 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 § 422.254(b), offering bonus

payments to eligible M+C organizations

as described in § 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

§ 422.312) affect the computation of the

county payment rates if these amounts

are placed in a stabilization fund,

described in § 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

(§ 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 § 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 § 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

40246 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

areas identified in § 422.250(e)(1).

Specifically, the governor may choose to

have—(1) a single Statewide M+C

payment area, (2) a single nonmetropolitan payment area, with a

separate payment area including

metropolitan areas defined in one of two

ways, or (3) consolidation of noncontiguous 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 § 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

(§§ 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 § 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 § 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 demographiconly 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 demographicallyadjusted 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 § 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 § 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

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

There are two different ways

encounter data are used for riskadjustment 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 riskadjusted 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 postacute 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

§ 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 fiveyear 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:

40248 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

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

• 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.

• 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.

• 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.

• 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

§ 422.257 that M+C organizations are

required to obtain from providers,

40250 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 422.306(a)(1) to reflect

this statutory change, which has

addressed the commenter’s concerns.

3. Special Rules for Hospice Care

(§ 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 costsharing 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

§ 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

§ 422.300(b)(2), ACRs must be submitted

on the date specified by us. The

transition rules for this period are found

in § 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 § 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 § 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

40252 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 nonMedicare enrollee for a Medicarecovered 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 CostSharing (§ 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

§ 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

§ 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 (§ 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 § 422.306(a)(1) to reflect

this statutory change.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40253

4. Limits on Premiums and Cost-Sharing

Amounts (§ 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 § 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 costsharing 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 § 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 § 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 § 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 costsharing 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 lowincome 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

40254 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 (§ 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

§ 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 costsharing 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 costsharing 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 (§ 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 § 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

§ 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 nonMedicare 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 nonMedicare 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 § 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 § 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

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

§ 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 nonMedicare 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

(§ 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 § 422.312(b) to use

the term ‘‘cost-sharing’’ rather than

copayment or coinsurance because the

term cost-sharing has been previously

defined in § 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—

• That is established or organized,

and operated, by a health care provider

or group of affiliated health care

providers;

• That provides a substantial portion

of the health care items and services

directly through the provider or

affiliated group of providers; and

• 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 §§ 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 ProviderSponsored 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 ProviderSponsored 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

40256 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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

§ 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 longstanding definition of control that is

used for purposes of providers in the

Medicare fee-for-service program (see

§ 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 § 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 § 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 § 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, § 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 PSOaffiliated 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

§ 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 § 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 (§ 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,

§ 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 highdeductible 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 highdeductible policy as part of an MSA

plan, the organization must be

authorized by the State to assume risk,

and under § 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

(§ 422.402)

a. General Preemption (§ 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

§ 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 § 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

40258 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 (§ 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

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

• Benefit mandates (note that we did

not interpret a limit on cost-sharing to

be a ‘‘benefit’’).

• Appeals and grievances with

respect to M+C coverage

determinations.

• 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 benefitrelated 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 costsharing 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 Statemandated 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 § 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 Medicareapproved nursing facility, to return to

this ‘‘home’’ facility for posthospitalization 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

40260 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 § 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

§ 422.402(a), not specific preemption

under § 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

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

(§ 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 § 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

40262 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

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

§ 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 § 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

§ 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 § 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

40264 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 (§ 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

§ 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

§ 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

§ 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

§ 422.501(b)(3)(vi), and should be

prepared to demonstrate, upon request,

how the organization meets each

compliance plan element, as specified at

§ 422.501(b)(3)(vi), et seq.

Comment: Many commenters

addressed the requirement at

§ 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 § 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 selfreporting. We recognize, however, that

it is arguably unfair to impose a selfreporting 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.

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

§ 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

(§ 422.502(e))

Under § 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 § 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 § 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

40266 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

(§ 422.502(f)(2)(v))

Pursuant to authority at section

1851(d) of the Act, § 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 § 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, § 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,

§ 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

(§ 422.502(g))

In the interim final rule, we addressed

enrollee financial protection provisions

at § 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 § 417.122(a)(1), which applies to

all section 1876 contractors under

§ 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; § 422.502(g)(2) addresses M+C

organizations’ obligation to provide for

continued coverage of health care

benefits, and § 422.502(g)(3) sets forth

the mechanisms M+C organizations can

employ to provide the required enrollee

protections. We received three

comments regarding § 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 costsharing), 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

§ 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

§ 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.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 §§ 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 § 422.502(g)

(other than the ‘‘hold harmless’’

requirement in § 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 §§ 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

§ 422.502(g)(3) to clarify that the

alternative arrangements spelled out

there are linked only to the

indemnification provision in

§ 422.502(g)(1)(ii) and to the

continuation of benefits provision in

§ 422.502(g)(2).

7. Requirements of Other Laws and

Regulations (§ 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 § 422.502(h).

Response: These references are

intentionally broad and allencompassing. 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

(§ 422.502(i))

The requirements found at

§ 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

§ 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 laborintensive 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 § 422.502(i)(1),

and the applicability of these terms.

Some have pointed out that although

the term ‘‘related entity’’ is defined at

§ 422.500, the terms ‘‘contractor’’ and

‘‘subcontractor’’ are not defined.

40268 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 422.500. We

believe these definitions will clarify the

types of entities to which the M+C

contracting requirements described at

§ 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 § 422.502(i).

9. Certification of Data That Determine

Payment/Certification of the Accuracy

of ACR Information (§ 422.502(l))

Under § 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 § 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 § 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 § 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

(§ 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.

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

§ 422.504 to reflect this policy.

11. Nonrenewal of M+C Contracts

(§ 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

§ 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 § 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

§ 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.

40270 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

However, in response to the

commenter’s concern, we have

determined that the standard outlined at

§ 422.506(b)(1)(ii) for declining to renew

an M+C contract may be too vague to

enforce; therefore, we are deleting

§ 422.506(b)(1)(ii).

12. Provider Prior Notification and

Disclosure (§§ 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,

§ 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 §§ 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 § 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

(§ 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

§ 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 § 422.62(b).

Response: We believe that § 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 §§ 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 § 422.62(b), and we believe

that the existing language at

§ 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

§ 422.62(b)(1). Thus, we believe that any

change to the regulation language at

§ 422.508 or § 422.62(b)(1) is

unnecessary.

14. Termination of Contract by HCFA

(§ 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

§ 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

§ 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 § 422.510(a).

Response: In the June 1998 interim

final rule, and at § 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

§ 422.257; the M+C organization fails to

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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

§ 422.520; the M+C organization

substantially fails to comply with the

service access requirements in

§§ 422.112 or 422.114; or the M+C

organization fails to comply with the

requirements of § 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

§ 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 § 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

§ 422.510(c).

15. Minimum Enrollment Requirements

(§ 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 (§ 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 §§ 422.64, 422.502, and

422.512), by M+C organizations to

beneficiaries (see §§ 422.80 and

422.111), and by HCFA to beneficiaries

(under existing § 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

§ 422.516 to require M+C organizations

to report the statistics and other

information specified in § 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 § 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 (§ 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

§ 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

40272 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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

§ 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 § 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-forservice Medicare change of ownership

regulations containing identical

language (see § 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 § 489.18(a)(2) is identical to

that in § 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 § 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

(§§ 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 § 422.562(a),

essentially parallel those applicable to

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40273

HMOs under § 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,

§ 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 (§ 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 § 422.561 as any complaint

or dispute other than one that involves

an ‘‘organization determination’’ (as

described under § 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

§§ 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 § 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

(§§ 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, § 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

§ 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

§ 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 § 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

§ 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, § 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 § 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 § 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 § 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

§ 422.568(a), and § 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

40274 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

M+C organization’s decision not to

expedite. We also require under

§ 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 § 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

§ 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 §§ 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 (§§ 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

§ 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

§§ 422.582 and 422.584. The time frame

and notice requirements for

reconsiderations are set forth under

§ 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,

§ 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 § 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), § 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 § 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,

§ 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,

§ 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 § 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

§ 422.590(a). In addition, § 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, §§ 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

§§ 422.600 through 422.616.

5. Effectuation of a Reconsidered

Determination (§ 422.618)

Section 422.618 established

effectuation requirements for payments

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

40276 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 § 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 § 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 § 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

(§ 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 § 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 § 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 § 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 § 422.566(b) as follows:

• Paragraph (b)(1), which concerns

payment for out-of-plan services, is

revised by adding payment for out-ofarea renal dialysis to the existing list of

such services (which already included

emergency, urgently needed, and poststabilization services);

• 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;

• 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

• 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

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

§ 422.566(b)(3).

Examples of other situations that are

intended to fall within the clarified

definition of an organization

determination include:

• A physician requests approval of 10

home health visits, but the organization

approves only five visits (even though

Medicare allows more than five visits);

• An organization approves a referral

to a specialist, but the specialist it

designates does not have experience in

treating the enrollee’s rare condition;

• 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

• 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 § 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 § 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, § 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 (§§ 422.566, 422.568,

422.572, and 422.620)

Comment: Several commenters

believe that the regulations at

§§ 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

§ 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

40278 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 422.620 is a

separate requirement that should not be

confused with the provisions at

§§ 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 § 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 § 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 §§ 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 § 422.568(d)(4)

or under § 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 (§§ 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 organizationlevel 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

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

(§§ 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 servicerelated 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

§§ 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 § 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.

40280 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 paymentrelated 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

§ 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 § 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

§ 422.594 specify that the notice should

be written in ‘‘understandable

language,’’ as provided in § 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 § 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

(§§ 422.570, 422.572, 422.584, and

422.590)

Comment: Several commenters

expressed concern with § 422.572(d),

which provides that the 72-hour time

period under § 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 openended 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

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

§§ 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 §§ 422.572(a), (b),

and (f) for expedited organization

determinations and §§ 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

§ 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 §§ 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

§§ 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

40282 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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

§ 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

§ 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 § 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 §§ 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

§§ 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 §§ 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.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40283

13. Authorized Representative

(§§ 422.561 and 422.574)

Comment: A commenter suggested

that § 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 § 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

§ 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 § 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 (§§ 422.596,

422.600, 422.602, 422.608, 422.612, and

422.616)

Comment: One commenter suggested

that we revise § 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 § 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

40284 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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

§ 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 § 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

§§ 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 (§§ 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 § 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.

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

§ 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

§ 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,

40286 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 § 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 § 422.622(c), which expressly

addresses liability for services, and

§ 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,

§ 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, § 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

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

§ 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 § 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 § 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 Statedefined 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 Medicaidcovered service.

Comment: A commenter suggested

that § 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 § 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 § 422.510(b), impose

intermediate sanctions as described in

§§ 422.756(c)(1) and (c)(3), and/or

40288 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

impose civil money penalties as

described in § 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, § 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 § 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

(§ 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 § 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.

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

§ 422.111 for disclosing grievance and

appeal data upon request to M+Celigible 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 § 422.641. The commenter objected

to the fact that subpart N, and § 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, §§ 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,

§ 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 § 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

§ 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 § 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 § 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 § 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 § 422.662 that contemplates

hearings taking place after the initial

determination and reconsideration

occur.

Response: As mentioned earlier,

correcting the language at § 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 § 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 § 422.662(b) confuses our intent to

provide for a contract appeals process

that includes—in this order—(1) a

40290 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 § 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 § 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

§ 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 § 405.1875.

Comment: A commenter questioned

the provision at § 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 (§§ 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 § 417.500 for

contracts under section 1876 of the Act.

The BBA also contained additional

sanction authority not found in

§ 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

§ 422.510(a), and are discussed in

section II.K and II.N above. While

intermediate sanctions based on the

grounds for termination at § 422.510

generally are imposed on the same

terms as sanctions for the violations

specified in § 422.750(a), in the case of

all grounds except a finding of fraud or

abuse under § 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

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

§ 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

§ 422.752(b) provides that HCFA may

impose intermediate sanctions for any

violation under § 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:

• 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.

• 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.

• 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 (§ 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 § 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:

• No more than 390,000 individuals

may enroll in M+C MSA plans.

• 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.

• 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 (§ 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, § 422.62(d)

specifies that an individual may elect an

MSA plan only during one of the

following periods:

• 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.

• The annual coordinated election

period in November of each year.

4. Benefits (Subpart C)

a. Basic Benefits Under an M+C MSA

Plan (§ 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,

§ 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, § 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 (§§ 422.102

and 422.104)

Section 422.102 addresses the general

M+C rules on supplemental benefits.

40292 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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, § 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

§ 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, § 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:

• 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 countywide capitation rate for every enrollee

in that county.

• On a monthly basis, pay to the M+C

organization an amount equal to onetwelfth 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 § 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 § 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 § 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

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

40294 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 § 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-forservice 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 § 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 § 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 costsharing. 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 costsharing. In the case of a

nonparticipating durable medical

equipment, prosthetic and orthotics

(DMEPOS) supplier, the plan would pay

actual charges less the enrollee’s costsharing.

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 (§§ 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

40296 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

limited to coordinated care plans or

MSA plans also apply to M+C PFFS

plans.

Comment: Commenters suggested that

§ 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 (§ 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

§ 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 § 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-byprovider 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 § 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.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40297

7. Physician Incentive Plans (§ 422.208)

In § 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 Feefor-Service Plans (§ 422.216)

As discussed in detail in our June

1998 interim final rule (63 FR 35040),

§ 422.216(a) addresses payment to

providers. Specifically § 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

§ 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 § 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 § 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 § 422.216 address monitoring

and enforcement of the payment and

charge provisions (§ 422.216(c)),

notifications to plan members

concerning payment liability, including

balance billing rules (§ 422.216(d)), and

rules covering deemed contract

providers, including enrollee and

provider notification requirements

associated with these providers

regarding payment terms and conditions

(§§ 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

40298 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

department of a hospital. We have

revised § 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

§ 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.

• In § 422.2, we are revising the

definition of ‘‘service area’’, as well as

making minor technical changes to

several other definitions.

• We are revising § 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.

• To allow us the flexibility to vary

the timeframes for the enrollment

transmission schedule in the future, we

are amending § 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.’’

• We are revising § 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.’’

• In order to avoid introducing

confusion between responsibilities of

M+C organizations and HCFA, we have

eliminated material in § 422.64

concerning HCFA’s information

responsibilities and moved necessary

material to § 422.111.

• We have modified § 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 § 422.66(f)(2), as

opposed to within 15 days.

• At § 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.

• At § 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.

• We are adding a provision to

§ 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.

• We are changing the requirement at

§ 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.

• We are adding wallet card

instructions to the list of examples of

marketing materials at § 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 are revising § 422.80(e) to

permit more flexibility for providers in

distributing materials to M+C enrollees.

• We are adding a new

§ 422.80(e)(1)(viii) that prohibits new

M+C plan names that exclude the

disabled population.

• We are removing the definition of

post-stabilization services in

§ 422.100(b)(1)(iv) and instead including

all post-stabilization requirements in

new § 422.113. See section II.C of this

preamble for a full discussion of

changes in the post-stabilization

requirements.

• We are specifying at

§ 422.100(b)(1)(vi) and § 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.

• We are adding a provision at

§ 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.

• To promote beneficiary freedom of

choice among providers, § 422.105 is

revised to permit use of the POS option

for in-network providers, rather than

only for providers outside the plan

network.

• To clarify our existing policy, we

are clearly delineating HCFA’s review

authority in § 422.106 for employer

group health plans and Medicaid plans.

• We are adding a new § 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.

• We are revising § 422.109(b)(5) to

provide that M+C enrollees are

responsible only for coinsurance

amounts.

• We are revising § 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.

• We are revising § 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.

• At new § 422.113(b) we are

specifying that ‘‘urgently needed

services’’ are not ‘‘emergency services.’’

• We are clarifying at

§ 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40299

specifying that in the event of an

immediate and serious threat to health,

the enrollee may call 911.

• We are revising § 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 § 422.2

regardless of final diagnosis.

• 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

§ 422.156(a) to separate these two

situations.

• We are revising § 422.157(a)(3) to

relax the prohibition on the

participation of managed care

organization representatives in private

accreditation organization activities.

• We are revising § 422.158(e) to

provide that we will act within the same

timeframes that apply to fee-for-service

deeming.

• To help clarify that the appeals

procedures apply only for adverse

participation decisions, we are

redesignating the provider appeals

procedures from § 422.204(c) to new

§ 422.202(d).

• 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.

• We are consolidating the

regulations concerning

antidiscrimination and choice of

providers into new § 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.

• We have revised § 422.214 to clarify

the rules concerning payments to

noncontracting providers.

• We have revised § 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.

• We are revising § 422.257 to permit

M+C organizations to require that their

contractors provide them with complete

and accurate encounter data.

• We are adding two terms—‘‘first

tier’’ and ‘‘downstream’’—to the list of

definitions at § 422.500 that we believe

clarify the types of entities to which the

M+C contracting requirements

described at § 422.502(i) apply.

• We are revising the definition of

‘‘clean claim’’ in § 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.

• In consultation with the Office of

Inspector General, we are revising the

compliance plan requirements under

§ 422.501 to eliminate mandatory selfreporting.

• 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 § 422.502 to strengthen the

protections for Medicare enrollees in

situations where an M+C organization

or its contractors encounter financial

difficulties.

• 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.

• We are revising § 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.

• We are deleting § 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.

• We are adding a new

§ 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.

• We are changing the language at

section § 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.

• We are revising the definition of an

organization determination under

§ 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.

• 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

§§ 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.

• We are revising § 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.

• We have added new § 422.619

concerning effectuation of expedited

reconsideration determinations.

• We have revised § 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:

• The need for the information

collection and its usefulness in carrying

out the proper functions of our agency.

• The accuracy of our estimate of the

information collection burden.

• The quality, utility, and clarity of

the information to be collected.

• Recommendations to minimize the

information collection burden on the

affected public, including automated

collection techniques.

We are soliciting public comment on

each of these issues for the 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 § 422.306(a)(1). The

40300 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

burden associated with this reporting

provision is captured under § 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 nonnetwork 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 × 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

§ 422.80 (concerning approval of

marketing materials and election forms)

and with § 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

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

§§ 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

40302 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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-forservice 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:

• Increasing payments in counties

that historically had the lowest payment

rates (and generally have not had riskbased Medicare managed care plans)

through the use of a payment floor and

by introducing a blended payment rate.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40303

• Reducing the rate increases in

counties that historically had higher

payment rates.

• 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 riskadjusted 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 areaspecific 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 areaspecific 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

Percentage difference Number of

counties

Number of

beneficiaries

(000s)

Payment is

floor

Payment is

blend

Payment is

minimum

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 areaspecific 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

40304 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

Year Floor counties

(percent)

Blend counties

(percent)

2 percent counties

(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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40305

BILLING CODE 4120–01–C

40306 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

State

Weighted average

payment rate

2001

Weighted average

payment increase

97–01

(percent)

Payment rate as a

percent of national

1997

(percent)

Payment rate as a

percent of national

2001

(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:

Calendar

year

Demographic

method

(percent)

PIP–DCG

method

(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.

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

Region Enrollees

Percent

difference

(phase-in)

Percent

difference

(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

Enrollment size Enrollees

Percent

difference

(phase-in)

Percent

difference

(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

40308 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

State Total Medicare

population

Decrease in

beneficiaries

Percent decrease

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

State Total Medicare

population

Increase in

beneficiaries

Percent increase

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.

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40309

TABLE 9.—PERCENT OF BENEFICIARIES LIVING IN DESIGNATED AREAS HAVING ACCESS TO AN M+C PLAN WITH

ASSOCIATED PREMIUM 1999

Premium amount

1999 2000 Total

percent

change Urban

(percent)

Rural

(percent)

Total

(percent)

Urban

(percent)

Rural

(percent)

Total

(percent)

$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

Minimum premium

Year 1999 Year 2000

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

Minimum premium

Year 1999 Year 2000

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

40310 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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]

NCQA 1999 Overall

Domain 1 Domain 2 Domain 3 Domain 4

Quality assessment and

performance

improvement

Enrollee rights Health services

management Delegation

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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 costsavings over and above the initial

investment.

We recognize that some highperforming 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 betablocker 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:

• Applying the applicable notice and

appeal rights and consultation

requirements only to physicians, as

defined under section 1861 of the Act;

• Adopting a narrower interpretation

of what constitute ‘‘rules regarding

participation’’ to focus on whether a

physician can participate under a given

M+C plan;

• 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;

• Clarifying that an M+C organization

is not required to release information

that an organization considers

proprietary information;

• Clarifying that in the event that

immediate changes are mandated

40312 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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;

• Clarifying that there is no

requirement that an organization obtain

signatures acknowledging receipt of a

notice of changes;

• Limiting the applicability of the

appeals process to appealing adverse

participation decisions;

• 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

• 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 § 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

§ 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 § 422.400(a) and

§ 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

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

§ 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:

• Benefit requirements;

• Requirements relating to the

inclusion or treatment of providers; and

• 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

40314 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 programshealth, 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 § 417.402(b) to read as

follows:

§ 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.’’

§ 422.2 Definitions.

* * * * *

Basic benefits means all Medicarecovered 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 § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 nonnetwork M+C MSA plans even if the

M+C organization’s commercial plans

have multiple county service areas.

3. In § 422.4, revise paragraph

(a)(1)(iii) and add a new paragraph

(a)(1)(iv), to read as follows:

§ 422.4 Types of M+C plans.

(a) * * *

(1) * * *

(iii) Coordinated care plans include

plans offered by health maintenance

organizations (HMOs), providersponsored 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 § 422.8 to read as follows:

§ 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

§ 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 § 422.510.

5. Revise § 422.10 to read as follows:

§ 422.10 Cost-sharing in enrollmentrelated 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.

40316 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

(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 § 422.50(a) to read as

follows:

§ 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 § 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 § 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 § 422.54, the heading of

paragraph (b) and paragraphs (c)(2),

(d)(1), and (d)(3) are revised to read as

follows:

§ 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 § 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 § 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).

§ 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 § 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

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

§ 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 § 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:

§ 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 § 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).

§ 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 § 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 § 422.54 or

§ 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 § 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 § 422.68(c) to read as

follows:

§ 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 § 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),

40318 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

(d)(1), the heading of paragraph (d)(3),

(d)(4), and (d)(7) to read as follows:

§ 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

§ 422.50(a)(3)(ii), and optional

continued enrollment has not been

offered or elected under § 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 § 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 § 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 § 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 § 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).

§ 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 422.100 to read as

follows:

§ 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 § 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 § 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 § 422.113.

(ii) Emergency and urgently needed

services as provided in § 422.113.

(iii) Maintenance and poststabilization care services as provided in

§ 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 Medicarecovered services, except hospice

services, and additional benefits as

defined in § 422.2 and meeting all

requirements in § 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

§ 422.304(b)(2).

(e) Terms of M+C plans. Terms of

M+C plans described in instructions to

beneficiaries, as required by § 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

§ 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 § 422.112, as determined by

HCFA.

16. Revise § 422.101 to read as

follows:

§ 422.101 Requirements relating to basic

benefits.

Except as specified in § 422.264 (for

entitlement that begins or ends during a

hospital stay) and § 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

40320 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 422.102 to read as

follows:

§ 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 § 422.101 and

additional benefits described in

§ 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 § 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 § 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).

§ 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 (innetwork) 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 § 422.106 to read as

follows:

§ 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).

§ 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 § 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

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

§ 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 § 422.110(c) to read as

follows:

§ 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 § 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).

§ 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

§ 422.50(a)(3)(ii).

(5) * * *

(i) Explanation of what constitutes an

emergency, referencing the definitions

of emergency services and emergency

medical condition at § 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

§ 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 outof-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 feefor-service plan, differences in costsharing, enrollee premiums, and balance

billing, as compared to M+C plans.

(vi) The extent to which an enrollee

may obtain benefits through out-ofnetwork 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).

§ 422.112 Access to services.

(a) Rules for coordinated care plans

and network M+C MSA plans. An M+C

40322 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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 § 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 poststabilization care services coverage.

Provide coverage for ambulance

services, emergency and urgently

needed services, and post-stabilization

care services in accordance with

§ 422.113.

* * * * *

25. Add new § 422.113 to read as

follows:

§ 422.113 Special rules for ambulance

services, emergency and urgently needed

services, and maintenance and poststabilization 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 poststabilization care services (hereafter

together referred to as ‘‘poststabilization 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 § 422.214) for poststabilization 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 poststabilization 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 poststabilization 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 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 § 422.118 to read as

follows:

§ 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).

§ 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, nonnetwork MSA plan, or private fee-forservice 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 § 422.154, the introductory text

for paragraph (b) is republished, and

paragraph (b)(2) is revised to read as

follows:

§ 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

§ 422.156 to read as follows:

§ 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:

§ 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

40324 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

(iii) Provides at least a 30-day

comment period.

* * * * *

31. Revise the introductory text of

§ 422.158(e) to read as follows:

§ 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)

§ 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 § 422.204 to read as

follows:

§ 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 § 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 § 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 § 422.220 regarding

physicians and practitioners who opt

out of Medicare.

34. Add § 422.205 to read as follows:

§ 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 § 422.204, and with the

requirement under § 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

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40325

control costs consistent with its

responsibilities.

35. In § 422.206, the heading for

paragraph (b) is republished and

paragraph (b)(2) is revised to read as

follows:

§ 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

§ 422.80 (concerning approval of

marketing materials and election forms)

and with § 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 § 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).

§ 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-forservice plans. ***

* * * * *

37. In § 422.214, the heading for

paragraph (a) is republished and

paragraphs (a)(1) and (b) are revised to

read as follows:

§ 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 §§ 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 § 422.216, paragraphs (a)(4),

(b)(2), (c)(2), and the introductory text

for paragraph (f) are revised to read as

follows:

§ 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-forservice plan must accept as payment in

full the amounts (less any payments

under §§ 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 costsharing established by the M+C private

fee-for-service plan as specified in

§ 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 § 489.24 of this chapter, to

an enrollee in an M+C private fee-forservice 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).

§ 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—

40326 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

(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 § 422.254(b)(2) to read as

follows:

§ 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 § 422.257, revise paragraph (d)

and add paragraph (g) to read as follows:

§ 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-forservice 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-forservice.

* * * * *

(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 § 422.300(b)(2) to read as

follows:

§ 422.300 Basis and scope.

* * * * *

(b) * * *

(2) For contracts beginning on a date

other than January 1 (according to

§ 422.504(d)), M+C organizations may

submit ACRs on a date other than July

1 approved by HCFA.

43. Revise § 422.304(b) to read as

follows:

§ 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 § 422.306 is

submitted separately, as provided in

that section, for each such segment.

* * * * *

44. Revise the introductory text in

§ 422.306(a)(1) to read as follows:

§ 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 § 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).

§ 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 § 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 nonMedicare 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 § 422.312, the introductory text

for paragraph (b) is republished and

paragraph (b)(1) is revised to read as

follows:

§ 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—

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 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 § 422.352, the introductory

text for paragraph (a) is republished and

paragraph (a)(1) is revised to read as

follows:

§ 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

§ 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.’’

§ 422.500 Definitions.

* * * * *

Clean claim means—

(1) A claim that has no defect,

impropriety, lack of any required

substantiating documentation

(consistent with § 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).

§ 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 § 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).

§ 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,

40328 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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

§ 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 § 422.310.

54. In § 422.504, revise paragraph (b)

and remove paragraph (d) to read as

follows:

§ 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.

§ 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:

§ 422.510 Termination of contract by

HCFA.

(a) * * *

(12) The M+C organization

substantially fails to comply with the

marketing requirements in § 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 § 422.514(b)(1) to read as

follows:

§ 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 § 422.520(a)(3) to read as

follows:

§ 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.

* * * * *

§ 422.550 [Amended]

59. In § 422.550(a)(2), the heading

‘‘Unincorporated sole proprietor’’ is

removed and the heading ‘‘Asset Sale’’

is added in its place.

60. In § 422.561, the introductory text

is republished and the definitions of

‘‘Appeal’’ and ‘‘Authorized

representative’’ are revised to read as

follows:

§ 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 § 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).

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40329

§ 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 § 422.566(b) to read as

follows:

§ 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:

§ 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 § 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).

§ 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 § 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 § 422.572, revise paragraphs (b),

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

§ 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

40330 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

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).

§ 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 § 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).

§ 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 § 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 § 422.594, the introductory text

for paragraph (b) is republished, and

paragraph (b)(1) is revised to read as

follows:

§ 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;

* * * * *

Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations 40331

69. Revise § 422.596 to read as

follows:

§ 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 § 422.602, or unless the

reconsidered determination is revised

under § 422.616.

70. Revise § 422.612(b) to read as

follows:

§ 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).

§ 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 § 422.619 to read as

follows:

§ 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

§ 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:

§ 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 §§ 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

§ 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 § 422.648(b) to read as

follows:

§ 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 § 422.650.

75. In § 422.650, paragraphs (c) and

(d) are revised to read as follows:

§ 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

40332 Federal Register / Vol. 65, No. 126 / Thursday, June 29, 2000 / Rules and Regulations

withdrawal must be in writing and filed

with HCFA.

76. Revise § 422.652 to read as

follows:

§ 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 § 422.662, to

present as evidence any documents or

written statements that are relevant and

material to the matters at issue.

77. Revise § 422.656 to read as

follows:

§ 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 § 422.660, the introductory text

is republished and paragraph (a) is

revised to read as follows:

§ 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 § 422.662, paragraphs (a) and

(b) are revised to read as follows:

§ 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