Vol. 79 Friday, 

No. 7 January 10, 2014 

Part II 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 409, 417, 422, et al. 

Medicare Program; Contract Year 2015 Policy and Technical Changes to 

the Medicare Advantage and the Medicare Prescription Drug Benefit 

Programs; Proposed Rule 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

1918 Federal Register / Vol. 79, No. 7 / Friday, January 10, 2014 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 409, 417, 422, 423, and 

424 

[CMS–4159–P] 

RIN 0938–AR37 

Medicare Program; Contract Year 2015 

Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: The proposed rule would 

revise the Medicare Advantage (MA) 

program (Part C) regulations and 

prescription drug benefit program (Part 

D) regulations to implement statutory 

requirements; strengthen beneficiary 

protections; exclude plans that perform 

poorly; improve program efficiencies; 

and clarify program requirements. The 

proposed rule also includes several 

provisions designed to improve 

payment accuracy. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on March 7, 2014. 

ADDRESSES: In commenting, please refer 

to file code CMS–4159–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

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

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4159–P, P.O. Box 8013, Baltimore, 

MD 21244–8013. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–4159–P, Mail 

Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments ONLY to the 

following addresses prior to the close of 

the comment period: a. For delivery in 

Washington, DC—Centers for Medicare 

& Medicaid Services, Department of 

Health and Human Services, Room 445– 

G, Hubert H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–9994 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Christopher McClintick, (410) 786– 

4682, Part C issues. Marie Manteuffel, 

(410) 786–3447, Part D issues. Kristy 

Nishimoto, (206) 615–2367, Part C and 

D enrollment and appeals issues. 

Whitney Johnson, (410) 786–0490, Part 

C and D payment issues. Clarisse 

Owens, (410) 786–0880, Part C and D 

compliance issues. Frank Whelan, (410) 

786–1302, Part D improper prescribing 

issues. 

SUPPLEMENTARY INFORMATION: Inspection 

of Public Comments: All comments 

received before the close of the 

comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Executive Summary 

A. Purpose 

B. Summary of the Major Provisions 

1. Eligibility of Enrollment for Individuals 

Not Lawfully Present in the United 

States 

2. Modifying the Agent/Broker 

Requirements, Specifically Agent/Broker 

Compensation 

3. Drug Categories or Classes of Clinical 

Concern 

4. Improving Payment Accuracy 

5. Risk Adjustment Data Requirements 

(§ 422.310) 

C. Summary of Costs and Benefits 

II. Background 

III. Provisions of the Proposed Regulations 

A. Clarifying Various Program 

Participation Requirements 

1. Closing Cost Contract Plans to New 

Enrollment (§ 422.2 and § 422.503) 

2. Two-Year Limitation on Submitting a 

New Bid in an Area Where an MA has 

been Required To Terminate a LowEnrollment MA Plan (§ 422.504(a)(19)) 

3. Authority To Impose Intermediate 

Sanctions and Civil Money Penalties 

(§ 422.752, § 423.752, § 422.760 and 

§ 423.760) 

4. Contract Termination Notification 

Requirements and Contract Termination 

Basis (§ 422.510 and § 423.509) 

5. Reducing the Burden of the Compliance 

Program Training Requirements 

(§ 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C)) 

6. Changes To Audit and Inspection 

Authority (§ 422.503(d)(2) and 

§ 423.504(d)(2)) 

7. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D (§ 422.756 and 

§ 423.756) 

8. Timely Access to Mail Order Services 

(§ 423.120) 

9. Collections of Premiums and Cost 

Sharing (§ 423.294) 

10. Enrollment Eligibility for Individuals 

Not Lawfully Present in the United 

States (§§ 417.2, 417.420, 417.422, 

417.460, 422.1, 422.50, 422.74, 423.1, 

423.30, and 423.44) 

a. Basic Enrollment Requirements 

b. Medicare Eligibility and Lawful 

Presence 

c. Alignment of MA, PDP, and Cost Plan 

Eligibility With FFS Payment Exclusion 

Policy 

11. Part D Notice of Changes (§ 423.128(g)) 

12. Separating the Annual Notice of 

Change (ANOC) From the Evidence of 

Coverage (EOC) (§ 422.111(a)(3) and 

§ 423.128(a)(3)) 

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13. Agent/Broker Requirements, 

Particularly Compensation (§ 422.2274 

and § 423.2274). 

14. Drug Categories or Classes of Clinical 

Concern and Exceptions 

(§ 423.120(b)(2)(v) and (vi)) 

a Categories or Classes of Clinical Concern 

b. Criteria Necessary To Identify Categories 

and Classes of Clinical Concern 

c. Exceptions 

d. Analysis and Identification of the 

Categories or Classes of Clinical Concern 

15. Medication Therapy Management 

Program (MTMP) Under Part D 

(§ 423.153(d)) 

a. Multiple Chronic Diseases 

b. Multiple Part D Drugs 

c. Annual Cost Threshold 

16. Business Continuity for MA 

Organizations and PDP Sponsors 

(§ 422.504(o) and § 423.505(p)) 

17. Requirement for Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part D 

Functions 

18. Requirement for Applicants for Stand 

Alone Part D Plan Sponsor Contracts to 

Be Actively Engaged in the Business of 

the Administration of Health Insurance 

Benefits (§ 423.504(b)(9)) 

19. Limit Parent Organizations to One 

Prescription Drug Plan (PDP) Sponsor 

Contract Per PDP Region 

20. Limit Stand-Alone Prescription Drug 

Plan Sponsors to Offering No More Than 

Two Plans Per PDP Region 

21. Efficient Dispensing in Long Term Care 

Facilities and Other Changes (§ 423.154) 

a. Prohibition on Payment Arrangements 

That Penalize the Offering and Adoption 

of More Efficient LTC Dispensing 

Techniques (§ 423.154) 

b. Misinterpretation of Language as 

Requiring the Proration of Dispensing 

Fees (§ 423.154) 

c. Additional Waiver for LTC Pharmacies 

Using Restock and Reuse Dispensing 

Methodologies Under Certain Conditions 

(§ 423.154) 

d. Technical Change To Eliminate 

Requirement That PDP Sponsors Report 

on the Nature and Quantity of Unused 

Brand and Generic Drugs (§ 423.154) 

22. Applicable Cost-Sharing for Transition 

Supplies: Transition Process Under Part 

D § 423.120(b)(3) 

23. Medicare Coverage Gap Discount 

Program and Employer Group Waiver 

Plans (§ 423.2325) 

24. Interpreting Non Interference Provision 

(§ 423.10) 

25. Pharmacy Price Concessions in 

Negotiated Prices (§ 423.100) 

26. Payments to PDP Plan Sponsors For 

Qualified Prescription Drug Coverage 

(§ 423.308) and Payments to Sponsors of 

Retiree Prescription Drug Plans 

(§ 423.882) 

27. Preferred Cost Sharing (§ 423.100 and 

§ 423.120) 

28. Prescription Drug Pricing Standards 

and Maximum Allowable Cost 

(§ 423.505(b)(21)) 

29. Any Willing Pharmacy Standard Terms 

& Conditions (§ 423.120(a)(8)) 

a. Preferred Cost Sharing 

b. Extended Days’ Supply 

c. Mail Order Cost Sharing 

30. Enrollment Requirements for the 

Prescribers of Part D Covered Drugs 

(§ 423.120(c)(5) and (6)) 

31. Improper Prescribing Practices and 

Patterns 

a. Background and Program Integrity 

Concerns 

b. Drug Enforcement Administration (DEA) 

Certification of Registration 

c. Proposed Provisions 

(1) DEA Certificate and State Authority 

(2) Patterns or Practices of Prescribing 

(a) Grounds for Revocation 

(b) Criteria To Be Considered 

32. Transfer of TrOOP Between PDP 

Sponsors Due to Enrollment Changes 

During the Coverage Year (§ 423.464) 

a. Exclusion From TrOOP of Increased Cost 

Sharing Amounts Incurred Due to 

Secondary COB (§ 423.100) 

b. Transfer of TrOOP Between PDP 

Sponsors Due to Enrollment Changes 

During the Coverage Year (§ 423.464) 

33. Broadening the Release of Part D Data 

34. Establish Authority to Directly Request 

Information From First Tier, 

Downstream, and Related Entities 

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

35. Eligibility of Enrollment for 

Incarcerated Individuals (§ 417.422, 

§ 417.460, § 422.74, and § 423.44) 

a. Changes in Definition of Service Area for 

Cost Plans (§ 417.422(b)) 

b. Involuntary Disenrollment for 

Incarcerated Individuals Enrolled in MA, 

PDP and Cost Plans (§ 417.460, § 422.74, 

and § 423.44) 

36. Rewards and Incentives Program 

Regulations for Part C Enrollees 

(§ 422.134) 

37. Expand Quality Improvement Program 

Regulations (§ 422.152) 

38. Authorization of Expansion of 

Automatic or Passive Enrollment NonRenewing Dual Eligible SNPs (D–SNPs) 

to Another D–SNP to Support Alignment 

Procedures (§ 422.60) 

B. Improving Payment Accuracy 

1. Implementing Overpayment Provisions 

of Section 1128J(d) of the Social Security 

Act (§ 422.326 and § 423.360) 

a. Terminology (§ 422.326(a) and 

§ 423.360(a)) 

b. General Rules for Overpayments 

(§ 422.326(a) Through (c) and 

§ 423.360(a) Through (c)) 

c. Look-Back Period for Reporting and 

Returning Overpayments 

2. Determination of Payments (§ 423.329) 

3. Reopening (§ 423.346) 

a. Part D Plan Payments Reopening 

b. Coverage Gap Discount Reconciliation 

Reopening 

4. Payment Appeals (§ 423.350) 

5. Payment Processes for Part D Sponsors 

(§ 423.2320) 

6. Risk Adjustment Data Requirements 

(§ 422.310) 

7. RADV Appeals 

a. Background 

b. RADV Definitions 

c. Publication of RADV Methodology 

d. Proposal To Update RADV Appeals 

Terminology (§ 422.311) 

e. Proposal To Simplify the RADV Appeals 

Process 

(1) Issues Eligible for RADV Appeal 

(2) Issues Not Eligible for RADV Appeals 

(3) Manner and Timing of a Request for 

RADV Appeal 

(4) Reconsideration Stage 

(5) Hearing Stage 

(6) CMS Administrator Review Stage 

f. Proposal To Expand Scope of RADV 

Audits 

g. Proposal To Clarify the RADV Medical 

Record Review Determination Appeal 

Burden of Proof Standard 

h. Proposal To Change RADV Audit 

Compliance Date 

8. Recovery Audit Contractor (RAC) 

Determination Appeals (Proposed Part 

422 Subpart Z and Part 423 Subpart Z) 

a. Background 

b. Proposed RAC Appeals Process 

(1) Reconsiderations (§ 422.2605 and 

§ 423.2605) 

(2) Hearing Official Determinations 

(§ 422.2610 and § 423.2610) 

(3) Administrator Review (§ 422.2615 and 

§ 423.2615) 

C. Strengthening Beneficiary Protections 

1. Providing High Quality Health Care 

(§ 422.504(a)(3) and § 423.505(b)(27)) 

2. MA–PD Coordination Requirements for 

Drugs Covered Under Parts A, B, and D 

(§ 422.112) 

3. Good Cause Processes (§ 417.460, 

§ 422.74 and § 423.44) 

4. Definition of Organization 

Determination (§ 422.566) 

5. MA Organizations May Extend 

Adjudication Timeframes for 

Organization Determinations and 

Reconsiderations (§ 422.568, § 422.572, 

§ 422.590, § 422.618, and § 422.619) 

D. Strengthening Our Ability To 

Distinguish Stronger Applicants for Part 

C and D Program Participation and To 

Remove Consistently Poor Performers 

1. Two-Year Prohibition When 

Organizations Terminate Their Contracts 

(§ 422.502, § 422.503, § 422.506, 

§ 422.508, and § 422.512) 

2. Withdrawal of Stand-Alone Prescription 

Drug Plan Bid Prior to Contract 

Execution (§ 423.503) 

3. Essential Operations Test Requirement 

for Part D (§ 423.503(a) and (c), 

§ 423.504(b)(10), § 423.505(b)(28), and 

§ 423.509) 

a. Failing Essential Operations Test as 

Cause for Immediate Termination 

b. Failing Essential Operations Test as 

Failure of a Qualification to Contract and 

Grounds for Nullification of Approval 

4. Termination of the Contracts of 

Medicare Advantage Organizations 

Offering Part D for Failure for Three 

Consecutive Years To Achieve Three 

Stars on Both Part C and Part D 

Summary Star Ratings in the Same 

Contract Year (§ 422.510) 

E. Implementing Other Technical Changes 

1. Requirements for Urgently Needed 

Services (§ 422.113) 

2. Skilled Nursing Facility Stays (§ 422.101 

and § 422.102) 

3. Agent and Broker Training and Testing 

Requirements (§ 422.2274 and 

§ 423.2274) 

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4. Deemed Approval of Marketing 

Materials (§ 422.2266 and § 423.2266) 

5. Cross-Reference Change in the Part C 

Disclosure Requirements (§ 422.111) 

6. Managing Disclosure and Recusal in P&T 

Conflicts of Interest: [Formulary] 

Development and Revision by a 

Pharmacy and Therapeutics Committee 

Under PDP (§ 423.120(b)(1)) 

7. Definition of a Part D Drug (§ 423.100) 

a. Combination Products 

b. Barbiturates and Benzodiazepines 

c. Medical Foods 

8. Thirty-Six-Month Coordination of 

Benefits (COB) Limit (§ 423.466(b)) 

9. Application and Calculation of Daily 

Cost-Sharing Rates (§ 423.153) 

10. Technical Change To Align Regulatory 

Requirements for Delivery of the 

Standardized Pharmacy Notice 

(§ 423.562) 

11. Special Part D Access Rules During 

Disasters or Emergencies (§ 423.126) 

12. MA Organization Responsibilities in 

Disasters and Emergencies (§ 422.100) 

13. Termination of a Contract Under Parts 

C and D (§ 422.510 and § 423.509) 

a. Cross-reference Change (§ 423.509(d)) 

b. Terminology Changes (§ 422.510 and 

§ 423.509) 

c. Technical Change To Align Paragraph 

Headings (§ 422.510(b)(2)) 

d. Terminology Change 

(§ 423.509(b)(2)(C)(ii)) 

14. Technical Changes To Align Part C and 

Part D Contract Determination Appeal 

Provisions (§ 422.641 and § 422.644) 

a. Technical Changes (§ 422.641) 

b. Technical Changes (§ 422.644(a) and (b)) 

15. Technical Changes To Align Parts C 

and D Appeal Provisions (§ 422.660 and 

§ 423.650) 

16. Technical Changes Regarding 

Intermediate Sanctions and Civil Money 

Penalties (§ 422.756 and § 423.756) 

a. Technical Changes to Intermediate 

Sanctions Notice Receipt Provisions 

(§ 422.756(a)(2) and § 423.756(a)(2)) 

b. Cross-reference Changes (§ 422.756(b)(4) 

and § 423.756(b)(4)) 

c. Technical Changes (§ 422.756(d) and 

§ 423.756(d)) 

d. Technical Changes To Align the Civil 

Money Penalty Provision With the 

Authorizing Statute (§ 422.760(a)(3) and 

§ 423.760(a)(3)) 

e. Technical Changes To Align the Civil 

Money Penalty Notice Receipt Provisions 

(§ 422.1020(a)(2), § 423.1020(a)(2), 

§ 422.1016(b)(1), and § 423.1016(b)(1)) 

17. Technical Change to the Restrictions on 

use of Information Under Part D 

(§ 423.322) 

IV. Collection of Information Requirements 

A. ICRs Related to Eligibility of Enrollment 

for Individuals Not Lawfully Present in 

the United States (§ 417.2, § 417.420, 

§ 417.422, § 417.460, § 422.1, § 422.50, 

§ 422.74, § 423.1, § 423.30, and § 423.44) 

B. ICRs Related to Improper Prescribing 

Practices and Patterns (§ 424.535(a)(13) 

and (14)) 

C. ICRs Related to Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part D 

Functions (§ 423.504(b)(8)(i) through 

(iii)) 

D. ICRs Related to Eligibility of Enrollment 

for Incarcerated Individuals 

E. ICRs Related to Rewards and Incentives 

Program Regulations for Part C Enrollees 

(§ 422.134) 

F. ICRs Related to Expanding Quality 

Improvement Program Regulations 

(§ 422.152) 

G. ICRs Related to Good Cause Processes 

(§ 417.460, § 422.74 and § 423.44) 

H. ICRs Related to the Definition of 

Organization Determination (§ 422.566) 

I. ICRs Related to Skilled Nursing Facility 

Stays (§ 422.101 and § 422.102) 

J. ICRs Related to MA Organization 

Responsibilities in Disasters and 

Emergencies (§ 422.100) 

K. ICR Related to Recovery Audit 

Contractor Determinations (Part 422, 

Subpart Z and Part 423, Subpart Z) 

V. Response to Comments 

VI. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Anticipated Effects 

1. Effects of Closing Cost Contract Plans to 

New Enrollment 

2. Effects of the Two-Year Limitation on 

Submitting a New Bid in an Area Where 

an MA Has Been Required To Terminate 

a Low-Enrollment MA Plan 

3. Effects of the Authority To Impose 

Intermediate Sanctions and Civil Money 

Penalties 

4. Effects of Contract Termination 

Notification Requirements and Contract 

Termination Basis 

5. Effects of Reducing the Burden of the 

Compliance Program Training 

Requirements 

6. Effects of Audit and Inspection 

Authority 

7. Effects of the Procedures for Imposing 

Intermediate Sanctions and Civil Money 

Penalties Under Parts C and D 

8. Effects of Timely Access to Mail Order 

Services 

9. Effects of the Collections of Premiums 

and Cost Sharing 

10. Effects of Enrollment Eligibility for 

Individuals Not Lawfully Present in the 

United States 

11. Effects of Part D Notice of Changes 

12. Effects of Separating the Annual Notice 

of Change (ANOC) From the Evidence of 

Coverage (EOC) 

13. Effects of the Modification of the 

Agent/Broker Compensation 

Requirements 

14. Effects of Drug Categories or Classes of 

Clinical Concern and Exceptions 

15. Effects of the Medication Therapy 

Management Program (MTMP) Under 

Part D 

16. Effects of the Business Continuity for 

MA Organizations and Part D Sponsors 

17. Effects of the Requirement for 

Applicants or Their Contracted First 

Tier, Downstream, or Related Entities To 

Have Experience in the Part D Program 

Providing Key Part D Functions 

18. Effects of Requirement for Applicants 

for Stand Alone Part D Plan Sponsor 

Contracts To Be Actively Engaged in the 

Business of the Administration of Health 

Insurance Benefits 

19. Effects of Limit Parent Organizations to 

One Prescription Drug Plan (PDP) 

Sponsor Contract per PDP Region 

20. Effects of Limit Stand-Alone 

Prescription Drug Plan Sponsors to 

Offering No More Than Two Plans per 

PDP Region 

21. Effects of Efficient Dispensing and in 

Long Term Care Facilities and Other 

Changes 

22. Effects of Applicable Cost-Sharing for 

Transition Supplies: Transition Process 

Under Part D 

23. Effects of Medicare Coverage Gap 

Discount Program and Employer Group 

Waiver Plans 

24. Effects of Interpreting the NonInterference Provision 

25. Effects of Pharmacy Price Concessions 

in Negotiated Prices 

26. Effects of Payments to PDP Plan 

Sponsors for Qualified Prescription Drug 

Coverage and Payments to Sponsors of 

Retiree Prescription Drug Plans 

27. Effects of Preferred Cost Sharing 

28. Effects of Maximum Allowable Cost 

Pricing Standard 

29. Effects of Any Willing Pharmacy 

Standard Terms & Conditions 

30. Effects of Enrollment Requirements for 

the Prescribers of Part D Covered Drugs 

31. Effects of Improper Prescribing 

Practices and Patterns 

32. Effects of the Transfer of TrOOP 

Between Part D Sponsors Due to 

Enrollment Changes During the Coverage 

Year 

33. Effects of Broadening the Release of 

Part D Data 

35. Effects of Eligibility of Enrollment for 

Incarcerated Individuals 

36. Effects of Rewards and Incentives 

Program Regulations for Part C Enrollees 

37. Effects of Expand Quality Improvement 

Program Regulations 

38. Effects of Authorization of Expansion 

of Automatic or Passive Enrollment NonRenewing Dual-Eligible SNPs (D–SNPs) 

to Another D–SNP To Support 

Alignment Procedures 

39. Effects of Improving Payment 

Accuracy: Reporting Overpayments, 

RADV Appeals, Part D Payment 

Reopening, LIS Cost Sharing, and 

Coverage Gap Discount Program 

40. Effects of Part C and Part D RAC 

Determination Appeals 

41. Effects of Requirement To Provide High 

Quality Health Care 

42. Effects of MA–PD Coordination 

Requirements for Drugs Covered Under 

Part D 

43. Effects of Revisions to Good Cause 

Processes 

44. Effects of the Definition of Organization 

Determination 

45. Effects of MA Organization Extension 

of Adjudication Timeframes for 

Organization Determinations and 

Reconsiderations 

46. Effects of the Two-Year Prohibition 

When Organizations Terminate Their 

Contracts 

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47. Effects of the Withdrawal of Stand 

Alone Prescription Drug Plan Bid Prior 

to Contract Execution 

48. Effects of Essential Operations Test 

Requirement for Part D 

50. Effects of the Requirements for 

Urgently Needed Services 

51. Effects of Skilled Nursing Facility Stays 

52. Effects of Agent and Broker Training 

and Testing Requirements 

53. Effects of Deemed Approval of 

Marketing Materials 

54. Effects of Part C Disclosure 

Requirements 

55. Effects of Managing Disclosure and 

Recusal in P&T Conflicts of Interest: 

Formulary Development and Revision by 

a Pharmacy and Therapeutics Committee 

Under Part D 

56. Effects of the Technical Changes to the 

Definition of a Part D Drug 

57. Effects of the Thirty-Sixth Month 

Coordination of Benefits (COB) Limit 

58. Effects of Application and Calculation 

of Daily Cost-Sharing Rates 

59. Effects of the Technical Change To 

Align Regulatory Requirements for 

Delivery of the Standardized Pharmacy 

Notice 

60. Effects of the Special Part D Access 

Rules During Disasters 

61. Effects of the MA Organization 

Responsibilities in Disasters and 

Emergencies 

62. Effects of the Technical Changes 

Regarding the Termination of a Contract, 

Contract Determination and Other 

Appeals, and Intermediate Sanctions and 

Civil Money Penalties Under Parts C 

and D 

63. Effects of the Technical Change to the 

Restrictions on Use of Information Under 

Part D 

D. Expected Benefits 

1. Drug Categories or Classes of Clinical 

Concerns and Exceptions 

2. Medication Therapy Management 

Program Under Part D 

E. Alternatives Considered 

1. Separating the Annual Notice of Change 

From the Evidence of Coverage 

2. Modifying the Agent/Broker 

Compensation Requirements 

3. Medicare Coverage Gap Discount 

Program and Employer Group Waiver 

Plans 

4. Prescription Drug Pricing Standards and 

Maximum Allowable Cost 

5. Access to Covered Part D Drugs: Use of 

Standardized Technology 

6. Any Willing Pharmacy Standard Terms 

and Conditions 

7. Negotiated Prices 

8. Preferred Cost Sharing 

9. Transfer of TrOOP Between Part D 

Sponsors Due to Enrollment Changes 

During the Coverage Year 

10. Part D Notice of Changes 

11. Special Part D Access Rules During 

Disasters or Emergencies 

12. Business Continuity for MAOs and Part 

D Sponsors 

13. Drug Categories or Classes of Clinical 

Concerns and Exceptions 

14. Medication Therapy Management 

Program (MTM) Under Part D 

15. Requirement for Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities to Have Experience in 

the Part D Program Providing Key Part D 

Functions 

F. Accounting Statement and Table 

G. Conclusion 

H pages 

Regulations Text 

Acronyms 

ADS Automatic Dispensing System 

AEP Annual Enrollment Period 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service-Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ALJ Administrative Law Judge 

ANOC Annual Notice of Change 

AO Accrediting Organization 

AOR Appointment of Representative 

BBA Balanced Budget Act of 1997 (Pub. L. 

105–33) 

BBRA [Medicare, Medicaid and State Child 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (Pub. L. 

106–113) 

BIPA [Medicare, Medicaid, and SCHIP] 

Benefits Improvement Protection Act of 

2000 (Pub. L. 106–554) 

BLA Biologics License Application 

CAHPS Consumer Assessment Health 

Providers Survey 

CAP Corrective Action Plan 

CCIP Chronic Care Improvement Program 

CC/MCC Complication/Comorbidity and 

Major Complication/Comorbidity 

CCS Certified Coding Specialist 

CDC Centers for Disease Control 

CHIP Children’s Health Insurance Programs 

CMP Civil Money Penalty 

CMR Comprehensive Medical Review 

CMS Centers for Medicare & Medicaid 

Services 

CMS–HCC CMS Hierarchal Condition 

Category 

CTM Complaints Tracking Module 

COB Coordination of Benefits 

CORF Comprehensive Outpatient 

Rehabilitation Facility 

CPC Certified Professional Coder 

CY Calendar year 

DAB Departmental Appeals Board 

DEA Drug Enforcement Administration 

DIR Direct and Indirect Remuneration 

DME Durable Medical Equipment 

DMEPOS Durable Medical Equipment, 

Prosthetic, Orthotics, and Supplies 

D–SNPs Dual Eligible SNPs 

DOL U.S. Department of Labor 

DUM Drug Utilization Management 

EAJR Expedited Access to Judicial Review 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

EOC Evidence of Coverage 

ESRD End-Stage Renal Disease 

FACA Federal Advisory Committee Act 

FDA Food and Drug Administration 

FEHBP Federal Employees Health Benefits 

Plan 

FFS Fee-For-Service 

FIDE Fully-integrated Dual Eligible 

FIDE SNPs Fully-integrated Dual Eligible 

Special Needs Plans 

FMV Fair Market Value 

FY Fiscal year 

GAO Government Accountability Office 

HAC Hospital-Acquired Conditions 

HCPP Health Care Prepayment Plans 

HEDIS HealthCare Effectiveness Data and 

Information Set 

HHS [U.S. Department of] Health and 

Human Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

HMO Health Maintenance Organization 

HOS Health Outcome Survey 

HPMS Health Plan Management System 

ICEP Initial Coverage Enrollment Period 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

ID Identification 

IRE Independent Review Entity 

IRMAA Income-Related Monthly 

Adjustment Amount 

IVC Initial Validation Contractor 

LCD Local Coverage Determination 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LPPO Local Preferred Provider 

Organization 

LTC Long Term Care 

MA Medicare Advantage 

MAAA Member of the American Academy 

of Actuaries 

MA–PD Medicare Advantage-Prescription 

Drug Plan 

MAC Medicare Appeals Council 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008 (Pub. L. 110– 

275) 

MOC Medicare Options Compare 

MOOP Maximum Out-of-Pocket 

MPDPF Medicare Prescription Drug Plan 

Finder 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MS–DRG Medicare Severity Diagnosis 

Related Group 

MSA Metropolitan Statistical Area 

MSAs Medical Savings Accounts 

MSP Medicare Secondary Payer 

MTM Medication Therapy Management 

MTMP Medication Therapy Management 

Program 

NAIC National Association Insurance 

Commissioners 

NCD National Coverage Determination 

NCPDP National Council for Prescription 

Drug Programs 

NCQA National Committee for Quality 

Assurance 

NDA New Drug Application 

NDC National Drug Code 

NGC National Guideline Clearinghouse 

NIH National Institutes of Health 

NOMNC Notice of Medicare Non-Coverage 

NPI National Provider Identifier 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

OTC Over the Counter 

Part C Medicare Advantage 

Part D Medicare Prescription Drug Benefit 

Program 

PBM Pharmacy Benefit Manager 

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PDE Prescription Drug Event 

PDP Prescription Drug Plan 

PFFS Private Fee For Service Plan 

POA Present on Admission (Indicator) 

POS Point-of-Sale 

PPO Preferred Provider Organization 

PPS Prospective Payment System 

P&T Pharmacy & Therapeutics 

QIC Qualified Independent Contractor 

QIO Quality Improvement Organization 

QRS Quality Review Study 

PACE Programs of All Inclusive Care for the 

Elderly 

RADV Risk Adjustment Data Validation 

RAPS Risk Adjustment Payment System 

RPPO Regional Preferred Provider 

Organization 

SEP Special Enrollment Period 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSA Social Security Administration 

SSI Supplemental Security Income 

T&C Terms and Conditions 

TPA Third Party Administrator 

TrOOP True Out-Of-Pocket 

U&C Usual and Customary 

UPIN Uniform Provider Identification 

Number 

USP U.S. Pharmacopoeia 

I. Executive Summary 

A. Purpose 

The purpose of this proposed rule is 

to make revisions to the Medicare 

Advantage (MA) program (Part C) and 

Prescription Drug Benefit Program (Part 

D) regulations based on our continued 

experience in the administration of the 

Part C and Part D programs and to 

implement certain provisions of the 

Affordable Care Act. The proposed 

changes are necessary to—(1) clarify 

various program participation 

requirements; (2) make changes to 

strengthen beneficiary protections; (3) 

strengthen our ability to identify strong 

applicants for Part C and Part D program 

participation and remove consistently 

poor performers; and (4) make other 

clarifications and technical changes. 

B. Summary of the Major Provisions 

1. Eligibility of Enrollment for 

Individuals Not Lawfully Present in the 

United States 

The Personal Responsibility and Work 

Opportunity Reconciliation Act of 1996 

makes individuals not lawfully present 

in the United States ineligible to receive 

federal benefits (such as Medicare), even 

if they are otherwise entitled to benefits. 

While we would not pay FFS claims for 

unlawfully present beneficiaries, MA, 

and Part D enrollment rules currently do 

not prevent the payment of capitation 

rates for these individuals. We are 

proposing to establish U.S. citizenship 

and lawful presence as an eligibility 

requirement for enrollment in MA and 

Part D plans. 

2. Modifying the Agent/Broker 

Requirements, Specifically Agent/ 

Broker Compensation 

The current compensation structure is 

comprised of a 6-year cycle and is 

scheduled to end December 31, 2013. 

MA organizations and PDP sponsors 

provide an initial compensation 

payment to independent agents for new 

enrollees (Year 1), and pay a renewal 

rate (equal to 50 percent of the initial 

year compensation) for Years 2 through 

6. This structure has proved to be 

complicated to implement and monitor, 

and the current structure creates an 

incentive for agents to move 

beneficiaries as long as the fair market 

value (FMV) continues to increase each 

year. To simplify the administration of 

these payments and reduce incentives 

for agents and brokers to encourage 

beneficiaries to enroll in plans without 

regard to ensuring plan benefits would 

meet the beneficiaries’ health care 

needs, we are proposing to revise the 

existing compensation structure. Under 

our proposal, MA organizations and 

PDP sponsors would continue to have 

the discretion to decide, on an annual 

basis, whether to pay initial and/or 

renewal compensation payments to 

their independent agents. Also, for new 

enrollments, MA organizations and 

sponsors could make an initial payment 

that is no greater than the FMV amount, 

which we would set annually in our 

guidance that interprets these 

regulations. For renewals in Year 2 and 

subsequent years, the MA organization 

or sponsor could pay up to 35 percent 

of the FMV amount for that year. We 

believe that revising the existing 

compensation structure to allow MA 

organizations or Part D sponsors to pay 

up to 35 percent of the FMV for year 2 

and subsequent years is appropriate 

based on a couple of factors. First, we 

believe that a 2 tiered payment system 

(that is, initial and renewal) would be 

significantly less complicated than a 3- 

tiered system (that is, initial, 50 percent 

renewal for years 2 through 6, and 25 

percent residual for years 7 and 

subsequent years), and would reduce 

administrative burden and confusion for 

plan sponsors. Second, our analysis 

determined that 35 percent is the 

renewal compensation level at which 

the present value of overall payments 

under a 2-tiered system would be 

relatively equal to the present value of 

overall payments under a 3-tiered 

system (taking into account the 

estimated life expectancy for several 

beneficiary age cohorts). In addition to 

revising the agent and broker 

compensation structures, we propose to 

amend the training and testing 

requirements as well as setting limits on 

referral fees for agents and brokers. 

3. Drug Categories or Classes of Clinical 

Concern 

This proposed provision would 

interpret the Affordable Care Act 

authority to limit protected classes to 

those for which access to all drugs in a 

category or class for a typical individual 

with a disease or condition treated by 

the drugs in the class is required within 

7 days and more specific formulary 

requirements would not suffice to meet 

multitude of specific applications of the 

drugs within the category or class. 

Instead of mandating coverage of all 

drug products in a particular class on all 

Part D formularies, we can save costs by 

identifying more efficient formulary 

requirements or other beneficiary 

protections in most cases. 

4. Improving Payment Accuracy 

The proposed regulatory provisions 

would implement the Affordable Care 

Act requirement that MA organizations 

and Part D sponsors report and return 

identified Medicare overpayments. We 

would adopt the statutory definition of 

overpayment for both Part C and Part D. 

5. Risk Adjustment Data Requirements 

The proposed rule would strengthen 

existing regulations at § 422.310 on MA 

plan sponsors’ accountability for valid 

risk adjustment data prior to 

submission. 

C. Summary of Costs and Benefits 

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TABLE 1—SUMMARY OF COSTS AND BENEFITS

Provision description Total costs Transfers 

Changes to Audit and Inspection ....................... We estimate that this change would require 

an annual cost of $7.95 million (total cost of 

$39.75 million) for the time and effort for all 

auditing organizations to perform the program audit. Additionally, we estimate an annual cost of $950,000 (total cost of 4.75 

million) for MA organizations or Part D 

sponsors with audit results that reveal 

non-compliance to hire an independent 

auditor to validate that correction has occurred.

Eligibility of enrollment for individuals not lawfully present in the U.S.N/A ................................................................... We estimate that this change could save the 

MA program up to $5 million in 2015, increasing to $8 million in 2019 (total of $32 

million over this period), and could save the 

Part D program (includes the Part D portion 

of MA-PD plans) up to $5 million in 2015, 

increasing to $9 million in 2019 (total of $35 

million over this period). 

Modifying the agent/broker requirements, specifically agent/broker compensation.N/A.

Drug Categories or Classes of Clinical Concern N/A ................................................................... We estimate that this change could save the 

Part D program (includes the Part D portion 

of MA–PD plans) approximately $30 million 

in 2016, increasing to $420 million in 2019 

(total of $720* million over this period). 

Improving Payment Accuracy ............................. N/A.

Risk Adjustment Data Requirements ................. N/A.

Transfer of TrOOP Between Part D Sponsors 

Due to Enrollment Changes during the Coverage Year.

N/A.

Eligibility of Enrollment for Incarcerated Individuals........................................................................... We estimate that this change could save the 

MA program up to $27 million in 2015, increasing to $62 million in 2019 (total of 

$219 million over this period), and could 

save the Part D program (includes the Part 

D portion of MA-PD plans) up to $46 million 

in 2015, increasing to $90 million in 2019 

(total of $333 million over this period). 

* Projected savings are based upon full implementation of the criteria and do not reflect that changes for the antipsychotic class of drugs are 

deferred at this time. 

II. Background 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) created a new 

‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act)) which 

established what is now known as the 

Medicare Advantage (MA) program. The 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173), enacted 

on December 8, 2003, added a new ‘‘Part 

D’’ to the Medicare statute (sections 

1860D–1 through 42 of the Act) entitled 

the Medicare Prescription Drug Benefit 

Program (PDP), and made significant 

changes to the existing Part C program, 

which it named the Medicare Advantage 

(MA) Program. The MMA directed that 

important aspects of the Part D program 

be similar to, and coordinated with, 

regulations for the MA program. 

Generally, the provisions enacted in the 

MMA took effect January 1, 2006. The 

final rules implementing the MMA for 

the MA and Part D prescription drug 

programs appeared in the Federal 

Register on January 28, 2005 (70 FR 

4588 through 4741 and 70 FR 4194 

through 4585, respectively). 

Since the inception of both Parts C 

and D, we have periodically revised our 

regulations either to implement 

statutory directives or to incorporate 

knowledge obtained through experience 

with both programs. For instance, on the 

September 18, 2008 and January 12, 

2009 Federal Register (73 FR 54226 and 

74 FR 1494, respectively), we issued 

Part C and D regulations to implement 

provisions in the Medicare 

Improvement for Patients and Providers 

Act (MIPPA) (Pub. L. 110–275). We 

promulgated a separate interim final 

rule in January 16, 2009 (74 FR 2881) to 

address MIPPA provisions related to 

Part D plan formularies. In the final rule 

that appeared in the April 15, 2010 

Federal Register (75 FR 19678), we 

made changes to the Part C and D 

regulations which strengthened various 

program participation and exit 

requirements; strengthened beneficiary 

protections; ensured that plan offerings 

to beneficiaries included meaningful 

differences; improved plan payment 

rules and processes; improved data 

collection for oversight and quality 

assessment; implemented new policies; 

and clarified existing program policy. 

In a final rule that appeared in the 

April 15, 2011 Federal Register (76 FR 

21432), we continued our process of 

implementing improvements in policy 

consistent with those included in the 

April 2010 final rule, and also 

implemented changes to the Part C and 

Part D programs made by recent 

legislative changes. The Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148) was enacted on March 

23, 2010, as passed by the Senate on 

December 24, 2009, and the House on 

March 21, 2010. The Health Care and 

Education Reconciliation Act (Pub. L. 

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111–152), which was enacted on March 

30, 2010, modified a number of 

Medicare provisions in Pub. L. 111–148 

and added several new provisions. The 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 

Care and Education Reconciliation Act 

(Pub. L. 111–152) are collectively 

referred to as the Affordable Care Act. 

The Affordable Care Act included 

significant reforms to both the private 

health insurance industry and the 

Medicare and Medicaid programs. 

Provisions in the Affordable Care Act 

concerning the Part C and D programs 

largely focused on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. These provisions 

affected implementation of our policies 

regarding beneficiary cost-sharing, 

assessing bids for meaningful 

differences, and ensuring that costsharing structures in a plan are 

transparent to beneficiaries and not 

excessive. In the April 2011 final rule, 

we revised regulations on a variety of 

issues based on the Affordable Care Act 

and our experience in administering the 

MA and Part D programs. The rule 

covered areas such as marketing, 

including agent/broker training; 

payments to MA organizations based on 

quality ratings; standards for 

determining if organizations are fiscally 

sound; low income subsidy policy 

under the Part D program; payment 

rules for non-contract health care 

providers; extending current network 

adequacy standards to Medicare 

medical savings account (MSA) plans 

that employ a network of providers; 

establishing limits on out-of-pocket 

expenses for MA enrollees; and several 

revisions to the special needs plan 

requirements, including changes 

concerning SNP approvals. 

In a final rule that appeared in the 

April 12, 2012 Federal Register (77 FR 

22072 through 22175), we made several 

changes to the Part C and Part D 

programs required by statute, including 

the Affordable Care Act, as well as made 

improvements to both programs through 

modifications reflecting experience we 

have obtained administering the Part C 

and Part D programs. Key provisions of 

that final rule implemented changes 

closing the Part D coverage gap, or 

‘‘donut hole,’’ for Medicare beneficiaries 

who do not already receive low-income 

subsidies from us by establishing the 

Medicare Coverage Gap Discount 

Program. We also included provisions 

providing new benefit flexibility for 

fully-integrated dual eligible special 

needs plans, clarifying coverage of 

durable medical equipment, and 

combatting possible fraudulent activity 

by requiring Part D sponsors to include 

an active and valid prescriber National 

Provider Identifier on prescription drug 

event records. 

III. Provisions of the Proposed 

Regulations 

A. Clarifying Various Program 

Participation Requirements 

1. Closing Cost Contract Plans to New 

Enrollment (§ 422.2 and § 422.503(b)(5)) 

In implementing the original Part C 

requirements in our June 26, 1998 final 

rule, entitled, ‘‘Medicare Program; 

Establishment of the Medicare+Choice 

Program’’ (63 FR 34968 through 35116), 

we established a requirement in 42 CFR 

422.501(b)(4) that an ‘‘entity seeking to 

contract as [an Medicare Advantage 

(MA)] organization must not accept new 

enrollees under a section 1876 

reasonable cost contract in any area in 

which it seeks to offer [an MA] plan.’’ 

We stated our reasons for the policy, 

specifying in the preamble of the 

interim final rule that, ‘‘[o]ur reason for 

establishing this rule is to eliminate the 

potential for an organization to 

encourage higher-cost enrollees to enroll 

under its cost contract while healthy 

enrollees are enrolled in its risk-based 

[MA] plan. This [final] rule is consistent 

with our long-standing policy that 

entities not have both a risk and cost 

contract under section 1876 [of the Act] 

in the same area.’’ (63 FR 35014 through 

35015). 

This provision was recodified at 42 

CFR 422.503(b)(5) in regulations 

implementing the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003, but the requirement, as 

well as the rationale for the 

requirement, remained intact. 

Since this requirement only precludes 

‘‘the entity’’ contracting as an MA 

organization from having a cost contract 

open to new enrollment, the prohibition 

does not apply to another separate legal 

entity owned by the same parent 

organization, such that two legal entities 

owned by the same parent could offer a 

competing cost contract and MA plan. 

We do not believe that this result is 

consistent with the original intent of the 

prohibition because it permits legal 

entities that are related to each other 

under a common parent organization to 

offer a cost contract and MA plan in the 

same service area, creating the same 

potential for the entities to move higher 

risk enrollees from one plan to another 

in order to take advantage of the 

differing Medicare payment rules for the 

two plan types or for other reasons that 

are not related to the enrollees’ best 

interests. 

To ensure that our original intent is 

realized and to eliminate the potential 

for organizations to move enrollees from 

one of their plans to another based on 

financial or some other interest, we 

propose to revise paragraph 

§ 422.503(b)(5) so that an, ‘‘entity 

seeking to contract as an MA 

organization must [n]ot accept, or share 

a corporate parent organization with an 

entity that accepts, new enrollees under 

a section 1876 reasonable cost contract 

in any area in which it seeks to offer an 

MA plan.’’ 

In making the proposed revision to 

paragraph § 422.503(b), we also propose 

to add the definition of ‘‘parent 

organization’’ to § 422.2 of the MA 

program definitions. We would specify 

that, ‘‘Parent organization means a legal 

entity that owns one or more other 

subsidiary legal entities.’’ We are 

requesting comments on whether a 

parent organization with less than a 

100-percent interest in a subsidiary legal 

entity should trigger the prohibition we 

propose with the amendment at 

§ 422.503(b)(5). Although the MA 

program regulations do not currently 

define the term ‘‘parent organization,’’ 

our proposed definition is consistent 

with the way the term is currently used 

in the context of the MA program, for 

example, when assessing an 

organization’s business structure. 

2. Two Year Limitation on Submitting a 

New Bid in an Area Where an MA Has 

Been Required To Terminate a Low 

Enrollment MA Plan (§ 422.504(a)(19)) 

Under § 422.506(b)(1)(iv), we must 

non-renew an MA plan that does not 

have a sufficient number of enrollees to 

establish that it is a viable independent 

plan option. We have currently 

interpreted the standard of whether the 

MA plan has a ‘‘sufficient number of 

enrollees to establish that it is a viable 

independent plan option’’ as meaning 

that the MA plan has fewer than 500 

enrollees for non-SNPs and fewer than 

100 enrollees for SNPs over a specified 

time period of 3 years. As we determine 

adjustments are appropriate, we will 

revisit this interpretation as part of 

annual plan guidance. In cases in which 

an MA plan has been non-renewed on 

this basis, it would defeat the intent and 

purpose of this rule if the MA 

organization could simply submit a new 

bid for the next year in the same area 

for the same type of plan that failed to 

attract enrollment over a number of 

years. Indeed, the problem addressed in 

§ 422.506(b)(1)(iv) would be 

exacerbated, as the new plan would 

start out with no MA enrollees. 

In section 3209 of the Affordable Care 

Act, the Congress added a new section 

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1854(a)(5)(C)(1) of the Act that clarified 

that CMS is not ‘‘require[d] . . . to 

accept any or every bid submitted by an 

MA organization. . . .’’ Section 

1856(b)(1) of the Act further provides 

authority for CMS to establish MA 

standards by regulation, and section 

1857(e)(1) of the Act also provides 

authority to impose contract 

requirements that CMS finds ‘‘necessary 

and appropriate.’’ Under the foregoing 

authority, we propose to revise 

§ 422.504(a) to add a new contract 

requirement that stipulates that the 

Medicare Advantage Organization (MA 

organization) agrees not to submit a new 

bid of the same type of plan that has 

been non-renewed under 

§ 422.506(b)(1)(iv) in the same service 

area as the non-renewed plan for 2 years 

after such a non-renewal. 

We believe this requirement will 

enhance our ongoing efforts to ensure 

that MA organization offerings in a 

service area present beneficiaries with 

viable plans that are responsive to their 

needs. 

3. Authority To Impose Intermediate 

Sanctions and Civil Money Penalties 

(§ 422.752, § 423.752, § 422.760 and 

§ 423.760) 

Section 1857(a) of the Social Security 

Act (the Act) provides the Secretary 

with the authority to enter into contracts 

with MA organizations, and section 

1860D–12(b)(1) of the Act provides the 

Secretary with the authority to enter 

into contracts with Part D sponsors. 

Section 1857(g)(1) of the Act provides a 

list of contract violations for which the 

potential enforcement response under 

section 1857(g)(2) of the Act is the 

imposition of intermediate sanctions 

(sanctions) and/or civil money penalties 

(CMPs). Section 1860D–12(b)(3)(E) of 

the Act applies these provisions to Part 

D contracts. We codified this authority 

in the June 28, 2000 final rule with 

comment period entitled, ‘‘Medicare 

Program; Medicare+Choice Program (65 

FR 40170) for Part C, and the January 

28, 2005 final rule entitled, ‘‘Medicare 

Program; Medicare Prescription Drug 

Benefit’’ (70 FR 4194) for Part D. The 

authority was codified at § 422.752 (Part 

C) and § 423.752 (Part D). We are 

proposing two changes to our existing 

authority to impose sanctions and 

CMPs. 

First, section 6408 of the Affordable 

Care Act (Pub. L. 111–148) provided the 

Secretary with new authorities to 

impose sanctions or CMPs for violations 

of the Part C and D marketing and 

enrollment requirements. Section 6408 

amended 1857(g)(1) of the Act by 

adding new sections (H) through (K). 

These provisions provide CMS with the 

authority to impose intermediate 

sanctions on an organization that enrolls 

an individual without prior consent 

(except in certain limited 

circumstances) or transfers an 

individual to a new plan without prior 

consent. They also specifically make it 

a contract violation to violate the Part C 

and D marketing requirements, and 

specify that it is a violation of the 

sponsor’s Part C or D agreement with 

CMS for the sponsoring organization to 

employ or contract with any individual 

or entity who engages in the conduct 

described in paragraphs (A) through (J) 

of 1857(g)(1) of the Act. 

We are proposing to revise our 

regulations to codify the aforementioned 

authorities at § 422.752 (Part C) and 

§ 423.752 (Part D), following the 

statutory language with little 

modification. 

Second, we are proposing changes to 

the regulations intended to clarify CMS’ 

authority to impose CMPs for the 

violations contained in section 

1857(g)(1) of the Act and corresponding 

regulations at § 422.752 (Part C) and 

§ 423.752 (Part D). Existing regulations 

provide the government with authority 

to impose CMPs for the listed violations. 

The existing regulations, however, 

designate the Office of Inspector General 

(OIG) as the sole government agency 

with the authority to impose CMPs for 

the violations contained in § 422.752 

and § 423.752. We are proposing to 

revise the language of these provisions 

to clarify that either CMS or the OIG 

may impose CMPs for the violations 

listed at § 422.752(a) and § 423.752(a), 

except § 422.752(a)(5) and 

§ 423.752(a)(5). Only the OIG will 

continue to have the authority to impose 

CMPs for the violations at 

§ 422.752(a)(5) and § 423.752(a)(5), 

regarding the misrepresentation and/or 

falsification of information furnished to 

CMS, an individual or other entity. CMS 

or the OIG will impose the CMPs in 

accordance with the amounts specified 

in section 1857(g)(2) of the Act and 

§ 422.760 and § 423.760 of the 

corresponding regulations. 

We are proposing to revise the 

existing regulations at § 422.752, 

§ 423.752, § 422.760, and § 423.760 to 

effectuate this change. 

4. Contract Termination Notification 

Requirements and Contract Termination 

Basis (§ 422.510 and § 423.509) 

Sections 1857(c) and 1860D– 

12(b)(3)(B) of the Act provide us with 

the authority to terminate a Part C or D 

sponsoring organization’s contract at 

any time if we make a determination 

that the contracting organization is 

substantially failing to meet contract 

requirements and expectations. Sections 

1857(h)(1)(B) and 1860D–12(b)(3)(F) of 

the Act provide us with the procedures 

necessary to facilitate the termination of 

contracts held between CMS and MA 

organizations and Part D sponsors, 

respectively. The Part C contract 

termination authorities and procedures 

were codified into regulations in the 

June 29, 2000 final rule entitled, 

‘‘Medicare Program; Medicare+Choice 

Program’’ (65 FR 40170) at § 422.510. 

Likewise, the Part D authorities and 

procedures were codified into 

regulations in the January 28, 2005 final 

rule entitled, ‘‘Medicare Program; 

Medicare Prescription Drug Benefit’’ (70 

FR 4194) at § 423.509. 

We are proposing three revisions to 

our existing regulations that relate to 

contract termination. First, we are 

proposing clarification of the scope of 

our authority to terminate Part C and D 

contracts under § 422.510(a) and 

§ 423.509(a). Section 1857(c)(2) of the 

Act provides us with authority to 

terminate a Part C or D contract if we 

make a determination that the 

organization— 

• Has failed substantially to carry out 

the contract; 

• Is carrying out the contract in a 

manner inconsistent with the efficient 

and effective administration of this part; 

or 

• No longer substantially meets the 

applicable conditions of this part. 

Existing regulations at § 422.510 and 

§ 423.509 reiterate the three bases for 

termination set forth in the statute, 

however, over time CMS has also 

included in regulation a number of 

specific violations within the scope of 

our statutory authority, that is, 

violations which meet the standard 

established by the statute. In the June 

26, 1998 proposed rule (63 FR 34968, at 

35018), we stated that ‘‘[i]n addition to 

repeating the above statutory language, 

we are implementing this language by 

identifying specific circumstances that 

we believe constitute examples of [an 

MA] organization substantially failing to 

carry out either its contract, or carrying 

out its contract in a manner that is 

inconsistent with the effective and 

efficient administration.’’ 

However, we have come to believe 

over time that the inclusion of our broad 

statutory authorities in the regulations, 

along with the more specific violations, 

has the potential to lead to confusion 

regarding the scope of our termination 

authority. Terminating a contract is the 

strongest action that CMS may take in 

response to an MA organization or Part 

D sponsor’s noncompliance. It is 

imperative that both CMS and affected 

organization understand the standard 

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we apply when CMS has made a 

determination to end the contractual 

relationship. Therefore, we are 

proposing to modify the language at 

§ 422.510(a) and § 423.509(a) to clarify 

our contract termination authority by 

separating the statutory bases from the 

examples. To effectuate this change we 

will need to renumber the lists of bases 

contained in § 422.510(a) and § 423.509. 

Because there are cross references using 

the current numbering scheme, we are 

also proposing to make several 

corresponding reference changes to 

reflect the renumbering of this section 

throughout parts 422 and 423. We 

believe that by making these changes, 

we will improve the clarity of this 

regulation. 

Second, we are proposing revisions to 

our contract termination notification 

procedures contained at § 422.510(b)(1) 

and § 423.509(b)(1). Current regulations 

state that if CMS decides to terminate a 

Part C or D sponsoring organization’s 

contract, we must notify the MA 

organization/Part D sponsor in writing 

90 days before the intended date of the 

termination. We believe that the 90-day 

timeframe is not in the best interest of 

Medicare beneficiaries, in light of the 

fact that CMS terminates contracts in 

circumstances where an organization is 

significantly out of compliance with 

Part C and D requirements. We also 

think that the 90-day timeframe is 

unnecessarily long given the existing 

procedural protections and appeal rights 

provided for MA organizations and Part 

D sponsors. 

The authorizing statute for Part C, at 

section 1857(h)(1)(B) of the Act 

(applicable to Part D pursuant to section 

1860D–12(b)(3)(F) of the Act), states that 

the Secretary must provide reasonable 

notice and opportunity for hearing 

regarding the termination (including the 

right to appeal the initial 

determination); during this hearing 

process, the termination is effectively 

stayed pursuant to § 422.664 and 

§ 423.652. Therefore, we believe that a 

45-day timeframe better balances the 

need to provide contracting 

organizations with reasonable notice of 

the impending contract termination 

with the interests of the Medicare 

beneficiaries who are enrolled in a plan 

that is deficient enough in its adherence 

to Part C and/or D requirements that 

contract termination is necessary. We 

also propose to make necessary crossreference changes in parts 422 and 423 

at § 422.644(c)(1) and § 423.642(c)(1). 

Additionally, in an effort to respond 

to changes in the media and information 

technology landscape, we are proposing 

a slight modification to the termination 

notification provision for the general 

public at § 422.510(b)(1)(iii) and 

§ 423.509(b)(1)(iii) by proposing that 

contracting organizations now release a 

press statement to news media serving 

the affected community or county and 

posting the press statement prominently 

on the organization’s Web site instead of 

publishing the notice in applicable 

newspapers. 

Third, we are proposing minor 

revisions to the wording of our 

regulations at § 422.510 and § 423.509 to 

reflect the authorizing language 

contained in sections 1857(c)(2) and 

1860D–12 of the Act. Specifically, we 

are proposing to replace the word 

‘‘fails’’ with ‘‘failed’’ in the applicable 

provisions of § 422.510 and § 423.509. 

In current regulations both of the terms 

failed and fails are used when 

describing contract violations that may 

be the basis for a contract termination. 

We would like for this list to read 

consistently, therefore, we are proposing 

to revise the language as such. The 

purpose of this change is merely to 

ensure that consistent language is used 

throughout § 422.510 and § 423.509 and 

in no way changes the meaning or 

policy encompassed in these provisions. 

5. Reducing the Burden of the 

Compliance Program Training 

Requirements (§ 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C)) 

Section 1857(a) of the Act provides 

the Secretary with the authority to enter 

into contracts with MA Organizations, 

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

provides the Secretary with the 

authority to enter into contracts with 

Part D sponsors. Sections 1860D– 

12(b)(3)(D)(i) and 1857(e)(1) of the Act, 

specify that these contracts shall contain 

other terms and conditions that the 

Secretary may find necessary and 

appropriate. When we implemented the 

Part C program, we determined that all 

Part C contracts (and subsequently Part 

D contracts) would require that the Part 

C or D organization has the necessary 

administrative and management 

arrangements to have an effective 

compliance program, as reflected in 

§ 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(iv). 

In the December 5, 2007 Federal 

Register, we published the ‘‘Medicare 

Program; Revisions to the Medicare 

Advantage and Part D Prescription Drug 

Contract Determinations, Appeals and 

Intermediate Sanctions Process’’ final 

rule (72 FR 68700). In that final rule, we 

established that compliance plans for 

sponsoring organizations must include 

training and education and effective 

lines of communication between the 

compliance officer and the sponsoring 

organization’s employees, managers, 

and directors as well as their first-tier, 

downstream and related entities (FDRs). 

We reiterated the importance of this 

requirement in the October 22, 2009 

proposed rule entitled, ‘‘Medicare 

Program; Policy and Technical Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs’’ (74 FR 53634). 

In the 2009 proposed rule, entitled, 

‘‘Medicare Program; Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs,’’ we 

addressed concerns about the burden on 

FDRs such as pharmacies, hospitals and 

physicians as a result of this 

requirement, given the likelihood that 

many of these entities and individuals 

contract with multiple contracting 

organizations. We were concerned that 

these FDRs would potentially have to 

participate in (largely duplicative) 

training for each organization with 

whom they contract. We requested 

public comments on how best to ensure 

that the training requirement continues 

to be met while not overly burdening 

the contracting organization or its FDRs. 

In response, we received numerous 

comments suggesting that CMS develop 

its own web-based trainings to lessen 

this burden on sponsors and FDRs (75 

FR 19678 at 19688). 

In response to these requests, we have 

created the CMS Standardized General 

Compliance Program Training and 

Education Module. Until now, we have 

offered this as an optional training. In 

this rule, we propose to require that all 

contracting organizations accept a 

certificate of completion of the CMS 

training as satisfaction of this general 

compliance program training 

requirement. We anticipate that this 

proposal will greatly reduce the burden 

on various sectors of the industry, 

including, but not limited to, insurance 

providers, hospitals, suppliers, 

pharmacists, and physicians. 

Under this proposed change, Part D 

sponsors and Part C organizations 

would not be permitted to develop or 

implement sponsor specific training or 

provide supplemental training materials 

to fulfill the general compliance 

program training requirement; only 

CMS training would suffice. 

We understand that sponsors often 

include sponsor specific information 

(such as compliance officer’s contact 

information, compliance reporting 

processes and expectations, hotline 

number or email address for compliance 

questions, Web site information for 

accessing the sponsor’s compliance 

policies and procedures) in the training 

materials provided to the FDRs and will 

need an appropriate mechanism for 

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conveying this information given that 

the training vehicle will no longer be 

available. To address this issue, a 

sponsor may choose to include such 

information in the contract held 

between the sponsor and the FDR. 

Alternatively, we would allow each 

sponsor to develop a one page 

information sheet containing this 

material, to be distributed by the 

sponsor to each of its FDRs. We seek 

comments concerning this portion of 

our proposal and suggestions on other 

options we could implement to 

accomplish the desired outcome. 

We are proposing to modify the 

regulation text by adding a new 

§ 422.503(b)(vi)(C)(3) and 

§ 423.504(b)(vi)(C)(4) to permit only this 

CMS training for satisfaction of the 

requirement to train FDRs. 

6. Changes to Audit and Inspection 

Authority (§ 422.503(d)(2) and 

§ 423.504(d)(2)) 

Sections 1857(d)(2)(A) and 1860D– 

12(b)(3)(C) of the Act specify that each 

contract under these sections must state 

that CMS has the right to audit and 

inspect the facilities and records of each 

organization. We are proposing three 

changes to our audit and inspection 

authority. First, under section 6408 of 

the Affordable Care Act new authority 

was provided to the Secretary that now 

requires that each contract provide the 

right to ‘‘timely’’: (1) Inspect or 

otherwise evaluate the quality, 

appropriateness, and timeliness of 

services performed under the contract; 

(2) inspect or otherwise evaluate the 

facilities of the organization when there 

is reasonable evidence of some need for 

such inspection; and (3) audit and 

inspect any books, contracts, and 

records of the 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 (b) services performed or 

determinations of amounts payable 

under the contract. 

Therefore, we are proposing to revise 

both § 422.503(d)(2) and § 423.504(d)(2) 

to reflect this change. Specifically, we 

are proposing to insert the word 

‘‘timely’’ at the end of both of the 

introductory paragraphs for 

§ 422.503(d)(2) and § 423.504(d)(2). 

Second, we are proposing to add 

authority that will allow CMS to require 

MA organizations and Part D sponsors 

to hire an independent auditor to 

perform full or partial program audits to 

determine compliance with CMS 

requirements. 

MA organizations and Part D sponsors 

must adhere to CMS requirements to 

properly administer Part C and Part D 

benefits. These requirements are 

contained in statute, regulations and in 

the Part C and Part D sponsor 

agreements themselves. CMS needs 

assurance that MA organizations and 

Part D sponsors are substantially 

adhering to Part C and/or D 

requirements, and that Medicare 

beneficiaries are receiving the benefits 

to which they are entitled. To determine 

the extent of MA organization and Part 

D sponsor compliance with program 

requirements, CMS uses a variety of 

oversight and monitoring tools 

including CMS-conducted program 

audits. 

CMS conducts a program audit by 

examining core operational areas and 

functions and determining the sponsors’ 

level of compliance with these Part C 

and Part D program requirements. CMS 

may audit any program requirement, but 

in recent years we have focused on Part 

C and Part D coverage decisions, 

appeals, grievances, compliance 

program effectiveness, and formulary 

administration. CMS reviews a number 

of targeted samples to evaluate MA 

organizations and Part D sponsors’ 

processes and systems. Targeting 

samples is an efficient way to highlight 

deficiencies and ensure that they are 

quickly and successfully remediated. 

The process is primarily designed to be 

educational for the MA organization 

and/or Part D sponsor as it expands the 

sponsor’s understanding of CMS’ 

expectations, and how program 

requirements are to be applied. It also 

identifies areas of risk or actual noncompliance so sponsors can quickly 

correct the deficiency. This 

understanding allows the MA 

organization and/or Part D sponsor to 

develop and implement a robust 

internal auditing and monitoring 

program to identify deficiencies before 

they reach a level of substantial noncompliance in the future. An effective 

monitoring program should result in 

early detection of system and process 

failures and should lead to problems 

being fixed quickly and steps being 

implemented to prevent future failures. 

Organizations that are chosen for 

audit fall into at least one of the five 

following categories: High Star rated 

plans; sponsors with a Low Performing 

Icon (LPI); high risk plans (based on a 

data driven risk assessment); sponsors 

not audited in last 3 years, and CMS 

Regional or Central Office referrals. 

Annually, CMS conducts a risk 

assessment to determine which highrisk organizations to audit. Many of the 

program audits currently being 

conducted are with organizations whose 

contract performance or data indicators 

demonstrate the potential risk of failing 

to perform core program functions that, 

if not complied with, may result in 

potential beneficiary harm. These audits 

are a useful tool to help identify 

systemic deficiencies and failures in 

meeting CMS requirements and they 

help to promote compliance with those 

requirements. While these types of 

audits are necessary because these 

organizations pose the most risk, not all 

organizations are receiving the benefit of 

having an independent audit of their 

organization on a regular basis. 

CMS is constrained in the number of 

program audits we can conduct each 

year, due to limited resources. 

Currently, CMS has close to 300 parent 

organizations that perform MA and/or 

Part D functions. CMS is only able to 

audit approximately 30 parent 

organizations per year; or roughly 10 

percent of all MA organizations and/or 

Part D sponsors. CMS believes that MA 

organizations and/or Part D sponsors, 

their enrollees, and the Medicare 

program all benefit from a regular cycle 

of independent auditing. Therefore, we 

are proposing to revise our regulations 

to allow CMS to require MA 

organizations and/or Part D sponsors to 

hire an independent auditor to conduct 

regularly scheduled program audits in 

accordance with CMS specifications. 

We currently make all of our program 

audit protocols available to MA 

organizations and/or Part D sponsors 

through our Web site. Pursuant to the 

proposed new regulatory provision, 

CMS would notify the MA organization 

and/or Part D sponsor that it has been 

selected to perform a full or partial 

program audit. The MA organization 

and/or Part D sponsor would then be 

required to engage an independent 

auditor to perform a full or partial 

program audit as directed by CMS using 

the CMS published protocols, 

methodologies, and methods of 

evaluation. At the conclusion of the 

audit, at the direction of the MA 

organization and/or Part D sponsor, the 

independent auditor will provide a draft 

copy of its findings to CMS and the MA 

organization and/or Part D sponsor. 

Once the MA organization and/or Part D 

sponsor has had an opportunity to rebut 

any findings, the independent auditor 

will provide its final report of findings 

to CMS and the MA organization and/ 

or Part D sponsor. CMS anticipates that 

additional instruction will be necessary 

to interpret and implement this audit 

requirement of a complete and full 

independent review. Therefore, we 

intend to develop and release sub 

regulatory guidance to address, among 

other things, language and 

specifications which should be included 

in the contract between the sponsoring 

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organization and the independent 

auditor conducting the audit. The 

proposed authority will allow CMS to 

better evaluate MA organizations’ and 

Part D plan sponsor’s performance. With 

the proposed approach, each MA 

organization and/or Part D sponsor will 

be required to undergo an independent 

program audit at least every 3 years. 

Under this proposal, more organizations 

will be audited each year, which will 

provide CMS with substantially more 

data to evaluate program-wide 

performance, improve industry 

performance and protect beneficiaries 

enrolled in the Medicare Advantage and 

Prescription Drug Benefit programs. 

This will enhance CMS’s oversight and 

provide us with information that 

enables us to focus our time and 

resources in the areas most needed to 

ensure compliance with Part C and Part 

D program requirements. 

CMS will continue to perform 

program audits in limited scenarios, 

such as when indicated by a risk 

analysis; and will perform limited ‘‘look 

back’’ audits to ensure the integrity of 

the independent audit process proposed 

here. The latter audits will focus on 

reviewing the program audit findings 

that we receive from the independent 

auditors engaged by the Part C and Part 

D organizations, to ensure that the 

independent auditor conducted the 

audit in accordance with CMS 

specifications. We think that this 

additional authority will significantly 

strengthen the Medicare Parts C and D 

audit and oversight program. 

Therefore, we are proposing to add 

language to § 422.503(d)(2) and 

§ 423.504(d)(2) that will allow us to 

require a MA organization or Part D 

sponsor to hire an independent auditor, 

working in accordance with CMS 

specifications, to perform program 

audits to determine compliance with 

CMS requirements and provide to CMS 

an attestation affirming that the audit 

has been completed as required. 

Third and finally, we are proposing to 

revise our regulations to specifically 

permit CMS to require MA 

organizations or Part D sponsors with 

audit results that reveal non-compliance 

with CMS requirements to hire an 

independent auditor to validate that 

correction has occurred. We may invoke 

this authority regardless of whether an 

independent auditor or CMS conducted 

the program audit that identified the 

programmatic deficiencies. 

When program audits are conducted, 

non-compliance with CMS requirements 

is often found. When CMS finds these 

deficiencies, it notifies the MA 

organization or Part D sponsor of its 

non-compliance and requires correction. 

We do not close out audits until we 

have validated that correction has 

occurred. While we firmly believe in the 

value of such validation, these efforts 

are also limited by resources. In order to 

assist us in making the determination 

that the deficiencies found during the 

audit have been corrected and are not 

likely to recur, we need to have greater 

flexibilities in performing validation 

activities. Therefore, we are proposing 

that we may require a MA organization 

or Part D sponsor to hire an 

independent auditor to provide us with 

additional information to determine if 

the deficiencies found during the course 

of the audit have actually been corrected 

and are not likely to recur. The 

independent auditor would be hired by 

the MA organization and/or Part D 

sponsor and work in accordance with 

our specifications in order to provide 

accurate and reliable information to 

CMS. 

CMS often relies on self-disclosed 

information from the MA organization 

or Part D sponsor, CMS and plan data; 

in the alternative, we must attempt to 

engage in a process to independently 

verify that deficiencies have been 

corrected. Given the nature and extent 

of some compliance deficiencies and the 

level of skill and experience required to 

conduct an exhaustive verification of 

correction, we have concluded that an 

independent auditor hired by the MA 

organization or Part D sponsor would be 

beneficial for both the organization and 

CMS. 

This proposal is also consistent with 

our regulatory authority at 42 CFR 

422.756 and 423.756 which permits us 

to require a sanctioned organization to 

hire an independent auditor to help us 

determine if a sanction should be lifted. 

Program experience has demonstrated 

other situations when the expertise of 

an independent auditor would be 

helpful in determining correction. For 

example, an independent auditor who 

specializes in complex information 

technology systems and who has 

specialized knowledge of how those 

systems interact with each other, in 

order to be compliant with our 

requirements, may be helpful in 

ensuring timely and successful 

correction of complex claims processing 

deficiencies. This is one example of a 

situation where we may require the MA 

organization or Part D sponsor to hire an 

independent auditor in order to assist in 

making the determination that the 

deficiencies found during the program 

audit have been corrected. 

Therefore, we are proposing to add 

language to § 422.503(d)(2) and 

§ 423.504(d)(2) that will allow us to 

require that a sponsoring organization 

hire an independent auditor, working in 

accordance with CMS specifications, to 

provide us with additional information 

to determine if the deficiencies that 

were found during a program audit have 

been corrected. 

7. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D (§ 422.756 and 

§ 423.756) 

Sections 1857(g) and 1860D– 

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

Secretary the ability to impose 

intermediate sanctions on MA 

organizations and PDP sponsors. 

Intermediate sanctions consist of 

suspension of enrollment, suspension of 

marketing and suspension of payment. 

Current regulations governing 

intermediate sanctions are contained in 

subparts O of part 422 and part 423. 

Sections 422.756 and 423.756 provide 

specific procedures for imposing 

intermediate sanctions, and include 

provisions which address the duration 

of the sanction and the standard that we 

apply when determining if a sanction 

should be lifted. As specified in the Act 

and regulations, when intermediate 

sanctions are imposed on sponsoring 

organizations, the sanctions remain in 

place until we are satisfied that the basis 

for the sanction determination has been 

corrected and is not likely to recur. 

Because sanctions remain in place 

until the deficiencies have been 

corrected and we are assured that they 

are not likely to recur, we are unable to 

fully test the contracting organization’s 

compliance with certain requirements 

until the sanction is lifted. Therefore, in 

the October 2009 proposed rule, entitled 

‘‘Medicare Program; Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs’’ (74 

FR 54634), we proposed a rule, later 

finalized in the April 15, 2010 

‘‘Medicare Program; Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs’’ (75 

FR 19678), that allows us to require a 

plan under a marketing and/or 

enrollment sanction to engage in a test 

period of marketing or accepting 

enrollments or both for a limited period 

of time. As we explained in that 

proposed rule, the purpose of the test 

period is to assist us in making a 

determination as to whether the 

deficiencies that are the bases for the 

intermediate sanctions have been 

corrected and are not likely to recur. 

The test period provides us with the 

opportunity to observe a sanctioned 

plan’s ability to enroll or market to 

Medicare beneficiaries prior to lifting 

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the sanction. Since finalizing that rule 

in April 2010 (75 FR 19678), we have 

further considered its utility as a result 

of compliance issues that we have 

encountered over the past 2 years. We 

are proposing two modifications to this 

existing rule. First, we are proposing to 

expand the potential applicability of the 

test period requirement to all types of 

all intermediate sanctions. The existing 

regulation would only allow CMS to 

require this test period in instances 

where CMS has imposed a marketing 

and/or enrollment sanction. However, 

the type of intermediate sanction 

imposed is not necessarily related to the 

particular violations that form the basis 

for the sanction. Therefore, we are 

proposing to modify the existing rule to 

clarify that CMS may require a test 

period for a sponsoring organization 

that has had any of the three types of 

intermediate sanctions imposed: 

marketing, enrollment and/or payment. 

We also want to clarify that our ability 

to require this test period is not limited 

to sanctions stemming from marketing 

or enrollment violations. In the 

preamble language for the October 2009 

proposed rule, (74 FR 54634), we stated 

that ‘‘[t]he basis for this proposal is that 

we have found that there is often not a 

satisfactory way to determine if 

marketing and/or enrollment problems 

have been corrected while a sanction is 

in place and no such activities are 

permitted.’’ Upon reflection, we are 

concerned that this statement may have 

given the impression that the test period 

would only be used in instances where 

the underlying bases for the sanction are 

marketing and/or enrollment 

deficiencies. Therefore, we are 

clarifying here that the purpose of the 

test period is to assist us in making a 

determination as to whether the 

deficiencies that are the bases for the 

intermediate sanction have been 

corrected and are not likely to recur. 

The aforementioned deficiencies may be 

in any operational area, and are not 

limited or restricted to enrollment and/ 

or marketing deficiencies. 

Second, we are proposing to clarify 

the enrollment parameters for Part D 

contracting organizations that are under 

the benchmark and would normally 

participate in the annual and monthly 

auto enrollment process for 

beneficiaries who receive a low income 

subsidy (LIS) during a test period. 

During a test period, sanctioned Part D 

plans may not be allowed to receive or 

process these types of enrollments. 

LIS beneficiaries are a vulnerable 

population who are particularly 

sensitive to financial instability. It is 

critical that Part D sponsors correctly 

identify a beneficiary’s LIS status. Our 

goal when enrolling this particular 

population is to ensure that these 

vulnerable beneficiaries are best able to 

access their drugs and services in the 

manner to which they are entitled under 

the Part D program. We believe that if 

we allow auto-enrollments into a plan 

that has recently demonstrated 

substantial non-compliance with our 

regulations as evidenced by the 

imposition of an intermediate sanction, 

these vulnerable beneficiaries may 

experience difficulties in accessing 

prescription drugs. Therefore, we are 

proposing to make clear that we may 

determine that a sanctioned plan is not 

available to receive automatically 

assigned beneficiaries for the entire 

duration or a portion of the testing 

period. 

We are proposing to modify the 

regulation text at § 422.756 and 

§ 423.756 to reflect these changes. 

8. Timely Access to Mail Order Services 

(§ 423.120) 

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

authorizes the Secretary to include 

contract terms for Part D sponsors, not 

inconsistent with the Part C and D 

statutes, as necessary and appropriate. 

Section 423.120(a)(3) specifies that a 

Part D sponsor’s contracted network 

may include non-retail pharmacies, 

including mail order pharmacies, so 

long as the network access requirements 

are met. Part D plans are increasingly 

entering into contracts with mail order 

pharmacies to offer beneficiaries an 

alternative way to fill prescriptions 

under the Part D benefit, often at much 

lower cost sharing than is available at 

network retail pharmacies. While mail 

order pharmacies make up a relatively 

small percentage of total prescriptions 

filled under the Part D program, we are 

committed to ensuring consistent and 

reliable beneficiary access to 

medications, regardless of what type of 

pharmacy fills the prescriptions. 

Section 1860D–4 of the Act describes 

the various beneficiary protections in 

place in the Part D program. It is the 

industry standard in retail and 

institutional pharmacies to fill almost 

all prescriptions on the same day the 

prescription is presented. We have 

established a 24 hour fulfillment 

standard for home infusion drugs 

covered under Part D 

(§ 423.120(a)(4)(iv)). For mail order 

pharmacies, the industry standard for 

delivery times appears to range from 7 

to 10 business days from the date the 

prescription was received, and Part D 

sponsors’ marketing materials often 

specify this time frame to beneficiaries. 

Beneficiaries generally choose to fill 

prescriptions through a mail order 

pharmacy, for lower cost sharing, when 

it is feasible to wait 7 to 10 days to 

receive their medications. However, if 

this time frame is disrupted, 

beneficiaries may experience gaps in 

therapy. 

We are aware of a specific instance in 

which significant incentives (for 

example, zero cost sharing) caused 

increased demand for mail order 

prescriptions sufficient to disrupt the 

delivery time frame, and we are 

concerned about the adverse effect such 

incentives might have on beneficiaries. 

When issues with filling a prescription 

arise in a retail setting, the beneficiary 

often is notified of the problem in real 

time, or within hours of discovery. 

When issues arise in a mail order 

setting, the delays in finding, 

communicating, and making the 

appropriate contacts to resolve the 

problem may add days onto the ultimate 

delivery date, resulting in a potentially 

more significant concern for mail order 

beneficiaries if these delays result in 

gaps in therapy. For this reason, we 

believe it is necessary and appropriate 

to establish fulfillment requirements for 

mail order pharmacies as well as home 

delivery services offered by retail 

pharmacies, to set consistent 

expectations for beneficiary access to 

drugs in this growing segment. Many 

beneficiaries may be very well served by 

this type of pharmacy access, but only 

if they can rely upon efficient 

processing and turnaround times. Mail 

order pharmacies contracted by Part D 

sponsors can reasonably be expected to 

meet minimum performance standards 

for order fulfillment, including 

convenient order turnaround times, as a 

beneficiary protection and as a 

component of providing good customer 

service. Clearly stating in beneficiary 

materials the expected turnaround time 

for delivery allows the beneficiary to 

better control when they need to reorder 

to ensure no gaps in medication supply. 

Clarity in expected turnaround times 

also can prevent needing to address 

customer inquiries into the status of a 

pending order, setting parameters for 

when an order is or is not delayed and 

what options become available at that 

point. We believe that established 

companies that have been providing 

these services for years have generally 

been meeting these standards in practice 

already, and that the proposed 

turnaround times are in line with 

current practices followed by mail order 

pharmacies today. Establishing mail 

order fulfillment requirements as a 

contract term would require plan 

sponsors to require that all pharmacies 

in its network meet the same minimum 

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1Under section 1128B(b)(3)(G) of the Act, an 

individual determination of financial need is not 

required for Part D beneficiaries eligible for the lowincome subsidy under section 1860D–14 of the Act. 

level of service. This would underscore 

the importance of consistent and 

reliable access to medications, 

protecting beneficiaries from 

inconsistent or unreliable practices that 

may otherwise jeopardize timely access 

to prescriptions. 

Therefore, we are proposing to amend 

§ 423.120(a)(3) to specify mail order 

fulfillment requirements in line with 

what we have observed in other 

markets: 5 business days (from when the 

pharmacy receives the prescription 

order to when it is shipped) for those 

prescriptions requiring intervention 

beyond filling (such as clarifying 

illegible orders, resolving third party 

rejections, and coordinating with 

multiple providers as part of drug 

utilization management); and 3 business 

days (from when the pharmacy receives 

the prescription order to when it is 

shipped) for those prescriptions not 

requiring intervention. We recognize 

that some prescription orders may 

require clarification or additional steps 

to be taken by the provider or 

beneficiary that will extend beyond the 

proposed period of 5 days. We believe 

that such cases represent a minority of 

mail order prescriptions, and as such we 

would anticipate that more than 99 

percent of all mail order prescriptions 

processed are filled in compliance with 

either the 3- or 5-day standard. We 

believe our proposed standards are in 

alignment with fulfillment requirements 

already in place in the market and as 

such do not create a new burden or new 

standard for mail order pharmacies to 

meet. We are soliciting comments not 

only on the proposed time frames, but 

also on whether there are instances (in 

addition to those discussed previously) 

in which the proposed 5-day time frame 

should apply. 

We additionally are soliciting 

comments on whether we should 

establish additional requirements for 

beneficiary materials relating to mail 

order services, such as: clear definitions 

of processing time and delivery time; 

how to access customer support; how to 

submit a complaint via 1 800 

MEDICARE; and beneficiary options for 

accessing medications when a delivery 

is lost or delayed. 

We also welcome comments on any 

other requirements we should consider 

for mail order or other home delivery 

options. For example, also potentially 

affecting consistent access to medication 

is the use of mail order to fill initial 

prescriptions of new drugs or to fill 30- 

day supplies of chronically used 

medications. The need to order a refill 

early, allowing sufficient time for 

processing and delivery, can result in 

refill too soon edits based upon retail 30 

day standards. Resolving inappropriate 

or inapplicable edits increases burden 

on the beneficiary and the mail order 

pharmacy and essentially creates a 

disincentive for beneficiaries who are 

planning ahead and attempting to order 

early enough to ensure un-interrupted 

supplies of chronic medications. In 

general, we believe that filling initial 

prescriptions or routine 30-day supplies 

at mail order is not good practice. We 

recognize that there may be a small 

minority of beneficiaries who 

successfully depend solely upon mail 

order or other home delivery options for 

access to prescription drugs due to 

particular circumstances of geography 

or mobility. We have no reason to 

discourage their continued use of these 

services. However, due to the 

difficulties reported to CMS with 

consistently and effectively filling short 

time frame supplies through mail order, 

we do not believe that Medicare 

beneficiaries in general should be 

incentivized through lower cost sharing 

to utilize mail order pharmacies for 

initial prescriptions or 30-day supplies. 

9. Collections of Premiums and Cost 

Sharing (§ 423.294) 

Since the beginning of the Part D 

program, when asked whether Part D 

sponsors could waive premiums and 

cost sharing we have responded that 

reducing or waiving either of these 

amounts would be inconsistent with the 

approved bid. The bid requirements, 

specified in section 1860D–11(e)(2)((C) 

of the Act, state the bid must reasonably 

and equitably reflect the revenue 

requirements of the expected population 

for the benefits provided under the plan. 

Waiving or reducing the cost sharing 

and/or premiums that are reflected in 

the approved bid would indicate that 

the plan bid was overstated and the 

amounts were not necessary for the 

provision of coverage. However, 

recently we have received reports of 

sponsors reducing or waiving costsharing and/or premiums. As a result, 

we propose to codify requirements for 

sponsor collection of cost sharing and 

premiums in regulation. 

In addition to violating the bid 

requirements, as we noted in the 

preamble of the October 22, 2009 

proposed rule entitled, ‘‘Medicare 

Program; Policy and Technical Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs’’ (74 FR 54690), waiving cost 

sharing or premiums also violates the 

uniform benefit requirements because 

doing so results in the plan’s not 

providing the same coverage to all 

eligible beneficiaries within its service 

area. Section 1860D–2(a) of the Act 

defines qualified prescription drug 

coverage to mean access to standard or 

actuarially equivalent prescription drug 

coverage and access to negotiated prices 

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

of the Act). Thus, a Part D sponsor must 

offer its plan to all eligible beneficiaries 

residing in the plan’s service area. We 

further interpret section 1860D–2(a) of 

the Act as requiring the provision of 

uniform premium and benefits and have 

codified these requirements in our 

regulations at § 423.104(b). 

Once CMS has approved a sponsor’s 

Part D benefit package, it cannot be 

varied for some or all of the plan’s Part 

D enrollees. Thus, sponsors must 

commit to providing the level of 

benefits described in the sponsor’s 

benefit package and cannot waive or 

reduce cost sharing, as that would 

violate the uniform benefit provisions 

set forth in § 423.104(b). This is true 

regardless of whether the Part D sponsor 

waives the copayment directly or 

indirectly through an affiliate, and 

regardless of whether such a waiver is 

prohibited by other laws. Some Part D 

sponsors are related to pharmacies 

through common ownership or control, 

and we note that an exception to the 

anti-kickback statute, set forth in section 

1128B(b)(3)(G) of the Act, permits a 

pharmacy to waive cost sharing (that is, 

coinsurance and deductibles) imposed 

under Part D, if the conditions described 

in clauses (i) through (iii) of section 

1128A(i)(6)(A) of the Act are met. These 

conditions include that the waiver is not 

advertised (through media outlets, 

telemarketing or otherwise) and is not 

routine, and the cost sharing is waived 

after a good faith determination that the 

individual is in financial need 1 or 

reasonable efforts to collect the cost 

sharing have failed. This exception may 

protect from sanctions under the antikickback statute the waiver of cost 

sharing by pharmacies owned by Part D 

sponsors. However, as noted in the 

proposed rule, entitled ‘‘Medicare 

Program; Policy and Technical Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs’’ (74 FR 54690), sponsor 

failure to collect or attempt to collect 

cost sharing at the time the service is 

provided or to bill cost sharing to the 

appropriate party (either a beneficiary or 

another payer) after the fact, is a 

violation of the uniform benefit 

provisions set forth in the current 

regulation at § 423.104(b). The fact that 

cost sharing is waived by a pharmacy 

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that is related to a Part D sponsor by 

common ownership, rather than the Part 

D sponsor itself, and that it may be 

protected from sanctions under the antikickback statute, does not relieve the 

Part D sponsor of responsibility for this 

violation of the uniform benefit 

provisions. If a pharmacy is unrelated to 

a Part D sponsor and waives cost 

sharing under the conditions previously 

described, the pharmacy is making an 

independent business decision to which 

the Part D sponsor is indifferent. 

However, if an affiliated pharmacy 

waives cost sharing for a beneficiary 

enrolled in the sponsor’s Part D plan, 

the sponsor is not indifferent because 

the cost-sharing waiver is more likely to 

be a strategic decision by the sponsoring 

organization to move market share to 

the related-party pharmacy and increase 

profits to the sponsor. Thus, the sponsor 

is altering the level of cost sharing in the 

approved bid in violation of the uniform 

benefit provisions in § 423.104(b). To 

clarify this for all parties, we propose to 

codify the prohibition of the waiver or 

reduction of premiums and cost sharing 

by adding a new section at § 423.294. 

We propose to specify that Part D 

sponsors either directly, or indirectly 

through related party pharmacies, as 

defined in regulation at § 423.501, are 

prohibited from reducing or waiving 

collection of premiums and cost 

sharing. In contrast, a pharmacy 

affiliated with one Part D sponsor may 

waive Part D cost sharing for 

beneficiaries enrolled Part D plans 

offered by other sponsors without 

violating the uniform benefit provisions. 

Additionally, we have become aware 

that the regulations in Part 423 do not 

address Part D sponsor requirements for 

refunding incorrect collections of 

premiums and cost sharing or for 

retroactively collecting underpayments 

of cost sharing. Therefore, we also 

propose to codify requirements at 

§ 423.294 that mirror the language at 

§ 422.270. We propose to apply the 

timeframe in § 423.466(a) to these 

refunds and recoveries. In other words, 

whenever a sponsor receives 

information that necessitates a 

retroactive refund of incorrect 

collections of premiums and/or cost 

sharing or collection of underpayments 

of cost sharing, the sponsor would be 

required to issue refunds or recovery 

notices within 45 days. For incorrect 

collections, we propose to duplicate the 

language at § 422.270 with one 

exception. That is, in the absence of 

authority to do so, we are not proposing 

to reduce Part D sponsor premiums for 

failure to refund amounts incorrectly 

collected from Part D enrollees. Instead, 

we propose that sponsors that fail to 

meet these requirements may receive 

compliance notices from CMS or, 

depending on the significance of the 

non-compliance, be the subject of an 

intermediate sanction (for example, 

suspension of marketing and enrollment 

activities) pursuant to Part 423, 

Subpart O. 

10. Enrollment Eligibility for 

Individuals Not Lawfully Present in the 

United States (§ 417.2, § 417.420, 

§ 417.422, § 417.460, § 422.1, § 422.50, 

§ 422.74, § 423.1, § 423.30, and § 423.44) 

a. Basic Enrollment Requirements 

Sections 226 and 226A of the Act 

establish the conditions for Medicare 

Part A entitlement for individuals who 

have attained age 65, are disabled or 

have end-stage renal disease (ESRD), 

and are entitled to monthly Social 

Security benefits under section 202 of 

the Act. Individuals entitled to Part A 

under these sections do not have to pay 

premiums for such coverage, and they 

may, but are not required to, enroll in 

Medicare Part B. Section 1818 of the Act 

establishes the conditions for Medicare 

enrollment for individuals who are not 

entitled to monthly Social Security 

benefits under section 202 of the Act. 

Individuals covered under section 1818 

of the Act must meet citizenship or 

alien status requirements, in addition to 

other requirements, in order to enroll in 

Part B. Individuals must have Part B in 

order to purchase Part A hospital 

insurance. 

Sections 1851(a)(3)(B), 1860D– 

1(a)(3)(A), and 1876(a)(1)(A) of the Act 

outline the eligibility requirements to 

enroll in MA (Part C), Medicare 

prescription drug coverage (Part D), and 

Medicare cost plans. Under all options, 

individuals must have active Medicare 

coverage. Specifically, to enroll in MA, 

an individual must be entitled to 

benefits under Part A and be enrolled in 

Part B; to enroll in Part D, an individual 

must be entitled to Part A and/or 

enrolled in Part B; to enroll in a 

Medicare cost plan, an individual must 

be enrolled in Part B (Part A entitlement 

is not required). 

b. Medicare Eligibility and Lawful 

Presence 

Section 401 of the Personal 

Responsibility and Work Opportunity 

Reconciliation Act of 1996 (PRWORA), 

amended by section 5561 of the BBA, 

mandates that qualified aliens not 

lawfully present in the United States are 

not eligible to receive any federal 

benefit. This is outlined in 8 U.S.C. 

1611 (Aliens who are not qualified 

aliens ineligible for federal public 

benefits) and 8 U.S.C. 1641 

(Definitions). The definition of qualified 

alien is codified in 8 CFR 1.3 (Lawfully 

present aliens for purposes of applying 

for Social Security benefits). 

The aforementioned provisions affect 

eligibility to receive benefits that would 

otherwise be payable under provisions 

in the Act. For example, aliens meeting 

certain criteria are able to earn qualified 

credits towards Social Security 

retirement benefits as outlined in 8 

U.S.C. 1631 (Federal attribution of 

sponsor’s income and resources to alien) 

and 8 U.S.C. 1645 (Qualifying quarters). 

Such individuals may earn the total 

number of qualified credits to be eligible 

under the Act to receive retirement 

benefits under sections 226 and 226A of 

the Act. However, should such 

individuals be unlawfully present in the 

United States under the previously 

mentioned PRWORA provisions, they 

are not eligible to receive the Social 

Security benefits they have earned for as 

long as they remain unlawfully present. 

At such time as they are lawfully 

present in the United States, or live 

outside the United States, they would 

again become eligible to receive Social 

Security payments. 

Similarly, when aliens become 

eligible for Medicare based on age or 

disability under the terms of the Act, 

they would also automatically be 

entitled to premium free Part A benefits 

and be eligible to enroll in Part B during 

a valid enrollment period. Furthermore, 

aliens receiving Social Security 

retirement benefits 4 months prior to 

turning 65, or are in their 21st month of 

receiving Social Security disability 

benefits, would, under the terms of the 

Act, also automatically be enrolled into 

both Part A and Part B consistent with 

section 1837 of the Act and the 

enrollment process outlined in § 407.17. 

Again, however, under PRWORA, these 

individuals are not eligible to receive 

payment of Medicare benefits for so 

long as they are unlawfully present in 

the United States. Only upon becoming 

lawfully present would they become 

eligible to receive the Medicare benefits 

to which they would otherwise be 

entitled by paying into Social Security 

for the requisite number of quarters or 

paying premiums. 

We note that current regulations at 

§ 406.28 and § 407.27 outline the 

reasons for loss of premium Part A and 

Part B enrollment, and do not include 

the absence of lawful presence or 

citizenship as a reason for loss of 

entitlement. Individuals who are 

entitled to Part A and enrolled in Part 

B based on eligibility of Social Security 

benefits currently may be enrolled in 

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Medicare even if they are not lawfully 

present in the United States. 

When PRWORA was enacted, the Act 

was not amended to include the 

additional eligibility criteria for 

entitlement to either Social Security 

benefits or for Medicare Part A 

entitlement, nor were new provisions 

put into place regarding termination of 

entitlement or establishment of a special 

enrollment period to account for 

situations in which individuals 

reestablished lawful presence. As a 

result, individuals who meet the current 

statutory eligibility criteria have been 

reflected in CMS records as entitled to 

both Social Security benefits and 

Medicare coverage. 

c. Alignment of MA, Part D, and Cost 

Plan Eligibility With Fee-For-Service 

(FFS) Payment Exclusion Policy 

In order to implement 8 U.S.C. 1611 

and ensure that individuals who are 

present in the United States unlawfully 

do not receive benefits, the Social 

Security Administration (SSA) 

established internal policies and 

procedures to suspend Social Security 

benefits during periods for which 

individuals are unlawfully present in 

the United States. Because Medicare 

entitlement flows from entitlement to 

Social Security retirement and disability 

benefits, Medicare also has 

implemented this provision through a 

payment exclusion process. 

Under Medicare’s payment exclusion 

process, data on lawful presence is 

transmitted to CMS from the 

Department of Homeland Security via 

regular data exchanges from SSA. Once 

the data is received by us, the lawful 

presence status is noted on an 

individual’s record and is retained in 

the FFS claims processing systems. As 

a result, we deny payment of both Part 

A and Part B claims for non-citizens 

where lawful presence is not established 

on their record, and do so until 

individuals regain their lawful presence 

status. Although payment is being 

denied for claims, individuals who are 

‘‘fully insured’’ per section 226 of the 

Act, maintain Part A entitlement and 

remain enrolled in Part B on CMS 

records as long as premiums are paid. 

Similarly, individuals who are enrolled 

in premium Part A and/or Part B, 

maintain their enrollment status as long 

as premiums are paid. 

Although CMS implementation of the 

lawful presence criteria in the FFS 

program achieved the intent of 

PRWORA by preventing FFS payments 

for services rendered to individuals who 

are not lawfully present, this policy was 

not adopted in regulations for Part A 

and Part B eligibility in 42 CFR parts 

406 and 407 or addressed in regulations 

or subregulatory guidance for MA, Part 

D, and Medicare cost plans. Thus, 

individuals who are not lawfully 

present, but are nevertheless shown on 

CMS records to be entitled to Medicare 

Part A and/or enrolled in Part B, have 

been able to enroll in MA, Part D, and 

Medicare cost plans and obtain 

Medicare coverage for which they 

should not be eligible under 8 U.S.C. 

1611. By permitting these MA, Part D 

and cost plan enrollments to remain in 

place, we are allowing improper 

payments to be made to plans on behalf 

of these individuals, which in turn 

impacts the Medicare Trust Funds. In 

addition, MA organizations, PDP 

sponsors and cost plans are making 

benefit payments under the Medicare 

program on behalf of these enrollees 

that are similarly prohibited under 

PRWORA. 

Therefore, we are proposing to align 

eligibility for enrollment in MA, Part D, 

and cost plans (and resulting Medicare 

payments to plans and by plans that 

violate PRWORA) with the FFS 

payment exclusion policy to ensure that 

Medicare is only paying for services 

rendered to individuals who are eligible 

to receive them. These steps are 

consistent with recommendations made 

by the Office of Inspector General in its 

January 2013 report (A–07–12–01116) 

regarding the need for CMS to maintain 

adequate controls to prevent and detect 

improper payments for Medicare 

services rendered to unlawfully present 

beneficiaries. Accordingly, we are 

proposing to revise the regulations to 

establish U.S. citizenship and lawful 

presence as eligibility requirements for 

enrollment in MA, Part D, and cost 

plans. Further, we propose that 

individuals who are not lawfully 

present in the United States would be 

involuntarily disenrolled from MA, Part 

D, and cost plans, based on the date on 

which they lose their lawful presence 

status. Disenrollments would be 

effective the first of the month following 

the loss of eligibility, and the 

disenrollment process would follow that 

currently set forth in the regulations 

when an individual is no longer eligible 

to be enrolled in a plan. 

These regulatory changes would 

prevent an individual from enrolling in 

a plan and/or remaining enrolled in a 

plan if they are not lawfully present in 

the United States. Affected individuals 

will retain their Medicare entitlement 

and remain enrolled in FFS, as long as 

premiums continue to be paid, but MA, 

Part D and cost plan payments would be 

denied for time periods during which 

the individuals are not lawfully present 

in the United States. We must ensure 

that in administering the Medicare 

program, all programs are compliant 

with 8 U.S.C. 161l. Specifically, we are 

proposing the following to address the 

eligibility and disenrollment of 

individuals not lawfully present in the 

United States: 

• Sections 417.420, 417.422, 422.50, 

and 423.30 would be amended to add 

lawful presence or United States 

citizenship as eligibility criteria for 

enrollment in a cost, MA, or Part D plan, 

respectively. 

• Sections 417.460, 422.74, and 

423.44 would be amended to require the 

involuntarily disenrollment of 

individuals from cost, MA or Part D 

plans when they lose lawful presence 

status. 

Conforming changes would be made 

to § 417.2, § 422.1, and § 423.1 to outline 

the authority for the aforementioned 

requirements, in 8 U.S.C. 1611 (Aliens 

who are not qualified aliens ineligible 

for Federal public benefits). 

11. Part D Notice of Changes 

(§ 423.128(g)) 

Section 1860D 4(a) of the Act requires 

Part D sponsors to disclose to 

beneficiaries information about their 

Part D drug plans in standardized form. 

The Act further directs Part D sponsors 

to include, as appropriate, information 

that MA organizations must disclose 

under section 1852(c)(1) of the Act, 

which includes a detailed description of 

benefits. (In guidance, we refer to the 

document containing this information 

and delivered to beneficiaries as the 

Evidence of Coverage (EOC).) To make 

informed decisions, enrollees need to 

understand how their benefits, 

including premiums and cost sharing, 

would change from one year to the next, 

should they reenroll in the same plan. 

(In guidance, we refer to the documents 

containing this information and 

delivered to beneficiaries as the Annual 

Notice of Change (ANOC).) And 

enrollees also need to be aware of 

changes that may take place during the 

course of the year as well. Part D 

regulations currently do not include 

language found in the Part C regulations 

at § 422.111(d) requiring notice of 

changes to the plan to be provided to 

CMS for review pursuant to procedures 

for marketing material review and to all 

enrollees at least 15 days prior to the 

annual coordinated election period. 

Given that guidance applicable to both 

programs discusses notice of changes, 

we propose to require, for Part D, 

delivery of an ANOC. 

Specifically, we propose to adopt in 

Part D, with modifications, the language 

contained in § 422.111(d). As is the case 

with the Medicare Advantage 

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regulation, proposed § 423.128(g) would 

require that Part D sponsors submit their 

changes to us under the procedures 

contained in subpart V of part 423, and, 

for those changes taking effect on 

January 1, provide a notice of changes 

to all enrollees 15 days before the 

beginning of the annual election period. 

While part 422 requires a minimum of 

30 days’ notice before the effective date 

for all other changes, proposed 

§ 423.128 would not impose that 

standard, but rather would state that 

Part D sponsors remain subject to all 

other notice requirements specified 

elsewhere in the Part D regulations. Our 

proposal reflects a programmatic 

difference between Parts C and D: Under 

Part D it is not unusual for access to 

drugs listed on a plan’s formulary to 

change during the course of a year. 

Changes can include changes to 

formulary status, tier placement, and 

utilization management or other 

restrictions. It is vital that beneficiaries 

currently taking a drug receive timely 

notice before such changes take place in 

order that they can decide whether to, 

for instance, change drugs or request an 

exception to cover the drug. 

Accordingly, our regulations currently 

specify when sponsors must provide 

notice of these kinds of changes. Our 

proposal to require the delivery of an 

ANOC is not intended to disrupt or 

change those existing notice 

requirements. 

We would also like to take this 

opportunity to comment on the 

particular importance for Part D 

sponsors to provide notice in the ANOC 

of any changes they are making that will 

affect the amount of cost sharing which 

enrollees must pay for each drug 

belonging to a specific tier. As has been 

articulated in guidance, we continue to 

expect that sponsors will provide notice 

of such changes to all enrollees, 

including enrollees moved to a 

consolidated plan. Generally, sponsors 

compare numbers for the same plan 

from one year to the next in the ANOC. 

However, comparing numbers for the 

same plan would not benefit individuals 

moved from one plan to another. For 

instance, when a sponsor crosswalks 

members from a non-renewing plan to a 

consolidated renewal plan from one 

year to the next, cost sharing may 

change at the drug-tier level. For 

example, an enrollee who previously 

had zero cost sharing for all covered 

Part D drugs within the preferred 

generic tier may find that the 

consolidated plan now requires copays 

for drugs in that tier depending on how 

many months’ supplies he or she orders, 

and whether he or she obtains those 

drugs at a retail level pharmacy or 

through mail order. We continue to 

expect that enrollees will receive 

ANOCs that clearly compare the nonrenewed and consolidated plans’ 

copayments or coinsurance for all drugs 

within each tier. 

12. Separating the Evidence of Coverage 

(EOC) From the Annual Notice of 

Change (ANOC) (§ 422.111(a)(3) and 

§ 423.128(a)(3)) 

As provided in sections 1852(c)(1) 

and 1860D–4(a) of the Act, MA 

organizations and Part D sponsors must 

disclose detailed information about the 

plans they offer to their enrollees. This 

detailed information is specified in 

section 1852(c)(1) of the Act and 

§ 422.111(b) and § 423.128(b) of the Part 

C and Part D program regulations, 

respectively. 

Under § 422.111(a)(3), we require MA 

plans to disclose a detailed plan 

description to each enrollee ‘‘at the time 

of enrollment and at least annually 

thereafter, 15 days before the annual 

coordinated election period.’’ A similar 

rule for Part D sponsors is found at 

§ 423.128(a)(3). The content of the 

annual plan description is provided in 

paragraph (b) of the respective 

regulations. This is commonly referred 

to as the EOC. In addition, under 

§ 422.111(d), we require MA 

organizations to notify all enrollees ‘‘at 

least 15 days before the beginning of the 

Annual Coordinated Election Period’’ of 

any changes that will take effect on 

January 1 of the next plan year. This 

notification is commonly referred to as 

the ANOC. Although our Part D 

guidance calls for Part D sponsors to 

provide an ANOC, there currently is not 

a regulatory requirement that they do so. 

Therefore, in the previous section of this 

proposed rule, we have proposed to 

codify such a requirement. 

Prior to the 2009 contract year, these 

regulations required the provision of the 

EOC at the time of enrollment and at 

least annually thereafter but did not 

specify a deadline for the annual 

provision of the EOC. We permitted MA 

organizations and Part D sponsors to 

provide the EOC as late as January 31 

of the applicable contract year. 

Therefore, prior to the annual 

coordinated election period (AEP) for 

the 2009 contract year, MA 

organizations and Part D sponsors may 

have provided the EOC and ANOC at 

different times. In the final rule entitled, 

‘‘Medicare Program, Medicare 

Advantage and Prescription Drug 

Programs; Final Marketing Provisions’’ 

(73 FR 54220 and 54222), we required 

MA organizations to send the EOC at the 

same time as the ANOC (that is, 15 days 

before the AEP), with the result that the 

EOC was sent about 4 months earlier. 

Our rationale for this requirement was 

to provide beneficiaries with 

comprehensive information prior to the 

AEP. In addition, the consolidated 

mailing reduced the number of mailings 

to enrollees and eliminated duplicative 

information. However, we have found 

through consumer testing that 

beneficiaries receive multiple 

documents from their plans and CMS 

during the AEP that address similar 

topics, which at times beneficiaries find 

confusing or overwhelming. The ANOC, 

which is much shorter than the EOC, is 

intended to convey all of the 

information essential to a beneficiary’s 

decision to remain enrolled in the plan 

or choose another plan during the AEP. 

Research based on the consumer testing 

suggests that participants were more 

likely to review the ANOC if it was not 

included with the EOC. For example, 

when asked about the utility of each 

document, many participants stated that 

they would read the ANOC as soon as 

they received it, and use it more often 

than a combined ANOC/EOC because 

the combined document is too much to 

worry about, too wordy, and/or too 

difficult to find information in 

compared to just the ANOC. 

We have also found that sending the 

EOC months earlier has led to some 

unintended consequences. Specifically, 

the earlier deadline shortens the 

production time and affects the MA 

organization’s or Part D sponsor’s ability 

to produce an EOC that provides 

accurate benefit information in 

accordance with CMS required 

timeframes, which results in plans 

sending and beneficiaries receiving 

additional mailings containing errata 

sheets. We have reviewed plan ANOC/ 

EOC documents for errors and found 

that, of the total number errors found, 

EOCs contain significantly more errors 

(86 percent) than the ANOCs (14 

percent), which leads us to believe that 

allowing plans to have additional time 

to prepare EOCs would allow them to 

produce EOCs with fewer errors. 

Additionally, resources are wasted 

when beneficiaries are sent a combined 

ANOC and EOC, but ultimately decide 

to enroll in a different plan, and have no 

need for the EOC. 

In order to help current members 

make timely and informed decisions 

about plan choices for the next year 

while ensuring that they continue to 

receive all the post-enrollment 

information necessary in a timely 

manner, we believe it would be more 

effective for them to receive an ANOC 

before the AEP, and then receive the 

EOC from the plan he or she chooses for 

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the next year after enrollment is 

effective. Therefore, we propose to 

require MA organizations and Part D 

sponsors to ensure that their current 

members receive the ANOC 15 days 

prior to the AEP, and receive the EOC 

no later than December 31st, for the 

contract year taking effect the following 

January 1st. To accomplish this, we 

propose to amend § 422.111(a)(3) and 

§ 423.128(c)(3) to remove the current 

deadline and insert ‘‘by December 31 for 

the following contract year.’’ The 

deadline established by § 422.111(d)(2) 

for provision of the ANOC would 

continue to be 15 days prior to the 

beginning of the AEP. In addition, as 

mentioned previously, we are proposing 

to amend § 423.128 to require Part D 

sponsors to provide a separate ANOC 

and to adjust the time frames for 

delivery accordingly. 

13. Agent/Broker Compensation 

Requirements (§ 422.2274 and 

§ 423.2274) 

Section 103(b)(1)(B) of MIPPA revised 

the Act to charge the Secretary with 

establishing guidelines to ’’ensure that 

the use of compensation creates 

incentives for agents and brokers to 

enroll individuals in the MA plan that 

is intended to best meet their health 

care needs.’’ Section 103(b)(2) of MIPPA 

revised the Act to apply these same 

guidelines to Part D sponsors. Our 

program experience indicates that some 

agents may encourage beneficiaries to 

enroll in plans that offer higher 

commissions without regard to whether 

plan benefits meet the beneficiaries’ 

health needs. In recognition that agents 

and brokers play a significant role in 

providing guidance and advice to 

beneficiaries and are in a unique 

position to influence beneficiary choice, 

we had proposed, prior to the enactment 

of MIPPA, a rule to regulate agent and 

broker compensation. To implement the 

MIPAA provisions and relying in part 

on comments in response to our 

previously proposed rule, we adopted 

an interim final rule on September 18, 

2008, entitled ‘‘Medicare Program; 

Medicare Advantage and Prescription 

Drug Benefit Programs: Final Marketing 

Provisions’’ (73 FR 54208, at 54226), 

which, among other things, established 

the current compensation structure for 

agents and brokers in connection with 

Parts C and D. That rule remains 

significantly in place at § 422.2274 and 

§ 423.2274, and our experience since 

then indicates that revision of the 

compensation requirements is 

appropriate to ensure that we continue 

to meet our statutory mandate. 

The current compensation structure is 

comprised of a 6-year compensation 

cycle that began in contract year 2009. 

MA organizations and Part D sponsors 

were to provide an initial compensation 

payment to independent agents for new 

enrollees (year 1) and pay a renewal rate 

(equal to 50 percent of the initial year 

compensation) to independent agents 

for years 2 through 6. These rates were 

to be adjusted annually based on 

changes to the MA payment rates or Part 

D parameters as established by CMS. We 

later amended the regulations to allow 

MA organizations and Part D sponsors 

to compensate independent agents and 

brokers annually using an amount at or 

below the fair market value. (See the 

final rule with comment period entitled, 

‘‘Medicare Program; Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2013 and Other Changes’’ 

(77 FR 22072) published in the April 12, 

2012 Federal Register.) 

The 6-year cycle is scheduled to end 

at the end of CY 2013, on December 31, 

2013. The first year, 2009, was 

considered to be the first renewal year, 

effectively making 2009 the second full 

year of compensation. Because our 

regulations were silent regarding 

compensation amounts for Year 7 and 

beyond, we stated in our Final Call 

Letter for Contract Year 2014, issued on 

April 1, 2013, that MA organizations 

and Part D sponsors could, at their 

discretion, pay agents and brokers the 

renewal amount for Year 7 and beyond. 

However, this subregulatory guidance 

was intended to be a temporary 

measure, pending changes to our 

regulations. 

Under the current structure MA 

organizations and Part D sponsors pay 

an initial rate for the first year, and then 

a renewal payment of 50 percent of the 

initial compensation paid to the agent 

for years 2 through 6. This structure has 

proven to be complicated to implement 

and monitor as it requires the MA 

organization or Part D sponsor to track 

the compensation paid for every 

enrollee’s initial enrollment, and 

calculate the renewal rate based on that 

initial payment. For example, assume 

that the same agent enrolls three 

beneficiaries; one in each of the 2012, 

2013, and 2014 contract years. 

Beneficiary A is a new, initial enrollee 

in MA plan XYZ for CY2012. Assume 

that the fair market value (FMV) cut-off 

amount for agent services for CY 2012 

is $400. Plan XYZ has decided that its 

initial compensation will be equal to the 

full FMV, resulting in a payment to the 

agent of $400. Beneficiary B is a new, 

initial enrollee in MA plan XYZ for 

CY2013. In CY2013, assume the FMV 

has increased to $420. Plan XYZ has 

again decided that its initial 

compensation will be equal to the full 

FMV for Beneficiary B, resulting in a 

payment to the agent of $420. Also in 

CY2013, Plan XYZ is required to pay a 

renewal amount of 50 percent of initial 

enrollment to the agent for Beneficiary 

A. Since the initial payment for 

Beneficiary A was $400, Plan XYZ will 

pay a renewal amount of $200. 

Beneficiary C is a new, initial enrollee 

in MA plan XYZ for CY2014. In 

CY2014, assume the FMV value has 

again increased to $430. The Plan’s 

initial compensation is, again, equal to 

the full FMV. Plan XYZ’s payments to 

the agent would be as follows: $430 for 

Beneficiary C (new, initial), $210 for 

Beneficiary B (renewal, 50 percent of 

the initial payment of the CY2013 FMV 

of $420), and $200 for Beneficiary A (50 

percent of the initial payment of the 

CY2012 FMV of $400). Thus, Plan XYZ 

has to know, at any given time, the 

amount of the initial compensation for 

each plan year—going back as far as 

2009—in which the member enrolled in 

order to pay the correct compensation 

amount to the agent. Moreover, MA 

organizations and Part D sponsors must 

first review CMS’ reports to determine 

whether an initial or renewal payment 

should be made, and then combine that 

information with the FMV, or, if 

applicable, the plan’s compensation set 

at less than the FMV, for each plan year 

to ensure the correct payments are made 

to agents. When these simple examples 

are multiplied by tens or thousands of 

members, the complexity and 

challenges associated with 

implementing the current compensation 

requirements becomes clear. 

In addition to its complexity, we are 

concerned that the current structure 

creates an incentive for agents and 

brokers to move enrollees from a plan of 

one parent organization to a plan of 

another parent organization, even for 

like plan type changes. Currently, in 

these cases, the new parent organization 

would pay the agent 50 percent of the 

current initial rate of the new parent 

organization; not 50 percent of the 

original initial rate paid by the other 

parent organization. Thus, in cases 

where the FMV has increased, or the 

other parent organization pays a higher 

commission, the incentive exists for the 

agent to move beneficiaries from one 

parent organization to another. (See 

§ 422.2274(a)(3) and § 423.2274(a)(3)). 

So, in the example provided previously, 

if Beneficiary A switched to Plan ABC 

for CY2014, Plan ABC would pay the 

same agent $215 (50 percent of the 2014 

initial rate of $430), instead of the $200 

renewal payment the agent would have 

received if Beneficiary A remained in 

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Plan XYZ. Although the mere $15 

increase in the payment to the agent 

may not appear to be much of an 

incentive to move one enrollee, an agent 

would receive considerably more 

income by moving tens of enrollees to 

another plan. 

Since 2008, we have received 

inquiries from MA organizations and 

Part D sponsors regarding the correct 

calculation of agent/broker 

compensation, and found it necessary to 

take compliance actions against MA 

organizations and Part D sponsors for 

failure to comply with the 

compensation requirements. To the 

extent that there is confusion about the 

exact levels or timing of compensation 

required, there could be an un-level 

playing field for MA organizations and 

Part D sponsors operating in the same 

geographic area. In addition, CMS’ audit 

findings and monitoring efforts have 

shown that MA organizations and Part 

D sponsors are having difficulty 

correctly administering the 

compensation requirements. Therefore, 

we believe that simpler agent/broker 

compensation regulations that are easier 

to understand will better ensure that 

plan payments are correct and establish 

a level playing field that will further 

limit incentives for agents and brokers 

to move enrollees for financial gain. 

We are proposing to revise the 

existing compensation structure for 

agents and brokers so that, for new 

enrollments, MA organizations and Part 

D sponsors could make an initial 

payment that is no greater than the FMV 

amount for renewals in Year 2 and 

beyond, the MA organization or Part D 

sponsor could pay up to 35 percent of 

the FMV amount for the renewal year, 

resulting in the renewal year payment 

changing each year if the MA 

organization or Part D sponsor chooses 

to pay 35 percent of the current FMV 

(that is, the renewal year FMV 

threshold). As we do now, we would 

interpret the FMV threshold in our 

annual guidance to MA organizations 

and Part D sponsors. This flexibility 

would enable MA organizations and 

Part D sponsors to better react to 

changes in the marketplace and adjust 

their compensation structures 

accordingly. 

Under the proposed compensation 

structure, the calculations would be 

simpler than those required under the 

current rule, as shown in the following 

example: 

Assume again that Beneficiary A is a 

new, initial enrollee in MA plan XYZ 

for CY2015. Assume the FMV for CY 

2015 is $400. Plan XYZ has decided to 

pay the full FMV, resulting in a 

payment to the agent of $400. In 

CY2016, assume the FMV is $420. 

Again, Plan XYZ has decided to pay the 

maximum FMV for initial enrollments, 

so it pays the agent $420 for Beneficiary 

B, who is an initial enrollee. Plan XYZ 

has also decided to pay the maximum 

renewal payment (35 percent of the 

FMV), resulting in a payment of $147 

($420 x .35) to the agent for Beneficiary 

A. Thus, Plan XYZ’s payments to its 

agents are based on the FMV for the 

contract year in question, regardless of 

when the beneficiary enrolled in the 

plan. That is, when making the renewal 

payment, Plan XYZ doesn’t have to 

determine what the FMV was in the 

initial year, but only looks to the FMV 

for the current year and pays the chosen 

percentage up to the maximum 35 

percent of the FMV established by CMS. 

In order to implement these changes 

in the identical Part C and Part D 

regulations at, § 422.2274 and 

§ 423.2274, we first propose to designate 

the definition of ‘‘compensation’’ as 

paragraph (a)(1) and to restate the fair 

market value limit on compensation for 

the initial year as paragraph (b)(1)(i). 

Second, we propose to combine the 

current (a)(1)(i)(B), which addresses 

payments for renewals, and (a)(1)(iii), 

which addresses the length of time that 

renewals should be paid, and designate 

the revisions as a new (b)(1)(ii). Thus, 

the new paragraph (b)(1)(ii) would state 

that plans may pay up to 35 percent of 

the current FMV and that renewal 

payments may be made for the second 

year of enrollment and beyond. 

In addition, we propose to modify 

paragraph (a)(3) to remove the 6-year 

cap on the compensation cycle. 

Currently, paragraph (a)(3) refers to 

policies that are replaced with a like 

plan during the first year or the 

subsequent 5 renewal years. Since we 

are proposing to eliminate the 6-year 

cycle, our revised paragraph (b)(2) 

deletes the reference to the initial year 

and the 5 renewal years. By tying 

renewal compensation to the FMV for 

the renewal year, rather than the initial 

year of enrollment, our proposal reduces 

the financial incentives for an agent or 

broker to encourage Medicare 

beneficiaries to change plans, especially 

from one parent organization to another 

parent organization. As with the current 

regulation, we propose in paragraph 

(b)(2)(iii) that a change in enrollment to 

a new plan type be payable under the 

same rules that apply to an initial 

enrollment, regardless of whether the 

change is to an unlike plan type in the 

same parent organization or an unlike 

plan type in another parent 

organization. Note that, as with the 

current rule, our proposal only 

addresses compensation paid to 

independent agents and does not 

address compensation payable by an 

MA organization or Part D sponsor to its 

employees that perform services similar 

to agents and brokers. 

For our proposed regulations, we 

considered several different alternatives, 

including prohibiting compensation 

payments entirely beyond year 6, 

permitting MA organizations and Part D 

sponsors to pay a residual payment for 

year 7 and subsequent years, and 

permitting existing renewal payments to 

continue. We also evaluated different 

renewal amounts, including a 50 

percent renewal payment for years 2 

through 6 with a continuing 25 percent 

residual payment for years 7 and 

beyond. The evaluation took into 

account different ages for an initial 

enrollment, as well as the life 

expectancy of beneficiaries. In the 

analysis, a continual renewal payment 

of 35 percent was similar in payout to 

the combination of a 50 percent 

payment for years 2 through 6 and a 

residual payment of 25 percent for year 

7 and beyond. We believe that revising 

the existing compensation structure to 

allow MA organizations or Part D 

sponsors to pay up to 35 percent of the 

FMV for year 2 and beyond is 

appropriate based on a couple of factors. 

First, we believe that a two-tiered 

payment system (that is, initial and 

renewal) would be significantly less 

complicated than a three-tiered system 

(that is, initial, 50 percent renewal for 

years 2 through 6, and 25 percent 

residual for years 7 and beyond), and 

would reduce administrative burden 

and confusion for plan sponsors. 

Second, our analysis determined that 35 

percent is the renewal compensation 

level at which the present value of 

overall payments under a two-tiered 

system would be relatively equal to the 

present value of overall payments under 

a three-tiered system (taking into 

account the estimated mortality rates for 

several beneficiary age cohorts). This 

analysis is based on the existing 

commission structure basing renewal 

commissions on the starting year initial 

commission amount and not the current 

year FMV amount. We welcome 

comments on both the amount of the 

renewal payment as well as the 

proposed indefinite time frame. 

Current regulations at § 422.2274(a)(4) 

and § 423.2274(a)(4) address the timing 

of plan payments, as well as recovery of 

payments when a beneficiary disenrolls 

from a plan. Specifically, (a)(4) states 

that compensation may only be paid for 

the beneficiary’s months of enrollment 

during the year (January through 

December). We propose to revise (a)(4) 

to define more clearly a plan year for 

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purposes of compensation. The annual 

compensation amount covers January 1 

through December 31 of each year. We 

have learned that some plans have been 

paying compensation based on an 

annual cycle, rather than a calendar year 

cycle. We have taken appropriate 

compliance actions in those instances 

where we have evidence that an MA 

organization or Part D sponsor is paying 

compensation incorrectly, and issued 

sub-regulatory guidance on August 14, 

2013 reminding organizations and 

sponsors that compensation is to be 

paid based on a calendar year cycle. 

Along the same lines, we propose to 

revise the language at § 422.2274(a)(4) to 

clarify that the payment made to an 

agent must be for January 1 through 

December 31 of the year and may not 

cross calendar years. For example, a 

renewal payment cannot be made for 

the period of November 1, 2013 through 

October 31, 2014. Rather, the renewal 

payment must cover January 1, 

2013through December 31, 2013. 

Currently, the regulation text at 

§ 422.2274(a)(4) (i) permit payments to 

be made at one time or in installments 

and at any time. CMS proposes to 

change the timing of payments to 

require that payments may not be made 

until January 1 of the compensation 

year, and must be paid in full by 

December 31 of the compensation year. 

CMS believes this proposal is 

appropriate given the ability of 

beneficiaries to change plans during the 

annual coordinated election period 

(AEP), which runs from October 15 

through December 7. That is, 

beneficiaries can choose a new plan 

during the AEP, and then revise that 

choice as many times as they desire 

during the AEP; the last enrollment 

choice made is the one that becomes 

effective on January 1 of the following 

year. Under CMS’ current requirements, 

each MA organization or Part D sponsor 

would have to recoup compensation, if 

already paid, for every beneficiary that 

initially enrolled in their plan but later 

decided to enroll in a different parent 

organization prior to January 1. Under 

the proposed rule, MA organizations 

and Part D sponsors would not be 

allowed to pay compensation until the 

beginning of the calendar year, when 

the final AEP enrollment becomes 

effective. Thus, the proposed rule would 

simplify MA organizations’ and 

sponsors’ compensation processes and 

enable them to make more accurate 

payments. We welcome comments on 

this proposal. 

Current regulations at 

§ 422.2274(4)(ii)(A) and 

§ 423.2274(4)(ii)(A) require MA 

organizations and Part D sponsors to 

recover compensation paid to agents 

when a beneficiary disenrolls from a 

plan within the first three months of 

enrollment. However, in sub-regulatory 

guidance, we have recognized several 

circumstances (for example, death of the 

beneficiary, the beneficiary moves out of 

the service area, the beneficiary 

becomes eligible to receive LIS, or the 

beneficiary loses Medicaid benefits) in 

which plans should not recover 

compensation even though the 

beneficiary was enrolled in the plan for 

less than 3 months. In circumstances 

such as these, since the disenrollment 

decision could not be based on agent or 

broker behavior, we believe it to be 

appropriate for the agent to receive the 

compensation associated with the 

months that beneficiary was a member 

of the plan. While the plan would not 

recover the compensation for those 

months, it would recover any 

compensation paid for the months after 

the disenrollment. Therefore, CMS is 

proposing to combine paragraphs 

(a)(4)(ii)(A) and (a)(4)(ii)(B) into a 

revised paragraph (b)(3)(iii),which 

would include new text to clarify that 

plans should recover compensation for 

only the months that the beneficiary is 

not enrolled, unless the disenrollment 

took place within the first 3 months. 

Under our proposal, we would require 

disenrollments that are the result of 

agent or broker behavior to trigger 

recoupment of any compensation that 

has been paid for that period. In cases 

where disenrollment took place within 

the first 3 months and the disenrollment 

did not result from or could not have 

resulted from an agent’s behavior, we 

would not require that compensation be 

recovered under our proposal. We 

would provide more specific 

information in sub-regulatory guidance, 

and welcome comments regarding 

possible examples to include in that 

guidance. 

CMS also proposes here, in 

§ 422.2274(h) and § 423.2274(h) to 

codify existing sub-regulatory guidance 

regarding referral (finder’s) fees. CMS 

released a memorandum on October 19, 

2011 addressing excessive referral fees, 

noting that referral fees should not 

exceed $100. CMS has long been 

concerned that some MA organizations 

or Part D sponsors can offer the entire 

amount of compensation an agent or 

broker receives through only a referral, 

while others must combine any 

compensation for referrals with other 

agent marketing activities while meeting 

the same total cap on compensation, 

thereby creating an un-level playing 

field within the marketplace and a clear 

financial incentive for the referring 

agent to steer beneficiaries to MA 

organizations or Part D sponsors that 

offer the higher amount, without regard 

to whether plan benefits meet the 

beneficiaries’ health care needs. 

Therefore, we are proposing to limit the 

amount that can be paid as a referral fee 

to independent, captive, and employed 

agents and brokers, regardless of who 

completes the enrollment, to a 

reasonable amount specified by CMS, 

which is currently, for CY 2013, and CY 

2014, $100. Furthermore, note that, 

under § 422.2274(a) and § 423.2274(a), 

CMS requires that referral fees paid to 

independent agents and brokers must be 

part of total compensation not to exceed 

the FMV for that calendar year. 

14. Drug Categories or Classes of 

Clinical Concern and Exceptions 

(§ 423.120(b)(2)(v) and (vi)) 

Section 3307 of the Affordable Care 

Act amended section 1860D–4(b)(3)(G) 

of the Act by replacing the specific 

criteria established under MIPPA in 

2008 to identify categories or classes of 

Part D drugs for which all Part D drugs 

therein shall be included on Part D 

sponsor formularies. The specified 

criteria were replaced with the 

requirement that the Secretary establish 

criteria through notice and comment 

rulemaking to identify drug categories 

or classes of clinical concern. In 

addition, section 3307 of the Affordable 

Care Act requires the Secretary to 

engage in rulemaking to establish any 

exceptions that permit a Part D sponsor 

to exclude from its formulary a 

particular Part D drug (or otherwise 

limit access to such drug through 

utilization management or prior 

authorization restrictions) within the 

drug categories or classes that meet the 

criteria established by the Secretary. 

The Affordable Care Act amendments to 

section 1860D–4(b)(3)(G) of the Act 

specified that until such time as the 

Secretary establishes the criteria to 

identify drug categories or classes of 

clinical concern through rulemaking, 

the following categories or classes shall 

be identified as categories or classes of 

clinical concern: anticonvulsants, 

antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and 

immunosuppressants for the treatment 

of transplant rejection. We now propose 

to implement the Affordable Care Act 

requirements set forth in section 1860D– 

4(b)(3)(G) of the Act by revising 

§ 423.120(b)(2)(v) and (vi) as follows: (1) 

the criteria the Secretary will use to 

identify drug categories or classes of 

clinical concern; and (2) the exceptions 

that permit Part D sponsors to exclude 

certain Part D drugs from within an 

identified drug category or class from 

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their formularies (or otherwise limit 

access to such drugs, including through 

utilization management or prior 

authorization restrictions). We also 

propose to specify drug categories or 

classes that would meet the proposed 

criteria and explain the process we used 

for making these determinations. 

a. Categories or Classes of Clinical 

Concern 

In 2005, well before the passage of 

MIPPA, and before the start date of the 

Part D program, we directed Part D 

sponsors through guidance to include 

on their formularies all or substantially 

all drugs in six categories or classes 

(antidepressants; antipsychotics; 

anticonvulsants; immunosuppressants 

for transplant rejection; antiretrovirals; 

and antineoplastics). Our authority for 

this policy arises from section 1860D– 

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

that in order to approve a plan, we must 

not find that the design of the plan and 

its benefits (including any formulary 

and tiered formulary structure) are 

likely to substantially discourage 

enrollment by certain Part D eligible 

individuals. We refer to this as our 

‘‘non-discrimination’’ policy. This 

statutory directive helped to ensure a 

smooth transition of the approximately 

6 million Medicare-Medicaid 

beneficiaries who were converting from 

Medicaid drug coverage to Medicare 

drug coverage at the start of the Part D 

program. Under the existing 

circumstances, any formularies that did 

not have all or substantially all drugs in 

these categories or classes potentially 

would have been discriminatory for the 

Medicare-Medicaid beneficiary 

population because state Medicaid 

program formularies were generally 

open compared to the Part D formularies 

that we were anticipating prior to the 

beginning of the Part D program. Thus, 

it stood to reason that MedicareMedicaid beneficiaries and many of 

their providers were largely 

unaccustomed to drug utilization 

management techniques. That is, for the 

most part they had little experience 

dealing with the rejection of a drug 

claim at the point of sale because the 

drug was either not on formulary, or 

another drug needed to be tried first, or 

because more information was required 

to determine whether the drug could be 

covered under the plan. Moreover, since 

the majority of the Medicare-Medicaid 

beneficiaries did not make a decision to 

elect their new plan, but were instead 

auto-enrolled, these individuals may not 

have understood whether their current 

medications would continue to be 

covered under their new Medicare plan. 

Since the Part D program would be 

administered by private plans with 

extensive experience managing 

prescription drug costs through tighter 

formularies and a variety of utilization 

management techniques, we anticipated 

the need for a learning curve and delays 

in negotiating appeals processes that 

might endanger the beneficiaries who 

needed access to drugs in these 

particular categories or classes. In order 

to mitigate the risks and complications 

associated with an interruption of 

therapy for vulnerable beneficiaries, 

who would be trying to navigate a new 

drug benefit when they attempted to fill 

or refill their first prescriptions under 

the Part D program on or after January 

1, 2006, we created the special 

requirements for coverage of the six 

drug classes. However, the 

circumstances that existed when this 

policy was originally implemented have 

changed dramatically in the more than 

seven years the program has been in 

operation. CMS, Part D sponsors, our 

partners who assist beneficiaries with 

making enrollment choices, and 

particularly our Medicare-Medicaid 

beneficiaries and their advocates have 

had a great deal of experience working 

with Part D plans since 2005. 

Section 176 of MIPPA added a new 

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

requiring, effective with plan year 2010, 

that the Secretary identify certain 

categories or classes of drugs that meet 

two statutory specifications: (1) 

Restricted access to the drugs in the 

category or class would have major or 

life-threatening clinical consequences 

for individuals who have a disease or 

condition treated by drugs in such 

category or class; and (2) There is a 

significant need for such individuals to 

have access to multiple drugs within a 

category or class due to unique chemical 

actions and pharmacological effects of 

the drugs within a category or class, 

such as drugs used in the treatment of 

cancer. In addition, MIPPA provided the 

Secretary with the discretion to 

establish exceptions permitting Part D 

sponsors to exclude from their 

formularies, or to otherwise limit access 

to (including utilization management or 

prior authorization restrictions), certain 

Part D drugs in the protected categories 

or classes. 

In the January 16, 2009 Federal 

Register (74 FR 2881), we published an 

interim final rule with comment period 

(IFC) entitled, ‘‘MIPPA Drug Formulary 

and Protected Classes Policies.’’ This 

rule revised the regulations governing 

the Medicare Part D formularies to 

reflect the MIPPA requirements. We 

codified at § 423.120(b)(2)(v) the MIPPA 

provision requiring the inclusion of all 

Part D drugs in categories or classes that 

we identified as meeting the two 

conditions set forth in section 1860D– 

4(b)(3)(G)(i) of the Act. Given the 

limited timeframe then available for 

establishing and implementing a 

process to identify such drug categories 

or classes due to formulary submission 

deadlines, we maintained the existing 

six drug categories and classes of 

clinical concern for 2010 with the 

intention to propose and finalize a new 

process through rulemaking that would 

be used to identify drug categories or 

classes that met the MIPPA criteria for 

CY2011. After receiving comments in 

response to the January 16, 2009 IFC, 

entitled, ‘‘Medicare Advantage and 

Prescription Drug Programs MIPPA 

Drug Formulary Protected Classes 

Policies’’ that persuaded us that the 

further interpretative rulemaking was 

necessary, we published a notice of 

proposed rulemaking (NPRM) on 

October 22, 2009, entitled, ‘‘Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs’’ (74 

FR 54634) to further refine the MIPPA 

criteria and establish a process that met 

MIPPA requirements. However, between 

the issuance of the October 22, 2009 

proposed rule and the April 15, 2010 

final rule (75 FR 19766), the Affordable 

Care Act was enacted. Section 3307 of 

the Affordable Care Act amended 

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

specify that the existing drug categories 

or classes of clinical concern would 

remain so until such time as the 

Secretary establishes new criteria to 

identify drug categories or classes of 

clinical concern under section 1860D– 

4(b)(3)(G) of the Act through notice and 

comment rulemaking. 

We are concerned that requiring 

essentially open coverage of certain 

categories and classes of drugs presents 

both financial disadvantages and patient 

welfare concerns for the Part D program 

as a result of increased drug prices and 

overutilization. The principal 

disadvantage is that an open coverage 

policy substantially limits Part D 

sponsors’ ability to negotiate price 

concessions in exchange for formulary 

placement of drugs in these categories 

or classes. Since the beginning of the 

Part D program we have heard from 

stakeholders that this policy— 

frequently referred to as the ‘‘protected 

classes’’ policy—significantly reduces 

any leverage the sponsor has in price 

negotiations and results in higher Part D 

costs. A report by the OIG in March 

2011 documented similar assertions 

from selected Part D sponsors, including 

assertions that ‘‘they received either no 

or minimal rebates for the drugs in these 

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six classes,’’ that ‘‘there is little 

incentive for drug manufacturers to offer 

rebates for these six classes of drugs 

because they do not need to compete for 

formulary placement,’’ and that ‘‘if [a 

rebate] is provided, it’s probably at a 

lower percentage than [the rebate for the 

drugs] that had some competition.’’ 

(HHS Office of Inspector General, 

‘‘Concerns with Rebates in the Medicare 

Part D Program’’, March 2011, OEI–02– 

08–00050) 

We are aware of other analyses that 

support these findings. A 2008 study 

conducted by the actuarial and 

consulting firm Milliman found that the 

six protected drug classes 

disproportionately accounted for 

between 16.8 percent and 33.2 percent 

of total drug spend among sponsors 

surveyed (Kipp RA, Ko C). (See 

‘‘Potential cost impacts resulting from 

CMS guidance on ‘Special Protections 

for Six Protected Drug Classifications’ 

and Section 176 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA) (PL 110– 

275)’’ available at: http://amcp.org/

WorkArea/

DownloadAsset.aspx?id=9279). 

Milliman reported that the Part D 

program administrators (plan sponsors 

and PBMs) commented that the 

protected status of these drug classes 

limited plan sponsors’ ability to 

effectively negotiate lower costs with 

manufacturers since it is known that 

these drugs must be included on the 

formulary. The Milliman report 

estimated that affected drug costs were 

on average 10 percent higher than they 

would be in the absence of the protected 

class policy and that this represented 

$511 million per year in excess costs to 

beneficiaries and the Part D program. 

We note that numerous brand drug 

patents expire between now and 2015 

which might reduce future cost 

projections. Another 2008 study from 

the National Bureau of Economic 

Research (NBER) suggested that while 

Medicare Part D led to a substantial 

decline in average pharmaceutical 

prices, Medicare-intensive drugs in 

protected classes did not experience 

price declines as did their counterparts 

not in protected classes and may have 

actually experienced price increases 

(Duggan M, Morton FS. 2010. ‘‘The 

Effect of Medicare Part D on 

Pharmaceutical Prices and Utilization,’’ 

American Economic Review, American 

Economic Association, vol. 100(1), 

pages 590–607). Plan sponsors can still 

negotiate with manufacturers for 

preferred or non-preferred tier 

placement of protected class drugs, but 

CMS does not have any information on 

the justification for the relative 

magnitude of these rebates. However, it 

can reasonably be anticipated that such 

rebates would vary widely for 

individual manufacturers and sponsors, 

and anecdotal evidence would suggest 

the leverage these options provide 

sponsors may be minimal when 

compared to leverage available in 

connection with an initial decision 

regarding formulary inclusion, 

especially since tier placement has no 

impact on statutory LIS cost sharing 

levels. Consequently, we would predict 

future savings for both beneficiaries and 

the Part D program from both increased 

price competition as newly approved 

drugs come onto the market and more 

immediate savings if plans were able to 

remove some currently covered agents 

from their formularies. 

In addition to our concerns about 

increased Part D costs resulting from 

higher drug prices, we are also 

concerned that the policy potentially 

facilitates the overutilization of drugs 

within the protected classes. By limiting 

the ability of Part D sponsors to 

implement utilization management tools 

(for example, prior authorization or step 

therapy requirements) for an entire 

category or class, we also limit their 

ability to prevent the misuse or abuse of 

drugs that are not medically necessary. 

Not only can this increase Part D costs, 

but inappropriate use can also lead to 

adverse effects that can harm the 

beneficiary and require medical 

treatment that would otherwise not have 

been necessary. We believe the 

profitability of products not subject to 

normal price negotiations as the result 

of protected class status is a strong 

incentive for the promotion of 

overutilization, particularly off-label 

overutilization, of some of these drugs. 

Given the findings in these reports 

and our expertise with the Part D 

program, we believe it is appropriate to 

revisit our original policy for the six 

drug categories and classes of clinical 

concern—particularly to assess whether 

it remains appropriate to require this 

additional level of protection for these 

categories or classes of drugs in order to 

ensure that Part D plans offer 

nondiscriminatory benefit designs and 

sufficient beneficiary access to 

medically necessary therapies. In 

considering the balance among 

beneficiary access, quality assurance, 

cost containment, and patient welfare in 

light of our existing beneficiary 

protections, we believe that drug 

categories and classes should be subject 

to normal formulary and price 

competition unless we cannot ensure 

clinically appropriate access (and thus 

non-discriminatory benefit design) to 

our Medicare beneficiaries in any less 

anticompetitive way than requiring the 

inclusion on all Part D formularies of all 

drugs in that category or class. 

Moreover, we believe that our 

consideration of how to implement 

section 3307 of the Affordable Care Act 

must take into account both the purpose 

of the Part D benefit and the context in 

which it is offered. Part D does not 

typically involve access to medications 

on an emergency basis. In cases where 

an emergency may arise, the Part D 

program has some protections to 

address this—for example, our long 

term care emergency first fill 

requirement requires plans to cover an 

emergency supply of non-formulary Part 

D drugs for long term care residents as 

part of their transition process. 

Moreover, the Part D benefit must be 

considered in light of the fact that 

urgently needed and emergency care is 

generally covered by Medicare Parts A 

and B. 

To that end, we believe that criteria 

for identifying drug categories and 

classes of clinical concern should 

identify only those drug categories or 

classes for which access cannot be 

adequately ensured by beneficiary 

protections that otherwise apply. 

Consequently, as we take this 

opportunity to propose to codify criteria 

for identifying categories or classes of 

drugs that are of clinical concern, we 

believe that the requirements of section 

3307 of the Affordable Care Act should 

be implemented taking into 

consideration the other protections 

available to beneficiaries. Otherwise, 

section 3307 of the Affordable Care Act 

would establish duplicative, and thus 

unnecessary, protections that would 

serve only to increase Part D costs— 

without any added benefit and with the 

possibility of added harm from misuse. 

Therefore, in considering whether 

additional protections continue to be 

needed under this section, we need to 

take the other beneficiary access 

protections into account. There are five 

such protections and these are 

formulary transparency, formulary 

requirements, reassignment formulary 

coverage notices, transition supplies 

and notices, and the coverage 

determination and appeals processes. 

The first protection is our requirement 

for full transparency to beneficiaries. 

Sponsors are required to provide 

comprehensive formulary drug listings 

to the public through their own Web 

sites and printed materials, as well as to 

CMS for access through the online 

automated drug plan comparison tool, 

the Medicare Plan Finder (Plan Finder). 

Beneficiaries or their representatives 

can complete a personalized search on 

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Plan Finder to locate and select a Part 

D plan that covers their drugs. With our 

more than 7 years of experience with 

the Part D program, we are not aware of 

any Part D drug that is not included on 

at least one Part D formulary. Thus, 

beneficiaries who review plan 

formularies can select plans that cover 

all of their current medications. 

The second type of protection is the 

Part D formulary requirements. Our 

annual formulary review and approval 

process includes extensive checks to 

ensure adequate representation of all 

necessary Part D drug categories or 

classes for the Medicare population and 

includes the following: 

• Discrimination Review 

(§ 423.272(b)(2)). Formularies are 

reviewed to ensure inclusion of drug 

categories and classes that are used to 

treat all disease states. CMS evaluates 

the sufficiency of a Part D sponsor’s 

formulary drug categories and classes in 

conjunction with the plan’s formulary 

drug list to ensure that the formulary 

provides access to an acceptable range 

of Part D drug choices. 

• Two Drugs Requirement 

(§ 423.120(b)(2)(i)). Each submitted 

formulary is reviewed for the inclusion 

of at least two distinct drugs from each 

of the submitted categories and classes, 

except as provided in § 423.120(b)(2)(ii). 

• Formulary Tier Review (Medicare 

Prescription Drug Benefit Manual, 

Chapter 6, 30.2.7). The tiering structure 

of each formulary is reviewed to ensure 

that each category and class has at least 

one drug in a preferred tier. 

• Common Medicare Drugs Review 

(§ 423.120(b)(2)(iii)). Formularies are 

reviewed for inclusion of the drugs or 

drug classes that are most commonly 

utilized by the Medicare population. We 

use prior years’ data to identify the 

drugs or drug classes with the highest 

utilization in Medicare Part D, and use 

these drugs and drug classes as the basis 

for our review in this area. We also 

review formularies for the alternative 

dosage forms of the drugs that are most 

commonly utilized by the long-term 

care (LTC) population. 

• Treatment Guidelines Review 

(§ 423.120(b)(2)(iii)). The World Health 

Organization (WHO) defines a standard 

treatment guideline as a systematically 

developed statement designed to assist 

practitioners and patients in making 

decisions about appropriate health care 

for specific clinical circumstances 

(available at http://www.who.int/

medicines/technical_briefing/tbs/10- 

PG_Standard-Treatment-Guidelines_

final-08.pdf). We analyze formularies to 

determine whether appropriate access is 

afforded to drugs or drug classes 

included in widely accepted treatment 

guidelines. In general, although 

sponsors have some flexibility in 

determining the classification system 

they will use to identify categories or 

classes of drugs, if a treatment guideline 

speaks to a specific category or class of 

drugs, we look for representation from 

that drug category or class of drugs on 

the formulary. Moreover, if the 

treatment guidelines address specific 

drugs, we would expand this 

requirement to review formularies for 

those specific drugs, and not just the 

drug category or class to which they 

belong. 

• Common Home Infusion Drugs 

(§ 423.120(a)(4)). We review formularies 

for the drugs most commonly utilized in 

the home infusion setting in order to 

help facilitate rapid access to these 

drugs for beneficiaries. 

• Vaccines Review (§ 423.100). Each 

formulary submission is reviewed to 

ensure the formulary includes Part D 

vaccines. 

• Insulin Supplies Review 

(§ 423.100). Formularies are reviewed 

for the supplies associated with the 

administration of insulin: insulin 

syringes, alcohol swabs, and gauze pads. 

• Specialty Tier Review 

(§ 423.578(a)(7)). For formularies using a 

specialty tier, we perform an extensive 

review of the composition of each tier. 

We apply a standard outlined in the 

annual Call Letter to determine whether 

drugs placed in specialty tiers meet the 

relevant cost criteria. 

• Quantity Limits Outlier Review 

(§ 423.153(b)). All formulary 

submissions are compared to analyze 

the use of quantity limit (QL) edits. 

Formularies that are outliers with 

respect to the application of QL edits are 

asked to remove edits or provide a 

reasonable justification for the 

applicable QL. 

• Quantity Limits Amount Review 

(§ 423.153(b)). QL restrictions are 

reviewed for appropriateness. The 

standard for the review is generally 

based on the Food and Drug 

Administration (FDA)-approved 

maximum doses, when such dose limits 

are identified in the label. 

• Restricted Access Review 

(§ 423.153(b)). Formularies are reviewed 

for use of Prior Authorization (PA) and 

Step Therapy (ST) edits across drug 

categories and classes. We decline to 

approve utilization management (UM) 

for entire drug classes, other than those 

considered to be best practices, for 

example, for erythropoietin stimulating 

agents (ESAs). 

• Step Therapy Criteria Review 

(§ 423.153(b)). The ST requirements are 

reviewed to ensure that the algorithms 

are consistent with best practices. 

• Prior Authorization Outlier Review 

(§ 423.153(b)). All formulary 

submissions are compared to analyze 

the use of PA edits. Formularies that are 

outliers with respect to the application 

of PA edits are asked to remove edits or 

provide a reasonable justification for 

such PA edits. 

• Prior Authorization Criteria Review 

(§ 423.153(b)). We then review the 

criteria for focused drugs requiring PA 

on the initial formulary submissions. 

We look to existing best practices, 

including prerequisite drugs, current 

industry standards and appropriate 

treatment guidelines, to check that the 

Part D plans’ use of PA is consistent 

with such practices. Submitted criteria 

are also compared to compendia and 

FDA-approved label indications. 

• Mid-year formulary change 

restrictions (§ 423.120(b)(5)); Chapter 6 

of the Medicare Prescription Drug 

Benefit Manual, 30.3.3). Except when 

the Food and Drug Administration 

deems a Part D drug unsafe or a 

manufacturer removes a Part D drug 

from the market, a Part D sponsor may 

not remove a covered Part D drug from 

its formulary, or make any adverse 

change in preferred or tiered costsharing status of a covered Part D drug, 

between the beginning of the annual 

coordinated election period described in 

section § 423.38(b) and 60 days after the 

beginning of the contract year associated 

with the annual coordinated election 

period. However, prescription drug 

therapies are constantly evolving, and 

new drug availability, medical 

knowledge, and opportunities for 

improving safety and quality in 

prescription drug use at a lower cost 

will inevitably occur over the course of 

the year. As recognized in regulation, 

these new developments may require 

formulary changes during the year in 

order to provide high-quality, affordable 

prescription drug coverage. To address 

such developments our negative 

formulary change policy requires that 

beneficiaries retain ‘‘grandfathered’’ 

coverage for the remainder of the 

coverage year if we permit an adverse 

change in the formulary status of any 

drug without a generic equivalent. Thus, 

in summary, our formulary rules both 

ensure that all Part D formularies 

contain sufficient drugs to treat all 

disease states in the Medicare 

population and protect beneficiaries 

from significant changes in formularies 

during the course of a coverage year. 

The third type of beneficiary 

protection is the annual notice to 

reassigned enrollees required under 

section 3305 of the Affordable Care Act. 

Effective January 1, 2011, we provide 

LIS individuals who are reassigned to 

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another Part D plan with information on 

the differences under the new plan 

formulary, as well as information on the 

beneficiary’s grievance and appeal 

rights in the new plan. Thus, any 

individual who has his or her plan 

selection decision made through our 

reassignment process (in order to 

maintain access to a $0 premium) 

receives detailed coverage status 

information for each drug for which he 

or she filled a prescription between 

January and August of the previous 

year. With regard to the new plan, this 

notice describes for each drug whether 

it is on the formulary, whether the 

brand or generic version is covered, and 

whether or not utilization management 

tools may be applied. Moreover, the 

notice also provides a list of other plans 

that are available to the beneficiary to 

enroll in with no premium if they 

would prefer not to remain in the plan 

where they were reassigned. We send 

notices after the individual’s 

reassignment and in time to allow for 

another voluntary plan selection 

effective January 1. Thus, any 

reassigned LIS individual receives 

advance notice of any change in 

formulary coverage of their medications 

in plenty of time to work with their 

prescribers if they wish to remain in the 

new plan, or to select a different Part D 

plan. 

The fourth type of beneficiary 

protection is our unique transition 

supply and notice requirements. A Part 

D sponsor must provide for an 

appropriate transition process for Part D 

drugs that are not on its formulary with 

respect to: (1) The transition of new 

enrollees into prescription drug plans 

following the annual coordinated 

election period; (2) the transition of 

newly eligible Medicare beneficiaries 

from other coverage; (3) the transition of 

individuals who switch from one plan 

to another after the start of the contract 

year; and (4) in some cases, current 

enrollees affected by formulary changes 

from one contract year to the next (see 

§ 423.120(b)(3); Chapter 6 of the 

Medicare Prescription Drug Benefit 

Manual, 30.4). Within the first 90 days 

of a beneficiary’s enrollment in a new 

plan, plans must provide a temporary 

fill when the beneficiary requests a refill 

of a non-formulary drug (including Part 

D drugs that are on a plan’s formulary 

but require prior authorization or step 

therapy under a plan’s utilization 

management rules). Since certain 

enrollees may join a plan at any time 

during the year, this requirement 

applies beginning on an enrollee’s first 

effective date of coverage, regardless of 

whether this is within the first 90 days 

of the contract year. 

A successful transition process is 

contingent not only upon providing the 

transitional drug supply, but also upon 

informing affected enrollees, their 

caregivers, and their providers about the 

beneficiary’s options for ensuring that 

his or her medical needs are safely 

accommodated within a Part D 

sponsor’s formulary. For this reason, 

when providing a temporary supply of 

non-formulary Part D drugs (including 

Part D drugs that are on a sponsor’s 

formulary but require prior 

authorization or step therapy under a 

sponsor’s utilization management rules), 

sponsors must provide enrollees and 

their providers with written notice 

within 3 business days after 

adjudication of the temporary fill that 

they are receiving a transition supply of 

a non-formulary Part D drug and that 

they must take action. The temporary 

fill and notice provides beneficiaries 

with a reasonable amount of time during 

which they and their providers can 

address the issue (by requesting a 

formulary exception or transitioning to 

a formulary drug) and prevents them 

from having to abruptly change or go 

without their medication (see Transition 

notice requirements (to beneficiaries 

and providers) [§ 423.120(b)(3)(iv and 

v); Chapter 6 of the Medicare 

Prescription Drug Benefit Manual, 

30.4.10]). Thus all beneficiaries and 

their prescribers have advance notice of 

any issue with continued coverage of a 

previously initiated therapy and 

sufficient time to resolve those issues 

without any lapse in appropriate 

therapy. The preceding formulary 

review and transition requirements are 

described in Chapter 6 of the Medicare 

Prescription Drug Benefit Manual 

(located at http://www.cms.gov/

Medicare/Prescription-Drug-Coverage/

PrescriptionDrugCovContra/Downloads/

Chapter6.pdf). 

The fifth beneficiary protection we 

take into account is the requirement for 

a robust coverage determination and 

appeal process, including the right of an 

enrollee or his or her prescriber to 

request an exception to the plan’s 

utilization management criteria, tiered 

cost-sharing structure, or formulary. Part 

D plan sponsors are required to issue a 

coverage decision and notify the 

enrollee (and the prescriber, as 

appropriate) in writing in accordance 

with strict regulatory timeframes. A 

plan must grant a tiering or formulary 

exception (for example, provide 

coverage for a non-formulary drug or an 

exception to the UM criteria) when it 

determines that the requested drug is 

medically necessary, consistent with the 

prescriber’s supporting statement 

indicating that preferred alternatives(s) 

would not be as effective and/or would 

have adverse effects. We have 

established by regulation both an 

expedited adjudication timeframe if the 

plan or prescriber believes that applying 

the standard timeframe may jeopardize 

the enrollee’s health, and a requirement 

that plans must issue all coverage 

decisions as expeditiously as the 

enrollee’s health condition requires. 

Any initial coverage request that the 

plan expects to deny based on a lack of 

medical necessity must be reviewed by 

a physician. If the Part D sponsor makes 

an adverse coverage determination, the 

required written notice must explain the 

specific reason(s) for the denial and 

include a description of the enrollee’s 

right to a standard or expedited 

redetermination by the plan, and the 

rest of the five-level appeals process, 

including the right to request 

independent review. We require plans 

to conduct all redeterminations (first 

level appeals) using a physician or other 

appropriate health care professional 

with sufficient medical and other 

expertise, including knowledge of 

Medicare criteria, if the initial denial 

was based on a lack of medical 

necessity. If a plan fails to make a 

coverage decision and notify the 

enrollee within the required timeframe, 

the request must be forwarded to the 

independent review entity to be 

adjudicated. 

Moreover, while we do not treat a 

claim transaction as a coverage 

determination, we do require Part D 

sponsors to arrange with network 

pharmacies to provide enrollees with a 

written copy of the Office of 

Management and Budget (OMB)- 

approved standardized pharmacy notice 

(‘‘Notice of Denial of Medicare 

Prescription Drug Coverage,’’ CMS– 

10146) when the enrollee’s prescription 

cannot be filled under the Part D benefit 

and the issue cannot be resolved at the 

POS. The notice instructs the enrollee 

on how to contact his or her plan and 

explains the enrollee’s right to request a 

coverage determination. Thus, all 

beneficiaries immediately receive clear 

concise instructions on how to pursue 

their appeal rights whenever a 

prescription cannot be filled. For 

additional information on the coverage 

determination, appeals and grievance 

process, including information about 

the pharmacy notice, see 42 CFR Part 

423, subparts M and U, and Chapter 18 

of the Medicare Prescription Drug 

Benefit Manual. 

As the preceding discussion 

demonstrates, we have implemented 

extensive beneficiary protections in the 

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form of formulary review checks, 

reassignment formulary coverage 

notices, drug therapy transition policies 

and notices for both new enrollees and 

continuously enrolled members 

experiencing changes in formulary 

benefits between coverage years, and 

robust exceptions and appeals processes 

that generally will assure appropriate 

access without having to guarantee 

formulary placement. Additionally, the 

formulary exceptions and appeals 

requirements facilitate obtaining any 

medically necessary Part D drug that is 

not on the formulary or that is otherwise 

subject to utilization management 

requirements. Taken together, we 

believe these requirements are 

comprehensive enough that additional 

access safeguards are needed only in 

those situations where a Part D 

beneficiary’s clinical needs cannot be 

more efficiently met. 

b. Criteria Necessary To Identify 

Categories and Classes of Clinical 

Concern 

In developing our proposed criteria to 

identify drug classes of clinical concern, 

we considered all of the existing 

beneficiary protections described 

previously in section III.A.14.a. of this 

proposed rule, particularly our coverage 

determination and appeals process, 

which requires plans and other 

adjudicators to make all coverage 

decisions as expeditiously as the 

enrollee’s health condition requires. 

Given our existing protections, we 

believe clinical concern would arise 

only if access to drugs within a category 

or class for the typical individual who 

is initiating therapy must be obtained in 

less than 7 days because the coverage 

determination and appeals process 

generally does not provide for 

independent review and determination, 

when necessary, within such timeframe. 

We believe this would be the case only 

when failure to initiate the therapy 

within that time period would be likely 

to lead to hospitalization, incapacity, 

disability or death as a result of the 

exacerbation of the disease or condition 

to be treated. We do not believe it is 

necessary to require all Part D drugs 

within a drug category or class to be 

included on the formulary if access 

within 7 days is likely sufficient to 

allow for initiation of therapy without 

putting beneficiaries at risk of 

hospitalization, incapacity, disability, or 

death. In other words, we believe that 

inconvenience associated with a delay 

that is unlikely to pose these serious 

consequences for the typical individual 

initiating a new therapy does not 

warrant requiring all Part D drugs from 

within the category or class to be 

included on the formulary because in 

such an instance, the beneficiary would 

have other protections to ensure that he 

or she has appropriate access to the 

drug. Moreover, we do not believe it is 

necessary to require all Part D drugs 

within a drug category or class to be 

included on the formulary when, for a 

typical individual who already is taking 

the drug, interruption in existing drug 

therapy might have adverse health 

consequences. Specifically, we believe 

that existing protections such as the Part 

D formulary change restrictions (for 

example, prohibition on midyear 

implementation of new PA, ST, or QL 

restrictions on existing therapies) and 

the transition requirements under 

§ 423.120, which provide for temporary 

fills and require beneficiary notification 

of the need to request a coverage 

determination (including an exception 

or prior authorization approval) for 

future fills ensure sufficient protection 

for beneficiaries who may face an 

interruption in their ongoing therapies 

as a result of a change in their plan or 

formulary. Thus, our transition and 

negative formulary change requirements 

afford strong protections to individuals 

with ongoing therapy. However, this is 

in contrast to individuals who are 

initiating therapy. These individuals do 

not get an initial fill to try a medication 

while they petition for an exception, 

and thus the transition protections do 

not apply. Finally, we note that when 

we refer to a beneficiary’s having 

‘‘access’’ to a drug within 7 days, we 

mean that the beneficiary must need to 

ingest or otherwise use or consume the 

drug within that time period in order to 

avoid the adverse consequences. Thus, 

‘‘access’’ means administration, which 

may include self-administration, of 

drugs. To illustrate this last point, 

initiation of therapy with drugs used to 

treat HIV/AIDS generally should not be 

delayed because initiation of therapy 

has rapid effects on viral load. 

Conversely, a minor delay with the 

initiation of therapy with HMG-CoA 

reductase inhibitors (also known as 

‘‘statins’’) for patients with 

hyperlipidemia, even when 

transitioning among medications in the 

category or class in response to lipid 

profiles, liver or kidney function, or 

adverse events, is not as critical because 

it usually takes several weeks to detect 

measurable effects on serum lipid 

concentrations. 

Thus, for all of these reasons, we 

propose to specify at 

§ 423.120(b)(2)(v)(A) a first criterion 

under section 1860D–4(b)(1)(G)(ii)(II) of 

the Act as follows: In the case of a 

typical beneficiary who has a disease or 

condition treated by drugs in the 

following category or class, 

hospitalization, persistent or significant 

incapacity or disability, or death likely 

will result if initial administration 

(including self-administration) of a drug 

in the category or class does not occur 

within 7 days of the date the 

prescription for the drug was presented 

to the pharmacy to be filled. By typical 

beneficiary, we mean, for a given 

disease or condition, an individual who 

has the average clinical presentation of 

the relevant disease or condition. 

While this first criterion would 

establish the critical need to promptly 

initiate drug therapy with a drug from 

an identified drug category or class, we 

believe that, standing alone, it may be 

overly inclusive and, as such, would fail 

to appropriately balance the need for 

beneficiary protection with the need to 

allow plans to take appropriate steps to 

control costs and overutilization. If the 

drug category or class consists of many 

similar drugs that are often considered 

to be therapeutically interchangeable 

with one another when initiating drug 

therapy, a requirement to include on the 

formulary all drugs in that category or 

class would undermine the important 

place that formularies, due to their 

ability to control costs, hold within the 

Part D program without providing any 

additional beneficiary protection. 

According to the Academy of Managed 

Care Pharmacy (AMCP), therapeutic 

interchange is the practice of replacing, 

with the prescribing provider’s 

approval, a prescription medication 

originally prescribed for a patient with 

a chemically different medication; 

medications used in therapeutic 

interchange programs are expected to 

produce similar levels of clinical 

effectiveness and sound medical 

outcomes, based on available scientific 

evidence. Moreover, in the absence of 

any specific treatment guidelines to the 

contrary, inclusion of all drugs in that 

category or class would be unnecessary. 

For example, some drugs in the nitrate 

class of drugs likely would meet our 

first proposed criterion, but because 

there are many therapeutically 

interchangeable options among nitrates, 

it is not necessary to require that all 

nitrate products be included on every 

Part D formulary. Indeed, under our 

current formulary treatment guideline 

reviews, while we require that 

sublingual nitroglycerin be included on 

all formularies because beneficiaries 

often need it on an urgent basis, we do 

not require inclusion of all other nitrates 

(for example, isosorbide dinitrate, 

isosorbide mononitrate, and transdermal 

nitroglycerin) because these dosage 

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forms are long-acting and typically are 

not needed on an urgent basis. 

(However, current treatment guidelines 

require the inclusion of isosorbide 

dinitrate for congestive heart failure.) 

Similarly, the typical diabetic patient 

who needs insulin could reasonably be 

anticipated to require two insulin 

products as part of his or her treatment 

regimen: Specifically, one shorteracting, and one longer-acting insulin. 

Among the insulins, there are four subclasses: Rapid acting, short acting, 

intermediate acting, and long acting. 

Within each of the sub-classes, there are 

alternatives from which to choose. In 

accordance with treatment guidelines, 

in most cases a patient’s regimen is 

comprised of one selection from either 

the rapid acting or short acting subclasses, and one selection from either 

the intermediate acting or long acting 

sub-classes. While the beneficiary 

would require access to multiple drugs 

within the class (insulins), which at 

times could certainly be considered 

urgent enough to risk dire consequences 

as discussed in the first criterion, they 

would not need access to all of the 

options within that class because there 

are many alternative products on the 

market within those sub-classes that are 

largely therapeutically interchangeable, 

and any one of these products will 

generally meet the patient’s needs. 

Thus, our formulary checks for insulin 

require some products in each sub-class 

to ensure that access through each plan 

is clinically appropriate. 

These examples illustrate the 

principle that it is both feasible and 

appropriate to permit plan sponsors to 

develop formularies that exclude certain 

products when adequate access to an 

appropriate alternative is assured by 

way of our existing formulary 

requirements and review process. 

Moreover, the transition and coverage 

determination and appeal processes are 

available in those situations when a 

non-formulary drug is medically 

necessary for a specific individual. 

For these reasons, we believe it is 

important to include a second criterion 

that must be met in order for us to 

consider a drug category or class to be 

one of clinical concern for the purposes 

of section 3307 of the Affordable Care 

Act. Specifically, we believe a drug 

category or class would be of clinical 

concern if CMS cannot establish that a 

formulary that includes fewer than all 

Part D drugs from within that category 

or class would include sufficient drugs 

needed to treat the diseases or 

conditions generally treated by such 

drugs. In other words, CMS cannot 

reasonably establish more specific CMS 

formulary requirements because there 

are too many potential drug-anddisease-specific scenarios that require 

specific drugs from within a category or 

class, even within sub-classes. This 

would be the case when the different 

drugs within a category or class are 

uniquely associated with specific 

clinical applications because of the 

unique effects of such drugs or the 

variable nature of the disease or 

condition treated by such drugs. For 

example, a cancer patient whose clinical 

picture is rapidly changing must 

immediately initiate very specific 

changes in antineoplastic therapy when 

the new disease target is identified. 

While perhaps possible, it would not be 

practical to establish a multitude of 

more class-specific formulary 

requirements for every current or future 

combination or sequence of such drugs 

simply to possibly exclude a few drugs. 

Thus, we propose to add 

§ 423.120(b)(2)(v)(B) specifying a second 

criterion to identify a clinical concern as 

follows: More specific CMS formulary 

requirements will not suffice to meet the 

universe of clinical drug-and-diseasespecific applications due to the 

diversity of disease or condition 

manifestations and associated 

specificity or variability of drug 

therapies necessary to treat such 

manifestations. 

In summary, we propose to modify 

§ 423.120(b)(2)(v) to require that (unless 

an exception applies) all Part D drugs 

within a drug category or class be 

included on the formulary if a the drug 

category or class of drugs for a typical 

individual with a disease or condition 

treated by the drugs in the category or 

class meets both of the following criteria 

(as determined by CMS): 

• Hospitalization, persistent or 

significant disability or incapacity, or 

death likely will result if initial 

administration (including selfadministration) of a drug in the category 

or class does not occur within 7 days of 

the date the prescription for the drug 

was presented to the pharmacy to be 

filled; and 

• More specific CMS formulary 

requirements will not suffice to meet the 

universe of clinical drug-and-diseasespecific applications due to the 

diversity of disease or condition 

manifestations and associated 

specificity or variability of drug 

therapies necessary to treat such 

manifestations. 

c. Exceptions 

Section 1860D–4(b)(3)(G)(i)(II) of the 

Act provides us with the authority to 

establish exceptions to the requirement 

that a Part D sponsor must include all 

Part D drugs on its formulary in the drug 

categories or classes identified by us as 

drug categories or classes of clinical 

concern under section1860D– 

4(b)(3)(G)(ii)(I) of the Act. Despite the 

narrow scope of applicability defined by 

the proposed criteria, we believe it is 

necessary to identify exceptions to help 

ensure Part D coverage is limited to Part 

D drugs, minimize duplicative 

protections within a drug category or 

class of clinical concern, and assure 

beneficiary safety while curbing 

potential abuse and misuse as a result 

of the added protection. 

First, we propose to retain 

§ 423.120(b)(2)(vi)(A) as currently 

codified. This provision makes an 

exception for drug products that are 

rated as therapeutically equivalent 

(under the Food and Drug 

Administration’s most recent 

publication of ‘‘Approved Drug 

Products with Therapeutic Equivalence 

Evaluations,’’ also known as the Orange 

Book). Thus, two drug products that are 

determined to be therapeutic 

equivalents by the FDA and identified 

in the FDA’s Orange Book are 

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

solely for purposes of this requirement, 

and sponsors would not be required to 

include all therapeutic equivalents on 

their formularies. Rather, the inclusion 

of one such drug product would satisfy 

the formulary requirement with respect 

to all therapeutically equivalent 

products. 

We also propose to amend and 

renumber (as paragraph (F)) existing 

§ 423.120(b)(2)(vi)(B) to make an 

exception for point-of-sale utilization 

management safety edits that are based 

on maximum daily doses and black-box 

warnings specified on the FDAapproved label, potential drug 

interactions, or duplication of therapy. 

In fact, we believe that this exception is 

consistent with the requirement under 

section 1860D–4(c)(1)(B) of the Act that 

requires Part D sponsors to have in 

place quality assurance measures and 

systems to reduce medication errors and 

adverse drug interactions and improve 

medication use. As noted previously, 

although we believe that section 3307 of 

the Affordable Care Act is intended to 

provide additional beneficiary 

protections, we also believe that it 

would be imprudent to interpret these 

protections in such a way that they 

interfere with existing protections 

intended to promote safety and efficacy. 

We believe that it is appropriate for Part 

D sponsors to establish edits for safety 

and that our policies should not 

interfere with basic drug utilization 

management edits that sponsors apply 

at point of sale to ensure that adverse 

events do not occur. For example, we 

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would expect that a claim for a 90 days 

supply of Atripla® for 180 tablets, when 

the drug is only approved for use once 

a day, would trigger a point-of-sale 

safety edit. Such edits must be 

consistent with FDA labeling to ensure 

that they are based on scientific 

evidence and medical standards of 

practice. However, the use of safety 

edits should not create a significant 

opening for plans to establish restrictive 

policies, because safety edits need to 

conform to FDA labeling. 

Next, we propose to add new 

language at § 423.120(b)(2)(vi)(B) to 

make an exception for drug products 

that are almost always covered under 

Medicare Parts A or B. In order to 

minimize confusion about the scope of 

the protections under section 3307 of 

the Affordable Care Act, we specify that 

the formulary requirements set forth in 

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

not apply to drugs almost always 

covered by Medicare Part A or B. We do 

not currently require, and would not 

require under the authority of section 

3307 of the Affordable Care Act, the 

inclusion of drugs that have been 

historically paid for under Part B (for 

example, ‘‘incident to’’ drugs supplied 

and administered by physicians during 

a patient visit and paid for under Part 

B). Given the fact that these drugs are 

generally covered under Medicare Part 

B and are not required under our 

existing policy, we believe their absence 

from plan formularies would not disrupt 

access. We further believe that requiring 

the inclusion of these drugs on the 

formulary would lead to beneficiary 

confusion. For these reasons, we are 

proposing to exclude drug products 

almost always covered under Medicare 

Part A or B. 

We also propose to add an exception 

at § 423.120(b)(2)(vi)(G) to permit prior 

authorization for purposes of 

determining whether a drug is a Part D 

drug being used for a medicallyaccepted indication as defined in 

section 1860D–2(e)(4) of the Act or to 

verify a drug is not covered under 

Medicare Parts A or B as prescribed and 

dispensed or administered. Coverage 

under Part D is not available for drugs 

that are not used for a medicallyaccepted indication, and section 3307 of 

the Affordable Care Act does not change 

any Part D coverage rules. Moreover, we 

believe that this exception, like the 

exception for Medicare Part A or B 

drugs described in proposed paragraph 

(B), would not cause disruption because 

it merely reflects existing limits on Part 

D coverage. 

Thus, we also propose that prior 

authorization in the drug categories or 

classes of clinical concern is appropriate 

when used to confirm the presence of a 

medically-accepted indication or that 

coverage is not available under 

Medicare Parts A or B as prescribed and 

dispensed or administered. Prior 

authorization requirements to determine 

medically-accepted indications should 

be limited to those drugs for which it is 

reasonably foreseeable that use for nonmedically-accepted indications are 

likely to occur. For example, when only 

narrow indications are supported (for 

example, pain medications indicated 

only for cancer pain, supported by the 

FDA label or compendia), we would 

expect Part D sponsors to use prior 

authorizations to ensure that such 

agents are being used for the narrowlysupported indications only. Similarly, 

sponsors must apply prior 

authorizations for Medicare Parts A/B 

versus D determinations in a manner 

consistent how those determinations are 

made in all other categories or classes 

(that is, based upon likelihood of 

coverage under Medicare Part A or B), 

and thus, we would not expect to see a 

disproportionate amount of prior 

authorization requirements for the 

categories or classes of clinical concern 

compared to other formulary categories 

or classes. We expect that the plan 

sponsor’s medical director is involved 

in establishment and oversight of plan 

policies related to prior authorization 

requirements. As with all PA 

requirements, these would require CMS 

review and approval. Consistent with 

current guidance, in Parts A or B versus 

D situations, CMS expects Part D 

sponsors will work aggressively to 

eliminate any interruptions of current 

therapy. 

In addition, we propose to amend 

§ 423.120(b)(2)(vi)(C) to make an 

exception for Part D compounds. As 

noted in previous rulemaking, Part D 

only covers those ingredients in a 

compound that independently meet the 

definition of a Part D drug (see 

§ 423.120(d)). Since the Part D 

compound as a whole is not FDA 

approved, we do not believe that such 

compounded products reasonably can 

be classified as being included in a 

specific category or class that meets the 

criteria proposed in new 

§ 423.120(2)(v)(A). Currently, Part D 

compounds that include ingredients 

that fall within a protected category or 

class are not required to be included on 

formularies, and we do not interpret 

section 3307 of the Affordable Care Act 

as requiring their inclusion now. Thus, 

we believe their continued absence from 

plan formularies would not disrupt 

access. 

We also propose to add 

§ 423.120(b)(2)(vi)(D) to make an 

exception for drugs (other than 

antiretrovirals) that are FDA approved 

and that are fixed-combination dosage 

form prescription drug products as 

defined in 21 CFR 300.50, that contain 

at least one Part D drug in the category 

or class of clinical concern. Because all 

drugs in the category or class of clinical 

concern would be on the formulary as 

single entity products, we do not believe 

it is necessary, in most cases, to require 

inclusion of the fixed dose combination 

or co-packaged products. However, we 

would propose to carve out from this 

exception fixed dose combinations and 

co-packaged antiretrovirals, as 

discussed in FDA guidance found here: 

http://www.fda.gov/downloads/Drugs/

GuidanceCompliance

RegulatoryInformation/Guidances/

ucm079742.pdf) because avoiding 

excessive pill burden and simplifying 

dosage regimens is of utmost 

importance with this class of drugs. 

This is because the risk associated with 

non-adherence when beneficiaries have 

to take the single-entity products has far 

more severe consequences, such as viral 

resistance, than in most other instances, 

where occasional non-adherence does 

not present such dire complications. 

Consequently, although we believe this 

exception is generally appropriate for 

the categories and classes of clinical 

concern that receive added protections 

under section 3307 of the Affordable 

Care Act, we propose that it not be 

available for antiretrovirals. This means 

that, under our proposed criteria, 

which, as discussed further in the 

following paragraphs, apply to 

antiretrovirals, all Part D formularies 

would need to include not only all 

single-entity antiretrovirals, but also all 

FDA-approved fixed-dose combination 

and co-packaged antiretrovirals. 

Additionally, consistent with current 

guidance, we propose an exception at 

§ 423.120(b)(2)(vi)(E) for certain types of 

Part D drugs, including multi-source 

brands of the identical molecular 

structure, extended-release products 

when the immediate-release product is 

included, products that have the same 

active ingredient or moiety, and dosage 

forms that do not provide a unique route 

of administration (for example, tablets 

and capsules versus tablets and 

transdermal products). Although such 

products may contribute to 

improvements in beneficiary adherence 

to their medication regimens, other 

interventions such as Medication 

Therapy Management Programs and 

special compliance packaging can also 

improve adherence. Therefore, the 

added costs of required formulary 

inclusion of such products may not 

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provide added value since they do not 

provide a clinically different therapeutic 

alternative. Such products currently are 

not required to be included on 

formularies, and we do not interpret 

section 3307 of the Affordable Care Act 

as requiring their inclusion now. Thus, 

we do not believe this exception would 

disrupt access. 

Finally, we considered proposing an 

exception at § 423.120(b)(2)(vi)(H), to 

allow Part D sponsors to implement 

prior authorization, including PA used 

to implement step therapy 

requirements, to convert beneficiaries to 

preferred alternatives within these drug 

categories or classes for enrollees who 

are initiating therapy (new starts). This 

is consistent with current guidance that 

Part D sponsors may not implement 

prior authorization, including PA used 

to implement step therapy requirements 

that are intended to steer beneficiaries 

to preferred alternatives within these 

drug categories or classes for enrollees 

who are currently taking a drug, unless 

they are trying to establish appropriate 

coverage under Parts A, B, or D. This 

prohibition applies to those 

beneficiaries already enrolled in the 

plan, as well as to new enrollees who 

were actively taking drugs in any of the 

drug categories or classes of clinical 

concern prior to enrollment in the plan. 

If a sponsor cannot determine at the 

point of sale that an enrollee is not 

currently taking a drug (for example, 

new enrollee filling a prescription for 

the first time), the sponsor treats such 

enrollee as currently taking the drug. 

Additionally, step therapy and prior 

authorization for HIV/AIDS drugs are 

generally not employed in widely-used 

best-practice formulary models and are 

not permitted under the current policy. 

Although this has been our policy since 

the start of the Part D program, and we 

are not aware of any problems with it 

to date, we recognize that this raises the 

potential for a delay in access to initial 

therapy to occur and could be in 

conflict with our first proposed 

criterion. However, we must balance 

this with incentives for efficient 

formularies and do not want to 

eliminate a tool that may be useful for 

Part D sponsors. Consequently, we 

solicit comment on the continued need 

and utility of this policy and whether it 

should be included in the exceptions at 

423.120(b)(2)(vi). These exceptions 

would supersede any previous guidance 

relative to PAs and UM for the 

categories and classes of clinical 

concern. 

d. Analysis and Identification of the 

Categories or Classes of Clinical 

Concern 

We convened a consensus panel of 

CMS pharmacists and the Chief Medical 

Officer for the Center for Medicare to 

identify which drug categories or classes 

met our proposed criteria for clinical 

concern. The panel was supported by a 

contractor that performed background 

research and provided specific 

information on Part D utilization by 

drug category or class and associated 

widely-accepted treatment guidelines 

for each drug category or class, when 

available. The panel reviewed all Part D 

drugs with utilization in 2012 using the 

American Hospital Formulary Service 

(AHFS)–6 classification system. We 

chose the AHFS–6 classification system 

as a framework because it provided us 

with a tool to logically, and in stepwise 

fashion, apply the criteria to all Part D 

drugs. A detailed synopsis of the panel’s 

findings is posted at http:// 

www.cms.gov/Medicare/PrescriptionDrug-Coverage/PrescriptionDrug

CovContra/RxContracting_Formulary

Guidance.html. The consensus panel 

determined that of the current six drug 

categories or classes of clinical concern, 

three (anticonvulsants, antineoplastics, 

and antiretrovirals) meet both of the 

proposed criteria, and three do not 

(antidepressants, antipsychotics, 

immunosuppressants). The panel also 

determined that while other drug 

categories and classes met one of the 

criteria, no other drug categories or 

classes met both criteria. 

With respect to the first criterion, the 

panel concluded that initiation of 

therapy with drugs from the 

antiretroviral, antineoplastic, and 

anticonvulsant categories and classes for 

the typical individual prescribed these 

drugs in a Part D setting generally 

cannot be delayed for 7 days because of 

the risk of hospitalization, incapacity, 

disability, or death. For antiretrovirals, 

the risk associated with the failure to 

immediately initiate recommended 

concurrent therapies could significantly 

increase the risk of developing drug 

resistance and the potential for reexacerbation of the disease. For 

antineoplastics, prompt initiation of 

therapy is also critical. Given that the 

antineoplastic drug therapy often is but 

one part of a complex cancer treatment 

protocol that includes non-drug 

therapies, such as radiation or surgery, 

initiation of the antineoplastic drug 

therapy is usually integrated with the 

entire treatment protocol. Thus, 

delaying initiation of antineoplastic 

drugs can delay a beneficiary’s entire 

course of treatment. For 

anticonvulsants, the risk of seizure 

associated with a delay in drug therapy 

for 7 days can lead to hospitalization 

and significant incapacity. 

With respect to the second criterion, 

the panel concluded that the 

antiretroviral, antineoplastic and 

anticonvulsant categories and classes 

meet the criterion because different 

drugs within those categories and 

classes are used in so many patient-, 

drug-, or disease-specific clinical 

applications that an alternative 

formulary requirement is not feasible. 

For antiretrovirals, the panel based this 

conclusion on the number of multiple 

drug combinations and adjunctive 

therapies involved, frequency with 

which recommended drug protocols 

change, and the role that changing drug 

resistance plays in determining the 

selection of among the different 

antiretroviral drugs. The need to adjust 

specific combination antiretroviral 

therapy in real time is complex and 

must consider, among other things, viral 

sensitivity to the drugs, drug 

interactions, pregnancy status (if 

applicable), and potentially the patient’s 

pharmacogenomic profile of the 

cytochrome P450 system. Similarly, for 

antineoplastic drug therapies, the panel 

based its conclusion on the diversity of 

treatment protocols, the specificity of 

such treatment protocols, including the 

role that specific genetic variations can 

play in the selection of the appropriate 

drug therapy, and the frequency with 

which disease-specific treatment 

protocols recognized in the official Part 

D compendia change and get updated. A 

cancer patient whose clinical picture is 

rapidly changing must immediately 

initiate very specific changes in 

antineoplastic therapy when the new 

disease target is identified. Finally, for 

anticonvulsants the panel concluded 

that the class met the criterion based on 

the number of unique types of seizures, 

the multiple drug combinations 

indicated for them, and the potential for 

altered drug effects based on drug-drug 

interactions that occur via the 

cytochrome P450 system. For all three 

of the classes (anticonvulsants, 

antineoplastics, and antiretrovirals), the 

panel concluded that CMS would be 

unable to address them more efficiently 

through formulary requirements that 

would allow for some restrictions at this 

time based upon the number and 

specificity of the different treatment 

protocols. 

After a detailed analysis of existing 

therapies and widely-accepted 

treatment guidelines, the panel 

concluded that immunosuppressants for 

transplant rejection, antidepressants, 

and antipsychotics do not meet both of 

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the proposed criteria and thus would 

not be eligible for the additional 

protections intended by section 3307 of 

the Affordable Care Act. 

With respect to immunosuppressants 

for transplant rejection, the panel 

concluded that the first criterion was 

met. Due to the immune system’s ability 

to mount progressively faster and 

stronger attacks against a beneficiary’s 

new organ, and to maintain a memory 

relative to those attacks, initiation of 

therapy in a Part D setting generally 

cannot be delayed for up to 7 days 

because of the risk of hospitalization, 

incapacity, disability, or death, and thus 

meets the first criterion. Because 

widely-accepted treatment guidelines 

recommend sub-classes of drugs rather 

than specific, individual drugs, the 

panel did not believe that every drug 

product should be required for 

inclusion on Part D sponsors’ 

formularies. Moreover, relative to the 

reasonably small number of transplant 

options available to beneficiaries (for 

example, stem cell, liver, lung, kidney, 

pancreas, heart and intestine), the 

consistency and specificity of treatment 

guidelines, and the amount of 

therapeutic drug monitoring required 

for these drugs, provide us with 

sufficient clinical information necessary 

to establish additional, specific 

formulary requirements without 

needing to continue to identify it as a 

drug category or class of clinical 

concern. 

For antidepressants, the panel 

concluded that a 7-day delay in 

initiation of therapy would generally 

not put the typical individual at risk of 

hospitalization, incapacity, disability or 

death, and thus did not meet the first 

criterion. The panel also concluded that 

antidepressants did not meet the second 

criterion. This determination was based 

upon the similarities of drugs within 

sub-classes and the lack of unique 

effects for distinguishing individual 

drug products when initiating drug 

therapy for the typical individual in a 

Part D setting. For example, for a patient 

initiating antidepressant therapy for 

depression, when the treatment 

guidelines indicate that a drug within 

the selective serotonin reuptake 

inhibitor (SSRI) sub-class of 

antidepressants should be used, there 

are multiple options from which to 

choose, such as fluoxetine, paroxetine, 

sertraline, citalopram, and escitalopram. 

While treatment guidelines may 

indicate the choice of an SSRI over the 

tri-cyclic antidepressant (TCA) or 

serotonin-norepinephrine reuptake 

inhibitor (SNRI) sub-classes, assuming a 

patient is dosed correctly, they generally 

do not advocate a preference of one 

SSRI drug over another for initiation of 

therapy, nor do they provide a 

hierarchical inventory for these drugs’ 

place in therapy relative to each other. 

In fact, the American Psychiatric 

Association’s 2010 treatment guideline 

(available at http://www.guideline.gov/

content.aspx?id=24158) states that ‘‘the 

effectiveness of antidepressant 

medications is generally comparable 

between classes and within classes of 

medications.’’ 

With respect to antipsychotics, many 

of these take weeks to reach their full 

effect (steady state). In addition, with 

regard to the Medicare population, 

particularly in long term care settings, 

current treatment guidelines indicate 

that the use of antipsychotics in the 

elderly is, in many cases, unwarranted 

and in others, possibly dangerous. 

However, due to the potential that, 

untreated, beneficiaries with active 

psychotic symptoms may be dangerous 

to themselves or others, the panel 

concluded that a 7-day delay in 

initiation of therapy met the threshold 

to put a typical individual with 

psychotic symptoms at risk of 

hospitalization, incapacity, disability or 

death, and thus met the first criterion. 

However, the panel concluded that 

antipsychotics did not have unique 

effects that distinguished one drug from 

another for the purposes of choosing the 

appropriate drug to initiate therapy. For 

example, for a patient initiating 

antipsychotic therapy for schizophrenia 

or schizoaffective, or schizophreniform 

disorder, when the treatment guidelines 

may indicate that a drug within the 

second generation (atypical) 

antipsychotic sub-class should be used, 

there are multiple options from which 

to choose such as aripiprazole, 

risperidone, olanzapine, quetiapine, 

ziprasidone, and clozapine. While the 

treatment guidelines may indicate the 

choice of a second generation 

antipsychotic over the neuroleptics or 

first generation antipsychotic subclasses, assuming a patient is dosed 

correctly, they generally do not advocate 

a preference of one atypical 

antipsychotic over another for initiation 

of therapy, nor do they provide a 

hierarchical inventory for these drugs’ 

place in therapy relative to each other. 

Moreover, the 2009 update to the 

American Psychiatric Association’s 

treatment guideline for the management 

of patients with schizophrenia 

(available at http://psychiatryonline.org/ 

data/Books/prac/Schizophrenia_

Guideline%20Watch.pdf) states ‘‘the 

distinction between first- and secondgeneration antipsychotics appears to 

have limited clinical utility.’’ Thus the 

panel concluded that these agents are 

considered to be generally 

therapeutically interchangeable when 

initiating therapy, and based on 

treatment guidelines, our formulary 

requirements could efficiently ensure 

appropriate access to antipsychotics 

without requiring inclusion on the 

formulary of every drug in the class. 

In addition to any cost savings that 

would result from the proposed change 

for the antipsychotic drug class, it is 

important to emphasize that the change 

also would provide Part D sponsors 

with an improved capability to address 

widespread inappropriate overuse of 

antipsychotic drugs through better 

utilization management. A recent study 

published in Psychiatric Services 

analyzing 2009 claims data from private 

insurance claims found that 58 percent 

of individuals prescribed psychotropic 

medication in 2009 had no psychiatric 

diagnosis during the year (Psychiatric 

Services 2013; doi: 10.1176/ 

appi.ps.201200557). Moreover, on 

September 20, 2013, the American 

Psychiatric Association released a ‘‘list 

of specific uses of antipsychotic 

medications that are common, but 

potentially unnecessary and sometimes 

harmful’’, including a recommendation 

not to prescribe these drugs ‘‘as a firstline intervention to treat behavioral and 

psychological symptoms of dementia’’ 

(http://www.psychiatry.org/

choosingwisely). CMS has been 

particularly concerned with 

unnecessary use of antipsychotic drugs 

in nursing homes, which might be 

exacerbated by our current policy, 

which significantly limits Part D 

sponsors’ options for ensuring 

appropriate use of these drugs. While 

this change in formulary requirements 

generally would not impede appropriate 

access to antipsychotic drug therapy for 

the mentally ill given the other 

formulary protections discussed 

previously, it would allow Part D 

sponsors to better align utilization 

management with CMS efforts to 

prevent inappropriate use of these drugs 

and the potential harmful effects 

associated with such inappropriate use. 

While proposing to remove the 

previous level of formulary coverage 

from these particular classes, it is worth 

noting that the requirement to include 

on plan formularies all drugs in certain 

categories and classes is unique to the 

Part D program. We are not aware of any 

other U.S. government programs (such 

as the Veteran’s Administration (VA), 

Tricare, the Federal Employees Health 

Benefits Program (FEBHP), and, most 

recently, the Affordable Care Act 

Essential Health Benefits (EHB) 

Benchmark Plans), or commercial 

private health plans having a similar 

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requirement. Similar to the Part D 

program, these plans also operate in the 

outpatient setting where access to 

medications is not typically needed on 

an emergency basis. Even though Part D 

formularies are more restrictive than 

Federal Employees Health Benefits 

Plans (FEHBP) and EHB plans, when 

CMS compared Part D formulary 

requirements with those of the VA 

National and Department of Defense 

(DoD) Basic Core formularies, out of 26 

distinct antidepressant drugs required 

on all Part D formularies, the VA 

included 17, and the DoD included 10. 

Similarly, out of 19 distinct 

antipsychotic drugs required on all Part 

D formularies, the VA included 15, and 

the DoD included 2. 

Supporting this analysis that our 

formulary checks could efficiently 

require adequate access to the 

antidepressant and antipsychotic drug 

categories and classes without requiring 

that every drug be included on all Part 

D formularies, we compared a Part D 

formulary to other formularies. We took 

an approved CY 2014 formulary 

containing the average number of 

RxNorm Concept Unique Identifiers 

(RxCUIs). This formulary includes the 

following: 23 generic (ANDA) 

antidepressant drugs, 7 brand (NDA) 

antidepressant drugs, 18 generic 

antipsychotic drugs, and 9 brand 

antipsychotic drugs. We then reviewed 

the drugs comprising the 

aforementioned list against our 

formulary review requirements 

standards for treatment guidelines, 

common Medicare drugs, and the 

discrimination review. We found that 

the formulary could have passed these 

checks with 9 generic antidepressant 

drugs, and 6 generic antipsychotic 

drugs. No brands were necessary to 

meet the formulary review 

requirements. Thus, this formulary 

includes an excess of 16 brand drugs 

and 26 generic drugs within these two 

classes of medications. 

While the immunosuppressant, 

antidepressant and antipsychotic classes 

all fail to meet the second criterion, we 

are deferring any change in formulary 

requirements for the antipsychotic class 

at this time and will continue to require 

all drugs from within this class to be on 

Part D formularies in 2015, subject to 

the exceptions that get finalized in 

§ 423.120(b)(2)(vi). Section 1860D– 

4(b)(3)(G)(I) of the Act requires that the 

Secretary identify classes and categories 

of clinical concern ‘‘as appropriate,’’ 

using criteria specified in notice and 

comment rulemaking. We interpret this 

provision as permitting us to postpone 

applying our proposed criteria to 

antipsychotics at this time, and as we 

are not applying the criteria to 

antipsychotics at this time, we believe it 

is appropriate to continue to treat 

antipsychotics as a class of clinical 

concern, in light of section 1860D– 

4(b)(3)(G)(iv) of the Act, because we 

wish to make certain we have not 

overlooked a need for any transitional 

considerations. This is because the risks 

associated with untreated psychotic 

illness, as differentiated from the broad 

category of mental illness, have the 

potential to be so severe. Therefore, 

although we previously explained why 

we do not believe the antipsychotic 

drug class would meet the new 

proposed criteria, at this time, we are 

proposing not to subject the 

antipsychotic class to the new criteria 

and therefore are proposing not to 

change the current requirement that all 

drugs from within this class must be 

included on all formularies, except as 

permitted under our proposed 

exceptions. 

In general, our existing beneficiary 

protections should suffice to ensure 

appropriate access to antipsychotic drug 

therapies. However, we are not changing 

the requirement for antipsychotics at 

this time because we need to determine 

if additional transitional consideration 

is necessary for any individuals taking 

these medications. While we are not 

convinced that our existing transition 

requirements are insufficient, we seek 

comment on whether there are 

additional considerations for 

transitioning some patients taking these 

drugs to alternative drug therapies and 

if so, why our current requirements are 

not adequate. In addition, we seek 

comments on what specific patient 

population(s) or individual patient 

characteristics would require such 

additional transition protections and 

how such population(s) can be 

consistently identified. Conversely, we 

also seek comments on whether it might 

be in the best interest of beneficiaries to 

have their existing antipsychotic 

therapies reevaluated through 

utilization management, given our 

concern with the inappropriate use of 

these drugs especially in nursing homes 

and the limited clinical utility of 

distinctions among agents in this class 

of drugs. If so, we would also appreciate 

comments on whether the benefits of 

such a periodic reevaluation that would 

arise from routine utilization 

management might outweigh other 

transitional risks. While we do not 

believe the risks associated with 

illnesses treated by antidepressants are 

as severe as those treated by 

antipsychotics, we are also seeking 

comment on whether any transitional 

policies specific to antidepressants 

would be appropriate. 

We are concerned about 

overutilization and inappropriate 

prescribing of antipsychotic 

medications in individuals with 

dementia for whom these medications 

may be prescribed as a mechanism for 

behavioral control; persons for whom 

antipsychotics are being used as 

sleeping aids or anxiolytics; and 

children who have not been diagnosed 

with a disorder for which an 

antipsychotic medication has been FDAapproved. Our concerns about 

overutilization are not aimed at 

individuals with a current mental 

illness or those who are or have recently 

or previously been stabilized on 

antipsychotic medications. We do not 

want to limit access to effective 

medications, or to limit a return to those 

effective medications for adults with a 

psychotic illness who need them. 

Finally, we seek comment on the timing 

necessary to address any additional 

transitional considerations, and remove 

the temporary protections for 

antipsychotics, if necessary. 

Therefore, the initial drug categories 

and classes of clinical concern that meet 

the proposed criteria for coverage year 

2015 are anticonvulsants, 

antiretrovirals, and antineoplastics. In 

addition, the antipsychotic drug class 

will continue to be treated as a class of 

clinical concern in 2015 and until CMS 

determines that it is appropriate to 

apply the criteria with respect to the 

antipsychotics. These categories and 

classes will be read narrowly and are 

not inclusive of every related drug 

product that an individual who has a 

disease treated by one of these 

categories or classes of drugs would 

need to take. For example, conjugated or 

esterified estrogens used for the 

palliative treatment of carcinoma of the 

prostate or metastatic breast cancer are 

not considered antineoplastics and 

would not be included in the 

antineoplastic class of clinical concern. 

We will provide more detailed guidance 

on the specific formulary checks that 

will be in place relative to 

antidepressant and immunosuppressant 

categories and classes of drugs at a later 

date. Additionally, we plan to work 

with stakeholders to provide outreach to 

beneficiaries around the proposed 

modification of the categories and 

classes of drugs of clinical concern that 

receive additional protections under 

section 3307 of the Affordable Care Act 

so that beneficiaries can select the most 

appropriate drug plan for their needs 

based on drug choice as well as cost. 

Finally, CMS plans to periodically 

review the drug categories and classes 

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2Two subparts (E) have been enacted in section 

1860D–4(c)(2). Here, we refer to the first one. 

as the clinical landscape changes to 

determine whether these classes 

continue to meet both criteria and/or if 

other categories/classes meet both 

criteria. We would propose any changes 

to the categories and classes of clinical 

concern through a public notice and 

comment process such as the annual 

Call Letter. 

15. Medication Therapy Management 

Program (MTM) Under Part D 

(§ 423.153(d)) 

Section 1860D–4(c)(2) of the Act, 

provides that Part D sponsors, in 

offering Medication Therapy 

Management (MTM) programs, must 

target individuals who: (1) Have 

multiple chronic diseases (such as 

diabetes, asthma, hypertension, 

hyperlipidemia, and congestive heart 

failure); (2) are taking multiple covered 

Part D drugs; and (3) are identified as 

likely to incur annual costs for covered 

Part D drugs that exceed a level 

specified by the Secretary. At the start 

of the Part D program, we believed that 

25 percent of enrollees would qualify 

for MTM services. However, analysis 

revealed that MTM program enrollment 

was well below that level. In the 2010 

Call Letter and subsequent regulation, 

we modified the criteria to reduce the 

variability in eligibility and level of 

service and to improve access to MTM 

services, again targeting 25 percent of 

enrollees. Despite these changes, MTM 

program participation remains very low. 

Moreover, additional evidence that the 

program improves quality and generates 

medical savings supports the idea that 

more than 25 percent of enrollees will 

benefit from MTM services. 

Section 1860D–4(c)(2)(C) of the Act, 

as implemented in § 423.153(d)(vii), 

specifies that sponsors shall offer a 

minimum level of MTM services to 

targeted beneficiaries to increase 

adherence to prescription medications 

or other goals deemed necessary by the 

Secretary. Additionally, section 1860D– 

4(c)(2)(E 2) of the Act, as implemented 

in § 423.153(d)(1)(v), provides that Part 

D sponsors must automatically enroll 

targeted beneficiaries in the MTM 

program, allowing beneficiaries the 

option to opt out. Under that authority, 

we also issued sub-regulatory guidance 

(found at http://www.cms.gov/Medicare/ 

Prescription-Drug-Coverage/

PrescriptionDrugCovContra/Downloads/

Chapter7.pdf) and an annual memo 

with MTM Program Guidance and 

Submission instructions notifying Part 

D sponsors that we expect them to 

promote continuity of care by 

performing an end-of-year analysis that 

identifies current MTM program 

participants who will continue to meet 

the eligibility criteria for the next 

program year for the same plan. We 

indicated that this targeting could be 

done to auto-enroll beneficiaries in the 

plan’s MTM program early in the next 

program year in order to provide MTM 

interventions with less interruption. 

Although beneficiaries who are new to 

Part D or who may have changed plans 

may be captured during the quarterly, or 

more frequent, targeting throughout the 

year, there is a time lag at the start of 

the year before these beneficiaries can 

be enrolled in MTM. This concern is 

particularly relevant for LIS enrollees 

who may have been reassigned to a new 

Part D plan if their existing plan 

terminated or no longer qualified as a 

benchmark plan. Moreover, we believe 

that there are other special populations 

of beneficiaries for whom simply 

increasing the frequency of targeting 

will not adequately address barriers 

they face to receiving MTM services. 

There are also situations in which a 

beneficiary is unable to accept the offer 

to participate in a CMR, but offering to 

perform the CMR with the beneficiary’s 

prescriber, caregiver, or other 

authorized individual, as provided at 

§ 423.153(d)(1)(vii)(B)(2), may not be 

effectively addressed by the sponsor. 

For example, sponsors may not 

effectively take steps to identify the 

beneficiary’s authorized representative 

or coordinate with the beneficiary’s LTC 

facility when appropriate. 

Consequently, to improve access to this 

beneficial service, we are exploring new 

ways to improve access to MTM 

services for Part D enrollees. 

Although we initially estimated that 

25 percent of the Part D eligible 

population would meet the three criteria 

for MTM services at the start of the Part 

D program, we provided minimal detail 

on how sponsors should implement the 

criteria. For example, we did not 

initially provide in regulation any detail 

on the number of chronic diseases or 

covered Part D drugs, or an annual cost 

threshold that would be required to 

establish a beneficiary’s eligibility for 

MTM services, although we established 

an annual cost threshold of $4,000 in 

subregulatory guidance. We did this to 

allow maximum flexibility for the 

industry to develop best practices in the 

provision of MTM services. 

After an analysis of common practices 

revealed wide ranges in eligibility and 

the levels of services provided, we 

announced in the 2010 Call Letter 

(available at http://www.cms.gov/

PrescriptionDrugCovContra/Downloads/

2010CallLetter.pdf) that the MTM 

requirements would be revised 

beginning in 2010 to provide greater 

consistency among the MTM programs 

and to raise the level of MTM 

interventions offered to positively 

impact medication use by Medicare Part 

D beneficiaries. We clarified that in 

defining multiple chronic diseases, 

sponsors could not require more than 

three chronic diseases as the minimum 

number of chronic diseases and that 

sponsors must target at least four of 

seven core chronic diseases 

(hypertension, heart failure, diabetes, 

dyslipidemia, respiratory disease (such 

as asthma, chronic obstructive 

pulmonary disease (COPD), or chronic 

lung disorders), bone disease—arthritis 

(such as osteoporosis, osteoarthritis, or 

rheumatoid arthritis), and mental health 

(such as depression, schizophrenia, 

bipolar disorder, or chronic and 

disabling disorders)). We further 

clarified that in defining multiple Part D 

drugs, sponsors could not require more 

than eight Part D drugs as the minimum 

number of multiple covered Part D 

drugs. We also lowered the cost 

threshold to $3,000 and instructed 

sponsors to adjust their targeting criteria 

accordingly. These requirements were 

subsequently codified in the regulations 

at § 423.153(d)(1) and (2). 

Despite the expanded criteria, we 

continue to see restrictive criteria, such 

as plan sponsors specifying a narrow list 

of chronic diseases or Part D drugs 

coupled with requiring a higher 

minimum number of covered drugs (for 

example, eight drugs versus two) for 

eligibility. As a result, access to MTM 

services remains very low with MTM 

program eligibility rates at less than 8 

percent in 2011. Even more concerning, 

there may be racial disparities in 

meeting the eligibility criteria. In the 

2012 Call Letter (available at http://

www.cms.gov/Medicare/Health-Plans/

MedicareAdvtgSpecRateStats/

Downloads/Announcement2012.pdf), 

we reviewed a 2010 study published in 

Health Services Research (HSR) by 

Wang and colleagues (Wang, et al. 2010. 

‘‘Disparity Implications of Medicare 

Eligibility Criteria for Medication 

Therapy Management Services.’’ Health 

Services Research. 45 (4): 1061–1082.). 

This study was based on data from the 

Medical Expenditure Panel Survey 

(MEPS) collected prior to the 

implementation of the Part D program 

and used the original 2006 and the 

revised 2010 MTM eligibility 

thresholds. The study suggested that 

Hispanic and African American 

beneficiaries could be less likely to meet 

MTM eligibility criteria where 

utilization was a criterion for program 

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participation. The study findings had 

important implications for the Part D 

program because utilization based upon 

drug costs is a critical part of MTM 

eligibility. In 2012, Wang and colleagues 

repeated the study (Wang, et al. 2012. 

‘‘Historical trend of disparity 

implications of Medicare MTM 

eligibility criteria.’’ Research in Social 

and Administrative Pharmacy (2012): 1– 

12) using 2007–2008 data along with 

both the 2006 and 2010 MTM eligibility 

thresholds. They found that disparity 

patterns did not change from the first 

study. Their findings that ‘‘racial and 

ethnic disparities in meeting the MTM 

eligibility criteria may not decrease over 

time unless the eligibility criteria are 

changed’’ have led us to conclude that 

the current MTM eligibility criteria are 

overly restrictive. 

A 2011 report from the United States 

Public Health Service (PHS) Pharmacist 

Professional Advisory Committee 

(PharmPAC report) (available at http:// 

www.usphs.gov/corpslinks/pharmacy/

sc_comms_sg_report.aspx) supports the 

conclusion that the current eligibility 

criteria are restricting access to MTM 

services. The PharmPAC report, which 

was based on the experiences of PHS 

clinical pharmacists who attempted to 

provide services to Part D beneficiaries, 

indicated that the Part D MTM 

eligibility criteria, and variability in the 

application of these criteria among Part 

D sponsors, constituted a policy 

constraint which limited patient 

participation in the program, despite the 

2010 enhancements. The authors of the 

PharmPAC report expressed concern 

that, at the time, the criteria permitted 

sponsors to define eligibility 

parameters. The PharmPAC report went 

on to say that as a result of the overly 

restrictive targeting criteria, patients 

who may need MTM services but did 

not meet the plan’s criteria were not 

able to participate, unless the plan 

offered MTM services to a wider group 

than the targeted population. 

Further supporting this conclusion, a 

recent study conducted in conjunction 

with the Center for Medicare and 

Medicaid Innovation called Medication 

Therapy Management in Chronically Ill 

Population: Final Report (August 2013) 

(‘‘CMMI MTM study’’) (available at 

http://innovation.cms.gov/Data-andReports/index.html) explored the 

variations in MTM eligibility criteria. 

This CMMI MTM study identified 

patients with equivalent MTM 

eligibility characteristics who were in 

different plans with different eligibility 

criteria. The enrollees were ineligible 

for MTM in their own plan, but would 

have been eligible for MTM if they were 

enrolled in another plan which targets 

a particular chronic disease that is not 

targeted for MTM services by their own 

plan or which targets beneficiaries for 

MTM services based on a lower number 

of chronic diseases or Part D drugs for 

eligibility. We are concerned with such 

variability, especially in cases where a 

beneficiary meets the minimum number 

of chronic diseases for eligibility, but 

may not qualify for MTM because his or 

her chronic condition is not targeted by 

the plan, he or she does not take enough 

medications for the plan’s program 

(even though medication management 

issues are present), or because high 

utilization of lower cost generics places 

prescription drug costs for the 

beneficiary below the cost threshold. 

Restrictive application of MTM 

eligibility criteria may limit MTM 

enrollment to beneficiaries with 

spending well above the $3,000 

threshold, and the CMMI MTM study 

indicates that drug spending for MTM 

enrollees varied from $4,452 to $7,477. 

The CMMI MTM study’s final report 

was published in August, 2013 and is 

available at: http://innovation.cms.gov/

Files/reports/MTM-FINAL-Report.pdf. 

As discussed in the 2014 Call Letter 

(available at http://www.cms.gov/

Medicare/Health-Plans/

MedicareAdvtgSpecRateStats/

Downloads/Announcements2014.pdf), 

the CMMI MTM study found that MTM 

programs effectively targeted high risk 

individuals who had problems with 

their drug-therapy regimens and had 

high rates of hospital and emergency 

room visits before enrollment as well as 

those that experienced a recent visit to 

the hospital or emergency room. The 

study also found that individuals with 

diabetes, CHF, and COPD who were 

enrolled in MTM programs— 

particularly those who received annual 

comprehensive medication reviews 

(CMRs)—experienced significant 

improvements in drug therapy outcomes 

when compared to beneficiaries who 

did not receive any MTM services, thus 

supporting the hypothesis that the 

annual CMR may be one of the more 

crucial elements of MTM. Significant 

cost savings associated with all-cause 

hospitalizations at the overall PDP and 

MA–PD levels were found, which may 

be due to MTM’s comprehensive, rather 

than disease specific approach. This 

research supports statements in a recent 

Congressional Budget Office report that 

programs and services that manage the 

prescription drug benefit well or 

improve prescription drug use might 

result in medical savings (Congressional 

Budget Office, Offsetting Effects of 

Prescription Drug Use on Medicare’s 

Spending for Medical Services, 

November 2012, available at http://

www.cbo.gov/publication/43741). 

Consistent with the findings of this 

research, we believe that the CMSestablished eligibility criteria should be 

considered as the threshold for MTM 

eligibility, but not the driver of 

interventions by the plan. However, 

because plans target beneficiaries with 

specific diseases for MTM services, 

some plans, in turn, have designed 

interventions only focused on these 

diseases, in contrast to a more 

comprehensive approach to improving 

medication management and adherence. 

For example, one plan targeted 

beneficiaries with CHF and diabetes and 

designed interventions for these 

conditions. Beneficiaries who also had 

COPD qualified for MTM services, but 

the plan did not address their COPD 

medication issues, a practice that is 

inconsistent with the intent of 

comprehensive MTM. Nonetheless, the 

best-performing plans were able to 

improve medication adherence and 

quality of prescribing while maintaining 

or reducing overall health care costs 

(including drug costs), despite the costs 

associated with delivering a high 

number of CMRs. Moreover, the study’s 

findings suggested that other conditions 

associated with cardiovascular disease, 

such as acute myocardial infarction 

(AMI), stroke, and vascular disorders, in 

addition to those already targeted under 

the eligibility criteria adopted in 2010, 

disproportionately appeared among the 

top cost savers. 

Overall, the CMMI MTM study 

identified practices that typified highperforming MTM programs, including 

three that concern beneficiary targeting. 

They are: 

• Establishing proactive and 

persistent CMR recruitment efforts; 

• Targeting and aggressively 

recruiting patients to complete a CMR 

based on information on medical events 

such as a recent hospital discharge in 

addition to scanning for the usual MTM 

eligibility criteria; and 

• Coordinating care by utilizing 

trusted community relationships, 

including networks of community 

pharmacists, to recruit MTM eligible 

candidates, and utilizing existing 

working relationships between MTM 

providers (pharmacists) and prescribers 

to make recommendations and discuss 

identified problems for patients. 

Potential additional requirements, 

related to the first and third practices, 

are discussed elsewhere in this 

proposed rule. However, the second 

practice leads us to reconsider our 

current MTM targeting requirements. 

We believe that the results of the 

aforementioned studies indicate the 

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necessity to reduce variability in 

eligibility criteria among plans and as a 

result improve access to MTM services. 

a. Multiple Chronic Diseases 

The statute identifies targeted 

beneficiaries as those Part D 

beneficiaries who have multiple chronic 

diseases such as diabetes, asthma, 

hypertension, hyperlipidemia, and 

congestive heart failure. We previously 

interpreted this language to allow 

sponsors to define ‘‘multiple chronic 

diseases’’ with three chronic diseases 

being the maximum number a plan 

sponsor may require for targeted 

enrollment. Further, sponsors are 

allowed to target beneficiaries with 

select chronic diseases, but must 

include at least five of the nine core 

chronic diseases in their criteria. This 

list of core chronic diseases, as updated 

in the 2013 Call Letter (available at 

http://www.cms.gov/Medicare/HealthPlans/MedicareAdvtgSpecRateStats/

downloads//Announcement2013.pdf), 

includes hypertension, congestive heart 

failure, diabetes, dyslipidemia, 

respiratory disease, bone disease— 

arthritis, mental health, Alzheimer’s 

disease, and end stage renal disease. We 

propose to revise our interpretation of 

‘‘multiple chronic diseases’’ to require 

that sponsors must target enrollees 

having two or more chronic diseases for 

MTM services. We believe this is a 

reasonable interpretation of the statute 

because ‘‘multiple’’ is commonly 

understood to mean more than one. 

In addition, we believe that the statute 

specifically named the diseases that are 

most prevalent within the Medicare Part 

D beneficiary population and that 

present a likelihood of having 

medication use issues that impact 

therapeutic outcomes. Therefore, we 

propose to require that at least one of 

the chronic diseases that a beneficiary 

has in order to satisfy the eligibility 

criteria must be one of the list of core 

chronic diseases. This list has been 

updated since 2010 to encompass 

common targeting practices among plan 

sponsors and diseases prevalent among 

beneficiaries. We also believe that this 

interpretation is consistent with other 

literature concerning the relative risk of 

the combination of multiple disease 

states and medications and ensures that 

Medicare Part D beneficiaries with 

prevalent health conditions receive 

access to MTM. In addition, to be more 

consistent with the findings of the 

CMMI MTM study and the current drug 

hierarchical condition categories 

(RxHCCs) used in the Part D risk 

adjuster, we propose to redefine the core 

diseases by combining hypertension and 

congestive heart failure under the 

umbrella of ‘‘cardiovascular disease,’’ 

which would also encompass congestive 

heart failure, acute myocardial 

infarction, cerebral hemorrhage and 

effects of stroke, vascular disease, 

specified heart arrhythmias, and 

hypertensive heart disease. The list of 

core chronic diseases would thus 

become cardiovascular disease, 

diabetes, dyslipidemia, respiratory 

disease, bone disease—arthritis, mental 

health, Alzheimer’s disease, and end 

stage renal disease. However, in future 

rulemaking, we may consider further 

revising the regulation to establish 

standards by which these core chronic 

diseases are selected, and therefore 

establish the list of core chronic 

diseases annually in subregulatory 

guidance based on those factors. We 

solicit comment on what specific 

patient population(s) or individual 

patient characteristics should be 

considered in establishing such 

standards. 

b. Multiple Part D Drugs 

The statute identifies targeted 

beneficiaries as those Part D 

beneficiaries who are taking multiple 

covered Part D drugs. Although we 

initially had no requirements in this 

area, as early as contract year 2006, we 

asked plan sponsors to report to us the 

number of covered Part D drugs that a 

beneficiary must have filled to meet 

their targeting criteria for MTM, and if 

applicable, to list the type of Part D 

drugs that would apply. While still 

allowing a great deal of flexibility in the 

design of MTM programs, for contract 

year 2007 forward, we requested more 

detailed information in this area in 

MTM Program Submission materials for 

a March 15, 2006 User Group Call 

which were distributed through HPMS. 

We asked plan sponsors to identify the 

number of covered Part D drugs that a 

beneficiary must have filled to meet 

their criteria for MTM programs, and to 

provide information on the type of 

covered Part D drugs that would apply. 

Specifically, we asked if any Part D drug 

would apply, only chronic/maintenance 

drugs, only disease-specific drugs 

related to chronic diseases, or if specific 

Part D drug classes would apply (and 

what those drug classes were), or what 

other types of categories the plan 

sponsor intended to use. For coverage 

year 2013, we consolidated this list of 

types of covered Part D drugs that could 

apply and no longer specifically 

collected information on diseasespecific drugs related to chronic 

diseases. (MTM Program Submission 

Process Guidance for CY 2013 is 

available at: http://www.cms.gov/

Medicare/Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/Downloads/

Memo-Contract-Year-2013-MedicationTherapy-Management-MTM-ProgramSubmission-v041012.pdf) 

Because our analyses continued to 

reveal such wide ranges in eligibility 

under this criterion, we issued guidance 

in 2009, which we subsequently 

codified in our April 2010 final rule 

entitled, ‘‘Policy and Technical Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs’’ (75 FR 19678), to establish 

specific requirements regarding the 

minimum number of covered Part D 

drugs that plan sponsors should 

consider in order to satisfy the statutory 

requirement. Specifically, we instructed 

that Part D sponsors should define 

‘‘multiple’’ for purposes of satisfying 

this requirement as no more than eight 

Part D covered drugs. (75 FR 19772) 

Although we tried to maintain 

maximum flexibility for plan sponsors 

by permitting this broad range, the 

authors of the PharmPAC report 

specifically cite the options available to 

plan sponsors in determining enrollee 

eligibility criteria for multiple Part D 

drugs as a limitation of the MTM 

programs required under Part D. We 

now believe that allowing plans this 

flexibility has contributed to beneficiary 

confusion, decreased access to MTM 

services, and even led to racial 

disparities in access to services. 

We propose to revise our 

interpretation of ‘‘multiple Part D 

drugs’’ to require that sponsors must 

target enrollees taking two or more Part 

D covered drugs for MTM services. 

While we are expanding this criterion, 

we are also proposing to restrict the 

flexibility previously available to 

sponsors by requiring that they consider 

any Part D covered drug. Literature 

supports the idea that patients with 

multiple diseases and taking at least two 

drugs are more likely to have drug 

therapy problems. 

The importance of MTM services for 

patients taking two or more medications 

was demonstrated in a 2007 evaluation 

which validated the Risk Based Relative 

Value Scale (RBRVS) for MTM Services 

by Isetts and colleagues on behalf of the 

state of Minnesota (available at http://

www.dhs.state.mn.us/main/groups/

business_partners/documents/pub/

dhs16_140283.pdf). This study shows 

that when a patient has a single 

indication treated by at least two 

medications, there is likely to be at least 

one drug therapy problem. When the 

patient moves to two indications, he or 

she is more likely to be treated by at 

least three to five medications, and will 

likely have at least two drug therapy 

problems. It should be noted that this 

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evaluation considered not only 

prescription drugs, but also over the 

counter medications and dietary 

supplements. 

TABLE 2—PHARMACEUTICAL CARE RBRVS *—AT A GLIMPSE

Level ** Number of medical indications Number of medications 

Number of drug 

therapy problems 

(DTP) 

Level 1 ................................................... At least 1 ............................................... At least 1 ............................................... None observed. 

Level 1 ................................................... At least 1 ............................................... At least 2 ............................................... 1 DTP. 

Level 2 ................................................... At least 2 ............................................... At least 3–5 ........................................... 2 DTPs. 

Level 3 ................................................... At least 3 ............................................... At least 6–8 ........................................... 3 DTPs. 

Level 4 ................................................... 4 or more .............................................. 9 or more .............................................. 4 or more DTPs. 

* Summarized from the Minnesota DHS Web site Program Guide for Delivery of Medication Therapy Management Services (MTMS). 

** The level of care reported is the lowest of patient needs met by all criteria in each level. 

Section 3503 of the Affordable Care 

Act establishes a program under the 

Public Health Service Act under which 

the Secretary is authorized to provide 

grants or contracts to eligible entities to 

implement MTM services and provides 

that MTM programs shall target 

individuals who take four or more 

prescribed medications, including overthe-counter (OTC) medications and 

dietary supplements, and take any highrisk medications. Although this 

provision does not directly pertain to 

the Part D program, we believe that an 

examination of the criteria used to target 

individuals under that provision is 

helpful in considering what changes 

could be made to improve the 

effectiveness of MTM programs offered 

under Part D. Unlike section 3503 of the 

Affordable Care Act, which expressly 

requires that services be targeted based 

on the use of either prescription or nonprescription drugs, the Part D statute 

expressly requires that Part D plans 

target beneficiaries taking multiple 

covered Part D drugs for MTM services. 

OTC medications or dietary 

supplements are not covered Part D 

drugs, and we cannot require Part D 

sponsors to consider them in targeting 

beneficiaries for MTM services. 

Nevertheless, as evidenced by the 

RBRVS approach discussed previously, 

we believe that these OTC medications 

and supplements may contribute to drug 

therapy problems. Therefore, we believe 

that it is reasonable to propose that 

‘‘multiple Part D drugs’’ should be 

construed to mean two or more Part D 

drugs in order to ensure that 

beneficiaries that are at risk of drug 

therapy problems, including problems 

associated with taking multiple 

prescription medications in conjunction 

with over-the-counter medications, are 

appropriately targeted for MTM 

services. A literature review (Hajjar ER, 

Cafiero AC, Hanlon JT. Polypharmacy in 

elderly patients. Am J Geriatric 

Pharmacother. 2007; 5:345–351) cited a 

study that found that almost 90 percent 

of elderly, rural community-dwelling 

patients took one or more OTC products 

and almost 50 percent took two to four. 

Another study of noninstitutionalized 

patients found that 47 to 59 percent of 

older patients took a vitamin or mineral 

and 11 to 14 percent took herbal 

supplements. The review found that 

polypharmacy among the elderly may 

be increasing. (Stoehr GP, Ganguli M, 

Seaberg EC, et al. Over the counter 

medication use in an older rural 

community: The MOVIES Project. J Am 

Geriatr Soc. 1997; 45:158–165). 

Therefore, it is reasonable to conclude 

that the Part D MTM population with 

multiple chronic diseases would also be 

taking OTC medications. Furthermore, 

we expect that sponsors will perform 

outreach to beneficiaries to acquire 

additional information regarding OTC 

medication use by their enrollees, 

consistent with our current guidance for 

CMRs, which explains that the 

medication review as part of the CMR 

should include prescriptions, OTC 

medications, herbal therapies, and 

dietary supplements (available at http:// 

www.cms.gov/Medicare/PrescriptionDrug-Coverage/

PrescriptionDrugCovGenIn/Downloads/

Memo-Contract-Year-2013-MedicationTherapy-Management-MTM-ProgramSubmission-v041012.pdf). 

Although we are proposing this 

option, we also considered alternatives 

such as duplication of the section 3503 

of the Affordable Care Act criteria for 

four or more prescribed medications 

which could include OTC medications 

and dietary supplements, provided the 

beneficiary was taking at least 2 covered 

Part D drugs. However, we recognized 

that Part D sponsors would not have the 

ability to assess an enrollee’s use of OTC 

medications or dietary supplements in 

order to determine MTM eligibility 

despite the RBRVS approach which 

suggests that beneficiaries may still 

experience drug therapy problems when 

they have only one chronic disease but 

take at least two medications, which 

could include OTC medications or 

dietary supplements. As a result, we 

solicit comments on alternative 

definitions for ‘‘multiple Part D drugs,’’ 

including what minimum number of 

medications is appropriate for MTM 

targeting. 

c. Annual Cost Threshold 

The Congress did not impose any 

specific requirements with respect to 

the cost threshold at the time the MTM 

criteria were passed in to law, nor has 

it addressed this threshold in any of the 

subsequent amendments to section 

1860D–4(c)(2) of the Act. When we first 

established the requirements regarding 

MTM programs, we recognized that cost 

alone was not the best indicator of those 

that could benefit most from MTM. 

Indeed, in our January 2005 final rule 

entitled, ‘‘Medicare Prescription Drug 

Benefit’’ (70 FR 4282), we stated that 

cost might not be the best proxy for 

identifying patients that could benefit 

most from MTM. Nevertheless, in an 

attempt to identify a manageable 

population at the start of the program, 

we believed that individuals with the 

highest costs were more likely to be 

suffering from more chronic conditions 

and taking more Part D medications. 

Therefore, we believed that setting a 

cost threshold that would limit MTM 

programs to the individuals with the 

highest costs would increase the 

likelihood that MTM services would be 

provided to those individuals that could 

benefit most (because those individuals 

were likely to be at greater risk for 

improper medication use and adverse 

drug events). Thus, although it was set 

in subregulatory guidance, we 

established the initial $4000 cost 

threshold at the inception of the Part D 

program. 

As discussed in our April 2010 final 

rule entitled, ‘‘Policy and Technical 

Changes to the Medicare Advantage and 

Medicare Prescription Drug Benefit 

Programs’’ (75 FR 19776), following an 

analysis of plan reported data, we found 

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that only 10 percent of beneficiaries 

enrolled in a Part D plan with an 

approved MTM program were eligible 

for MTM services in 2006 and only 13.1 

percent were eligible for MTM services 

in 2007. In 2008, we conducted an 

analysis of beneficiary drug costs using 

Prescription Drug Event (PDE) data from 

contract years 2006 and 2007 obtained 

from the Integrated Data Repository 

(IDR) system. As part of this analysis, 

the total gross drug cost and number of 

beneficiaries that incurred annual drug 

costs (below) or (greater or equal to) the 

$4000 cost threshold was determined. 

The average number of PDEs and 

average costs per beneficiary were also 

calculated. Further analysis examined 

cost breakouts in $500 increments to 

determine the distribution of 

beneficiaries, as well as the number of 

fills, and gross drug cost for 

beneficiaries with annual drug costs in 

each of these categories. We determined 

that close to 25 percent of Part D 

enrolled beneficiaries with drug 

utilization (beneficiaries with at least 

one PDE during the study period) 

during 2006 and 2007 had annual gross 

drug costs of at least $3,000. Therefore, 

we lowered the cost threshold to $3,000 

in the 2010 Call Letter. Based upon our 

analysis of the more recent data in 2010, 

we concluded that this threshold would 

ensure that approximately 25 percent of 

the beneficiaries using the Part D benefit 

would receive MTM services, and we 

codified the $3,000 threshold, as 

updated annually by the annual 

percentage increase in the average per 

capita aggregate expenditures for Part D 

drugs for Part D eligible individuals 

under § 423.104(d)(5)(iv) in the April 

2010 final rule entitled, ‘‘Policy and 

Technical Changes to the Medicare 

Advantage and Medicare Prescription 

Drug Benefit Programs’’ (75 FR 19818). 

The threshold is currently $3,144 in 

2013. 

However, the use of lower cost 

generics has been increasing since the 

Part D program began, so the application 

of this threshold may exclude many 

beneficiaries who are in need of MTM 

services. We believe this increase in the 

use of lower cost generics may 

contribute to low MTM program 

enrollment rates which currently hover 

around 8 percent, and may also be a 

driver in racial disparity in MTM 

program enrollment. Additionally, prior 

work, including the RBRVS approach 

described previously, assigns relative 

risk of needing MTM services using the 

number of indications that an 

individual has and the number of 

medications that he or she is taking, but 

does not address a cost threshold. 

Consequently, we are concerned that 

there are a number of beneficiaries who 

need MTM, but are not currently 

eligible because they do not meet the 

current cost threshold of $3,144, despite 

the increased likelihood of having drug 

therapy problems as a result of having 

multiple chronic diseases and taking 

multiple medications. Moreover, the 

current cost threshold may have the 

unintended consequence of causing 

beneficiaries to no longer qualify for 

MTM services in the next plan year 

(whether remaining in the same plan or 

enrolling into a new plan) if they fall 

below the cost threshold as a result of 

their enrollment in plans that employ 

cost avoidant strategies, such as 

aggressive use of generics, or in MTM 

programs that center on therapeutic 

interchange. 

Consistent with our proposal that 

sponsors must target enrollees taking 

two or more Part D covered drugs for 

MTM services and taking into account 

that one or more of these Part D drugs 

are likely to be generics, we propose 

setting the annual amount in Part D 

drug costs at an amount that represents 

the intersection of multiple conditions 

and multiple drugs. Based on an 

analysis of PDE data, the average cost of 

a generic prescription is $25.85. Because 

a very small percentage of prescriptions 

are for more than 30 days, we assume 

that this amount is the average cost for 

a 30-day generic prescription. Thus, the 

annual total drug cost for a beneficiary 

filling two generic prescriptions is 

$620.40. Accordingly, consistent with 

our proposal to determine a cost 

threshold that is commensurate with the 

drug spending of beneficiaries that meet 

the first two criteria regarding multiple 

conditions and use of multiple covered 

Part D drugs, we would set the cost 

threshold at $620, which is the 

approximate cost of filling two generic 

prescriptions. We propose to revise this 

number periodically to reflect more upto-date information regarding the drug 

spending of beneficiaries that have two 

or more chronic conditions and use two 

covered Part D drugs. We remind 

sponsors that the drug costs used to 

determine if the total annual cost of a 

beneficiary’s covered Part D drugs is 

likely to equal or exceed the specified 

annual cost threshold for MTM program 

eligibility includes the ingredient cost, 

dispensing fee, sales tax, and vaccine 

administration fee, if applicable. 

Because the statute requires that plans 

target beneficiaries who ‘‘are identified 

as likely to incur annual costs for 

covered Part D drugs that exceed a level 

specified by the Secretary,’’ we 

encourage sponsors, as most do now, to 

project annual costs for a beneficiary 

based on costs from the preceding 

month or quarter. 

We took a number of factors into 

consideration in deciding to propose 

lowering the annual threshold to a level 

commensurate with the drug spending 

of beneficiaries with multiple chronic 

diseases taking two covered Part D 

drugs. Doing so promotes consistency 

among Part D plans relative to the three 

eligibility criteria set forth in the statute 

by factoring multiple conditions and 

multiple Part D drugs into how the cost 

threshold is set. We know now that 

patients with multiple conditions and 

taking multiple drugs have a higher 

probability of having at least two drug 

therapy problems and could benefit 

from MTM. More beneficiaries are using 

lower cost generic alternatives and no 

longer meet the current cost threshold, 

which is over $3,000, and studies have 

found that the current cost threshold 

may promote racial disparities in MTM 

eligibility. 

Based on an analysis of 2011 PDE data 

and 2011 RxHCCs from the Risk 

Adjustment system, approximately 60 

percent of Part D enrollees have two or 

more chronic diseases were taking two 

or more Part D drugs and incurred drug 

costs greater than or equal to $500. We 

found that 50 percent of Part D enrollees 

have two or more chronic diseases, were 

taking two or more Part D drugs, and 

had drug costs of greater than or equal 

to $1000. Therefore, we estimate that 

approximately 55 percent of Part D 

beneficiaries will be eligible for MTM 

based on the proposed criteria (two or 

more chronic diseases, two or more Part 

D drugs, and likely to incur $620 in 

annual Part D drug costs). 

The CMMI MTM study found that 

high-performing MTM programs not 

only improved drug therapy outcomes 

but also maintained or lowered rates of 

hospitalizations, ER visits, and 

associated costs. Therefore, more of the 

Part D population can benefit from 

MTM services and these programs can 

potentially positively impact the 

Medicare program as a whole through 

improved medication use and lower 

healthcare costs. As a result of this, we 

no longer believe that it is appropriate 

to target only 25 percent of the Part D 

populations, and only those 

beneficiaries with high drug costs. This 

is consistent with our view in our 

January 2005 final rule where we stated 

that we believe that MTM must evolve 

and become a cornerstone of the 

Medicare Prescription Drug Benefit. We 

also intend that the Medicare 

Prescription Drug Benefit will serve as 

a model for achieving quality 

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improvement in prescription drug 

therapy. 

Although we are proposing to set the 

annual threshold at a level that is 

commensurate with the drug spending 

of beneficiaries with two or more 

chronic diseases that use two covered 

Part D drugs, we considered other 

alternatives. For example, we 

considered setting the threshold at $900 

or $1200, which roughly coincide with 

cost thresholds achieved by taking three 

or four generic drugs. We solicit 

comment, based on industry and MTM 

provider experience, on where this 

threshold might be alternatively set. 

Although we are proposing to broaden 

MTM eligibility, we also believe there 

are special populations of beneficiaries 

for whom broader targeting criteria will 

not adequately address barriers they 

may face to receiving MTM services. 

The CMMI MTM study found that 

effective MTM programs establish 

proactive and persistent CMR 

recruitment efforts. These programs also 

utilize trusted community relationships, 

including networks of community 

pharmacists, to recruit MTM eligible 

candidates as well as existing working 

relationships between MTM providers 

(pharmacists) and prescribers to make 

recommendations and discuss identified 

problems for patients. Trusted 

community relationships are an 

important tool that can be leveraged to 

reduce disparities in access to MTM 

services, and other health disparities in 

general, faced by some special 

populations of beneficiaries. 

For example, LIS-enrollees are a 

diverse group and are more likely than 

other Medicare enrollees to have a high 

burden of disability and chronic 

disease, to have limited English 

proficiency, and to belong to a racial or 

ethnic minority group. Although LISeligibility is not a perfect indicator for 

the social determinants of health faced 

by those with limited English 

proficiency or belonging to racial or 

ethnic minorities, it is true that those 

with limited English proficiency, and 

those belonging to racial and ethnic 

minorities are more likely than other 

Medicare enrollees to be poor. Because 

this financial status is frequently 

compounded by a variety of barriers to 

accessing health insurance and care, 

these beneficiaries generally have a 

higher burden of disability and chronic 

disease. As discussed previously, the 

use of utilization-based criteria to target 

at-risk individuals who may not, as a 

result of cultural norms or preferences, 

be high utilizers of health care services 

is particularly troubling. This comes in 

spite of evidence in treatment 

guidelines which suggests that they may 

need targeted outreach. Such criteria 

may also miss other high-risk 

individuals who use multiple low-cost 

generic drugs that present a safety risk 

without reaching a cost threshold. More 

of these beneficiaries will be eligible for 

MTM services due to the revised criteria 

that we are proposing in this rule. 

However, there are currently no 

requirements under our regulations that 

Part D plans ensure that beneficiaries in 

these special populations receive 

focused outreach or engagement to 

increase their participation in MTM. 

Chronic disease and disability are 

common in the LIS population. More 

than 80 percent of Part D enrollees who 

had spending high enough to reach 

catastrophic coverage were LIS 

enrollees. Additionally, the 

reassignment process can present 

additional challenges for LIS enrollees 

such as new formularies, requirements 

for prior authorizations, step therapy, or 

quantity limits, processes for 

exceptions, appeals, and grievances, and 

contacting their plan. This makes it 

more challenging for LIS enrollees to 

maintain access to their drugs. Further, 

pharmacists at the point of sale 

frequently spend a great deal of time 

with and on behalf of these enrollees as 

they face formulary changes. This, in 

turn often generates high levels of 

frustration for the enrollee, as he or she 

waits for the pharmacist to resolve the 

issues, as well as for the pharmacist, as 

the effort required to assist the customer 

approaches the level of service 

furnished in MTM, but remains 

uncompensated. 

Challenges faced by LIS enrollees in 

the Part D program are exacerbated for 

those with limited English proficiency 

or who belong to a racial or ethnic 

minority. For example, translators and 

multi-language inserts currently 

required may not be adequate to address 

the cumulative effects of race and 

ethnicity, lower levels of education, and 

poverty that are frequently associated 

with individuals with limited English 

proficiency. Moreover, messages 

conveyed by such approaches may not 

be consistent with an individual’s 

underlying cultural beliefs and attitudes 

about medicine and therapy. 

Another example involves the Indian 

Health Service, which is staffed by 

many health care providers in the 

United States Public Health Service and 

bears primary responsibility for caring 

for American Indians and Alaska 

Natives. The Indian Health Service is 

comprised of facilities operated by the 

Indian Health Service, tribes or tribal 

organizations pursuant to the Indian 

Self-Determination and Education 

Assistance Act, and urban Indian 

organizations pursuant to title V of the 

Indian Health Care Improvement Act. 

When the majority of American Indians 

and Alaska Natives live outside 

reservation land, where most IHS/tribal 

facilities are located, barriers in access 

to care are seen in both rural and urban 

landscapes, where there is limited 

availability of providers or limited 

offering of services, respectively. 

Transportation to IHS/tribal facilities 

may be a barrier and, the PharmPAC 

report also indicates that the patientperceived benefit of paying monthly 

premiums, in light of 100 percent 

coverage of health care expenses for 

eligible patients, may also reduce 

participation in MTM services. The 

PharmPAC report goes on to state that 

the Public Health Service Pharmacy 

program has apprehension about 

contracting with Part D plans offering 

MTM programs because limited 

compensation by Part D plans for MTM 

services is not cost-effective to 

implement on a national scale. 

We believe that the difficulties faced 

by special populations of beneficiaries 

represent important opportunities for 

robust MTM services that, when 

associated with early completion of 

CMRs, will help beneficiaries navigate 

the reassignment process, better reward 

pharmacists for the level of effort 

needed to serve these beneficiaries, and 

provide another option for sponsors to 

manage high cost beneficiaries. We have 

previously discussed the impact of oneto-one counseling by State Health 

Insurance Assistance Programs, and a 

growing body of evidence indicates that 

the person-to-person aspect of MTM 

(including through the use of telehealth 

technologies) has the potential to yield 

multiple benefits that warrant more 

effective outreach by sponsors to LIS 

beneficiaries and those with limited 

English proficiency or who belong to a 

racial or ethnic minority. As we see 

with the proportion of LIS-eligible-butunenrolled beneficiaries who have to 

apply to qualify for subsidies, 

generalized attempts at outreach are not 

sufficient to increase enrollment. 

Because of the wide variety in social 

determinants that contribute to barriers 

in access to coverage and care, 

individualized approaches to target 

populations such as LIS-eligible, limited 

English proficiency, racial and ethnic 

minorities, including American Indians 

and Alaska Natives, within the larger 

MTM-eligible population will likely 

require a multi-faceted approach. Thus, 

the opt-out method of enrolling targeted 

beneficiaries into MTM at 

§ 423.153(d)(1)(v) may only partly 

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address the increased barriers to care 

faced by this group. 

We are concerned that such social 

determinants contribute to persistently 

low MTM enrollment and participation 

despite attempts to broaden the criteria. 

As we have gained more experience 

with the MTM programs, we have 

become concerned with the number of 

simplistic, generalized strategies that 

have been implemented for delivering 

MTM services. We believe that Part D 

sponsors’ strategies for outreach and 

service provision cannot be ‘‘one size 

fits all’’ and must be appropriately 

geared to social and demographic 

subpopulations within the overall 

targeted population in order to be 

effective. As discussed previously, the 

CMMI MTM study identified that highperforming MTM programs engage in 

multi-pronged, persistent efforts to 

recruit Medicare beneficiaries to CMRs 

and often use effective and diverse 

communication modalities such as 

person-to-person interactions, phone 

calls, or community contacts (through 

networks of trusted community 

pharmacists), if needed. Moreover, as 

illustrated in the example of the Indian 

Health Service, this may also include 

negotiating rates more acceptable to 

MTM providers that beneficiaries 

perceive as more accessible and 

trustworthy. 

Consequently, we are interpreting 

section 1860D–4(c)(2)(D) of the Act, 

which requires plans to have in place a 

process to assess medication use of 

individuals who are at-risk but not 

enrolled in MTM, to require Part D 

sponsors to establish effective strategies 

that ensure access to MTM services for 

all eligible beneficiaries. The statutory 

requirement to assess the medication 

use of at risk beneficiaries should 

encompass the requirement that plan 

sponsors better address barriers in 

access to MTM services and improve 

participation rates, particularly at the 

start of enrollment in the plan, faced by 

those with limited English proficiency, 

those who belong to racial and ethnic 

minorities, or who are LIS enrollees. 

Without being prescriptive about what 

strategies must be employed, we are 

proposing that sponsors develop an 

effective strategy to ensure access to 

services for all MTM-eligible 

beneficiaries, including those who have 

disabilities or who have limited English 

proficiency. Specifically, we propose to 

revise § 423.153(d)(1)(v) to include the 

requirement that a Part D sponsor must 

‘‘have an outreach strategy designed to 

effectively engage all at-risk 

beneficiaries enrolled in the plan.’’ 

Sponsors have previously commented 

to us that they have difficulty reaching 

many individuals in these special 

populations because of inconsistent or 

incorrect contact information. While 

this certainly presents an added 

challenge, plan sponsors could, for 

example, analyze fill data, and partner 

with pharmacies they know that a 

particular beneficiary or populations of 

beneficiaries frequent. Incorporating the 

pharmacies that targeted individuals 

utilize into the MTM program may be a 

particularly effective strategy for 

successful outreach that will lead to 

enrollment in MTM programs that is 

more broadly representative of the 

breadth of demographic segments in the 

targeted population. We believe that 

current plan reporting requirements, 

along with other CMS data sources, will 

be sufficient for us to evaluate the 

impact of such strategies. We solicit 

stakeholder comment on other 

important strategies that might prove 

successful in improving access to MTM 

services which could be considered at a 

later time. This proposed rule may be of 

interest to, and affect, American 

Indians/Alaska Natives. Therefore, we 

plan to consult with Tribes during the 

comment period and prior to publishing 

a final rule. We also intend to monitor 

best practices as sponsors implement 

more effective strategies and may 

consider imposing additional 

requirements in future rulemaking. 

In summary, we are proposing 

revisions to the MTM eligibility criteria 

to target beneficiaries who have two or 

more chronic conditions, with at least 

one being a core chronic disease, who 

are taking two or more covered Part D 

drugs, and who have annual Part D drug 

costs commensurate with the drug 

spending of beneficiaries with two or 

more chronic diseases that use two 

covered Part D drugs. By decreasing the 

number of chronic diseases and 

medications and lowering the cost 

threshold for MTM eligibility, we 

anticipate that more beneficiaries will 

have access to MTM services which 

have been shown to improve drug 

therapy outcomes and decrease 

healthcare costs. We believe that these 

changes will simplify the MTM criteria 

and minimize beneficiary confusion 

when choosing or transitioning between 

plans. We believe these changes will 

also reduce disparities within the Part D 

beneficiary population and allow more 

beneficiaries with drug therapy 

problems to receive MTM. Additionally, 

broadened criteria, when paired with 

more effective strategies for outreach 

and access to MTM services, will more 

appropriately reach those individuals in 

need of these services. We remind 

sponsors that these proposed changes 

represent the minimum requirements, 

and that they may target additional 

beneficiaries. Effective MTM programs 

strengthen the Part D program and 

improve its overall value and, we note, 

our 5-star plans have consistently made 

significant investments in MTM. 

16. Business Continuity for MA 

Organizations and Part D Sponsors 

(§ 422.504(o) and § 423.505(p)) 

A variety of events ranging from 

power outages to disasters and warnings 

of disasters can disrupt normal business 

operations, and when these events occur 

it is important to ensure beneficiary 

access to health care services and drugs. 

Sections 1852(d) and 1860D–4(b) of the 

Act, respectively applicable to Parts C 

and D, establish access to services and 

covered Part D drugs as a core 

beneficiary protection. After Hurricane 

Sandy it became apparent that a few 

entities, particularly those with 

operational centers and/or information 

technology (IT) resources physically 

located in the affected areas, did not 

have consistent continuity plans or 

back-up systems and processes to 

ensure ongoing coordinated deployment 

of critical staff to alternate locations. 

Sections 1857(e)(1) and 1860D– 

12(b)(3)(D) of the Act authorize the 

Secretary to adopt additional contract 

terms for, respectively, MA 

organizations and Part D sponsors, 

including section 1876 cost contracts 

and Program for the All-Inclusive Care 

for the Elderly (PACE) organizations 

that provide qualified prescription drug 

coverage, that are not inconsistent with 

Parts C and D, respectively, of Title 

XVIII of the Act, when the Secretary 

finds it necessary and appropriate. 

Hereafter, all proposed requirements 

described in this section as applicable to 

Part D sponsors, also apply to section 

1876 cost contract and PACE 

organizations that provide qualified 

prescription drug coverage. While a 

limited number of beneficiaries were 

affected by problems on the part of a 

small number of entities as a result of 

Hurricane Sandy, the goal of consistent 

disaster response remains: All MA 

organizations and Part D sponsors must 

limit the beneficiary impact of 

unavoidable disruptions and must 

ensure rapid restoration of operations. 

Accordingly, we propose to add contract 

provisions to require that MA 

organizations and Part D sponsors 

develop and maintain business 

continuity plans in order to better 

anticipate the types of disruptions that 

could occur and then implement 

policies and procedures to reduce 

interference with business operations. 

We believe this is appropriate to ensure 

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that Medicare beneficiaries have access 

to the care and coverage contemplated 

by the statute. 

The proposed provision would, in 

§ 422.504(o)(1) and § 423.505(p)(1), 

require that every MA organization and 

Part D sponsor develop, maintain, and 

implement a business continuity plan 

that meets certain minimum standards. 

In § 422.504(o)(1)(i) and 

§ 423.505(p)(1)(i), we propose that the 

business continuity plan must assess 

risks posed to critical business 

operations by disasters and other 

disruptions to business as usual, be they 

natural, human, or environmental. 

Proposed § 422.504(o)(1)(ii) and 

§ 423.505(p)(1)(ii) would impose a 

requirement that the business continuity 

plan contain a mitigation strategy to 

lessen hazards, identify essential 

functions, and prioritize the order in 

which functions are restored to normal 

operations; proposed paragraphs (1)(iii) 

through (v) contain other minimum 

requirements for the business continuity 

plan, discussed in more detail in the 

following paragraphs. In paragraphs 

(o)(2) of § 422.504 and (p)(2) of 

§ 423.505, we propose essential 

functions that must be restored within 

24 hours of a failure, disaster, 

emergency, or other disruption. 

In paragraph (1)(ii) of § 422.504(o) and 

§ 423.505(p), we would require MA 

organizations and Part D sponsors to 

mitigate those risks through a variety of 

strategies, specifically, by: (A) 

Identifying events (triggers) that would 

activate the business continuity plan; 

(B) developing plans to maintain the 

availability and, as applicable, the 

confidentiality of hard copy and 

electronic essential records, including a 

disaster recovery plan for IT and 

beneficiary communication systems; (C) 

establishing a chain of command, which 

would ensure that employees know the 

rules of succession; (D) creating a 

communications plan that includes 

emergency capabilities and means to 

communicate with employees and third 

parties; (E) establishing procedures to 

address management of space and 

transfer of employee functions; and (F) 

establishing a restoration plan with 

procedures to transition back to normal 

operations. Finally, we also propose, at 

(1)(ii)(G) in § 422.504(o) and 

§ 423.505(p), that the business 

continuity plan comply with all 

applicable federal, state, and local laws. 

In light of the nature of the records an 

MA organization and Part D sponsor 

would have in its possession, we 

propose to emphasize continuing 

compliance with the contingency plan 

requirements of the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA) Security Rule (45 CFR 

Parts 160 and 164, Subparts A and C) by 

including a cross-reference to those 

requirements in paragraph (1)(ii)(B)(2). 

These areas of responsibility are 

essential to continuing the business 

operations that allow beneficiaries to 

access health care services and covered 

Part D drugs. 

To better ensure that a business 

continuity plan works as a practical 

matter, we next propose in 

§ 422.504(o)(1)(iii) and (iv) and 

§ 423.505(p)(1)(iii) and (iv) to require 

that on an annual basis, each MA 

organization and Part D sponsor test and 

revise the plan as necessary, and train 

employees on their responsibilities 

under the plan. Sections 

422.504(o)(1)(v) and 423.505(p)(1)(v) 

would require that MA organizations 

and Part D sponsors keep records of 

their business continuity plans that 

would be available to CMS upon 

request. 

We do not believe the broad list of 

areas that we propose be covered by 

business continuity plans are new to 

MA organizations and Part D sponsors. 

Rather, these topics typically appear in 

standard business continuity plans. And 

we are also building on some 

requirements that already exist under 

federal and state laws. For instance, 

with respect to electronic protected 

health information, health plans have 

long had to comply with the 

contingency plan requirements found in 

the HIPAA Security Rule. Indeed, our 

goal is to provide a list broad enough to 

align with the business contingency 

plans that we believe most, if not the 

vast majority, of MA organizations and 

Part D sponsors already have in place. 

In contrast to the aforementioned list 

of broad content requirements, we 

believe the need to protect beneficiary 

access requires a prescriptive approach 

for some functions. In paragraphs (o)(2) 

and (p)(2), as part of the proposal that 

essential functions must be restored 

within 24 hours of failure (whether due 

to disaster, emergency, or other 

disruption), we identify what we believe 

are the minimum essential functions for 

each MA plan and Part D plan: Benefit 

authorization, if authorization 

requirements have not been waived, and 

claims adjudication and processing; an 

exceptions and appeals process; and call 

center operations. Given the mandate of 

the Act to ensure beneficiary access to 

health care and covered Part D drugs 

and the inability of many beneficiaries 

to pay for services or drugs without the 

Medicare benefit, we believe that the 

operations listed in the proposed 

regulations are the most essential 

operations because they directly support 

the provision of Part C and D benefits. 

They ensure immediate electronic 

communication on the availability and 

extent of Part C and D benefits and also 

provide support that makes it more 

likely that Medicare benefits will be 

appropriately and timely provided (for 

example, by providing telephone 

assistance to beneficiaries with 

questions on how to obtain benefits and 

maintaining a forum in which 

beneficiaries can challenge benefit 

denials). Without real time provision of 

Medicare benefits, beneficiaries might 

not pay for the entire cost of the services 

or drugs and therefore go without 

necessary treatment. 

We believe the operations listed here 

are the essential operations which must 

be restored in a rapid time frame. We 

intend our proposed deadline of 24 

hours to be the outside limit and would 

expect MA organizations and Part D 

sponsors to restore operation of 

essential functions as soon as possible 

but not later than 24 hours after they fail 

or otherwise stop functioning as usual. 

The clock would begin running in cases 

of total failure (for example, a computer 

or telecommunications system crashes 

or stops working after disruption of the 

power supply) and also when 

significant problems occur (for example, 

a central database is corrupted). 

The need to ensure correct claims 

adjudication and benefit administration 

of health care services and drugs is no 

less acute during emergencies. A 

disaster or other disruption in one part 

of the country may disable computer 

systems that service areas across the 

country that have not otherwise been 

disrupted. Beneficiaries in those 

unaffected areas who were denied 

health care or drug benefits (that is, 

access to drugs or reimbursement for 

claims paid out of pocket) before the 

disruption took place should not be 

denied the right to immediately 

challenge those denials or to learn 

timely the resolution of earlier 

challenges. As proposed, 

§ 422.504(o)(2)(i) and § 423.505(p)(2)(i) 

identify benefit authorization (if 

authorization requirements have not 

been waived) and claim adjudication 

and processing as essential functions 

which must be operational within 24 

hours. We intend that this proposed 

regulation would require restoration of 

those operations for services rendered at 

a hospital, clinic or provider office or at 

the point of sale for Part D covered 

drugs. This function is essential for both 

Medicare Advantage and Part D plans. 

In addition, we also propose 

standards specific to Part D sponsors in 

§ 423.505(p)(2)(ii) and (iii) to ensure that 

a beneficiary who presents at a 

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pharmacy with an appropriate 

prescription for a covered Part D drug 

during a disruption will be more likely 

to walk away with the drug in hand. 

The first three prongs under proposed 

§ 423.505(p)(2) would classify as 

essential the following functions: (i) 

Authorization, adjudication and 

processing of pharmacy claims at the 

point of sale; (ii) administration and 

tracking of enrollee’s drug benefits in 

real time, including automated 

coordination of benefits with other 

payers; and (iii) provision of pharmacy 

technical assistance. These essential 

tasks entail numerous sub-functions. 

For instance, Part D sponsors would 

need to restore within the 24 hour 

return to operations (RTO) all computer 

and other systems that meet all privacy 

and security requirements in order to 

communicate to pharmacies information 

about topics including: Coverage under 

Part D and the specific plan; costsharing and deductibles; any restrictions 

such as prior authorization, step 

therapy, or quantity limit edits; and 

coordination of benefits from other 

insurers and any low income subsidies. 

Additionally, the sponsor would need to 

undertake a concurrent drug utilization 

review (DUR) to address, for instance, 

safety issues, as well as restore its 

pharmacy help desk to provide prompt 

answers to any questions pharmacies 

might have. (For more detail on some of 

these functions and sub-functions, as 

related to Part D, please see the 

preamble to section III. A. 17 of this 

proposed rule entitled, ‘‘Requirement 

for Applicants or their Contracted First 

Tier, Downstream, or Related Entities to 

Have Experience in the Part D Program 

Providing Key Part D Functions’’.) 

Proposed § 422.504(o)(2)(ii) and 

§ 423.505(p)(2)(iv) would classify as an 

essential operation an enrollee 

exceptions and appeals process 

including coverage determinations. 

Under this provision, within 24 hours of 

failure, MA organizations and Part D 

sponsors would need to restore all IT 

and workforce support necessary to 

maintain the ‘‘safety net’’ that ensures 

beneficiaries the right to appeal or to 

seek a formulary exception. 

Finally, for both MA organizations 

and Part D sponsors, we propose that 

the operation of the call center be an 

essential function which must be 

restored within 24 hours. By classifying 

operation of the call center as essential, 

proposed § 422.504(o)(2)(iii) and 

§ 423.505(p)(2)(v) would ensure that 

beneficiaries can receive the 

information necessary to find out where 

they need to go to access benefits and 

learn about any special rules that might 

apply (for example, whether preauthorization requirements are waived 

or beneficiaries can obtain benefits at 

out-of-network providers or pharmacies) 

by requiring MA organizations and Part 

D sponsors to restore operation of call 

center services within 24 hours. 

Enabling a beneficiary who has just 

been denied Part D coverage at his or 

her usual pharmacy to call immediately 

and speak to a customer service 

representative while still standing in 

that pharmacy can ensure that he or she 

obtains drugs appropriately covered by 

his or her Part D plan before returning 

home or moving to a safer area. 

Furthermore, because it may be 

difficult during a disaster to get to a 

provider’s office or a pharmacy, we 

believe it is also important that benefit 

authorization, claims adjudication, and 

call center operations be restored within 

24 hours after failure. While our 

proposed provision would require MA 

organizations and Part D sponsors to 

coordinate their workforce, facilities, 

and IT and other systems support to 

meet the 24 hour RTO, we believe that 

the vast majority of MA organizations 

and Part D sponsors already meet, or if 

not, would be able to meet this 

requirement with their current 

resources, based upon our knowledge of 

the industry and as evidenced by the 

lack of widespread problems with MAO 

and Part D operations that resulted after 

recent natural disasters in different parts 

of the country. MA organizations and 

Part D sponsors would not be required 

to take any prescribed actions (for 

example, there is no requirement for 

redundant systems located at certain 

distances apart). Rather, the 24 hour 

RTO would allow MA organizations and 

Part D sponsors the flexibility to 

continue to seek their own disaster 

preparedness solutions (for instance, 

vendor sites or functions spread across 

facilities). 

Our goal in proposing a contractual 

requirement for business continuity 

plans is to ensure beneficiary access to 

health care services and Part D drugs 

during disasters and other interruptions 

to regular business operations. We view 

prior planning as essential to achieving 

this goal. We specifically solicit 

comments regarding which functions 

should be identified as essential 

operations and the 24-hour timeframe 

for RTO and would appreciate any 

information unique to the role of MA 

organizations and Part D sponsors. 

17. Requirement for Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part 

D Functions (§ 423.504(b)) 

Since its establishment in 2006, the 

Medicare Part D program has matured 

into a generally stable, well functioning 

program, and the Part D sponsors (as 

well as their first tier, downstream, and 

related entities (FDRs)) with which CMS 

contracts have developed vast expertise 

in the operational complexities of the 

program. While we will continue to fine 

tune the program through rulemaking, 

guidance, and additional oversight 

procedures, we believe the program has 

largely entered a mature stage. Despite 

this progress, we still find ourselves 

spending a disproportionate amount of 

resources and attention on the 

operations of new Part D sponsors 

where neither the new sponsor nor its 

supporting FDRs have experience with 

Part D. In an environment where there 

is an abundance of Part D industry 

expertise, we are committed to 

establishing an approach to contracting 

with new Part D sponsors that ensures 

that they take advantage of that 

expertise and experience in the 

development of their Part D program 

operations. 

To address this problem, pursuant to 

our authority at section 1860D 

12(b)(3)(D) of the Act to adopt 

additional contract terms, not 

inconsistent with the Part C and D 

statutes, that are necessary and 

appropriate to administer the Part D 

program, we are proposing to adopt 

provisions that would require any entity 

seeking to contract as a Part D plan 

sponsor (as a stand alone prescription 

drug plan sponsor or as a Medicare 

Advantage organization offering Part D 

benefits) to have arrangements in place 

such that either the applicant or one of 

its contracted FDRs has one full benefit 

year serving as a Part D plan sponsor, or 

at least one full benefit year of 

experience performing key Part D 

functions for another Part D plan 

sponsor. The applicant or a contracted 

FDR will be required to have obtained 

that experience within the two years 

preceding the Part D sponsor 

qualification application submission. 

Under this proposal, the experience 

requirement would be met by an entity 

seeking to contract as a Part D plan 

sponsor if its parent or another 

subsidiary of that parent already holds 

a Part D sponsor contract that has been 

in effect for at least one year at the time 

of the application submission. 

Of course, all applicants and their 

FDRs were new to the Part D program 

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in 2006, so we necessarily went forward 

with partners that may have had 

significant drug benefit administration 

experience, but no experience with the 

unique features of Part D. In 2014, there 

will be approximately 310 parent 

organizations that own 578 legal entities 

offering 881 contracts for Part D. In 

addition, more than 300 organizations 

(including Part D sponsors and their 

FDRs) perform key Part D functions on 

behalf of the Part D sponsors. Given this 

large number of organizations with Part 

D experience available to serve 

beneficiaries, we believe it is in the Part 

D program’s best interest to be more 

discriminating about the entities with 

which we partner to deliver the Part D 

benefit. 

New, inexperienced entities may be 

more likely to fail in all or some key 

Part D functions, causing harm to 

beneficiaries and requiring us to devote 

significant resources providing 

technical support to the new Part D 

sponsor in order to protect the Medicare 

beneficiaries enrolled in the sponsor’s 

plan(s). Given the wealth of available 

Part D expertise that now exists, it is 

justifiable for us to require that new 

applicants to the program bring with 

them Part D experience so that we can 

better protect Part D enrollees and 

minimize unnecessary expenditures of 

resources by us in correcting avoidable 

problems. 

We have determined that prior 

experience offering drug benefits in the 

commercial insurance or Medicaid 

markets is no longer a sufficient 

substitute for experience operating the 

Part D benefit. The Medicare drug 

benefit is fundamentally different from 

other drug benefits, with unique and 

operationally complex provisions, 

including transition fill requirements, 

protected class medication formulary 

requirements, low income subsidy 

administration, Part A and B versus Part 

D coverage determinations, 

requirements related to the tracking of 

true out of pocket costs, and 

requirements related to the coordination 

of benefits with other payers in real 

time. When neither a Part D sponsor, 

nor its FDRs providing key Part D 

functions, has any experience delivering 

Part D benefits, the consequences can be 

disastrous for beneficiaries and highly 

disruptive for the program and CMS. In 

a recent plan year, we placed a new PDP 

sponsor, where neither it nor its FDR 

had PDP experience, under an 

immediate enrollment and marketing 

sanction just months after the 

organization began its PDP operations. 

The sponsor had experienced 

widespread failures across all of the 

most important PDP operational areas 

and was unable to fix its problems 

without hiring additional staff and 

contractors with PDP experience. In this 

case, among other deficiencies, this 

sponsor had inappropriately rejected 

drug claims at the point of sale; failed 

to properly process coverage 

determinations (that is, requests for drug 

coverage or payment and 

reimbursement); denied enrollees the 

chance to appeal rejected claims and 

failed to ensure that denied coverage 

determinations were reviewed by an 

independent third party; and failed to 

process enrollment and disenrollment 

requests, or failed to properly process 

enrollment transactions. In short, the 

PDP sponsor was not providing the PDP 

benefit to its members. This became 

obvious when the rate at which we 

received beneficiary complaints about 

the sponsor for the first 4 months of 

operation was more than 225 percent 

higher than the average rate at which we 

received complaints about all other PDP 

sponsors for the same period. We were 

forced to dedicate significant resources 

and personnel to addressing the 

sponsor’s systemic failures. 

We believe that these failures would 

not occur, or would be less catastrophic, 

if either the Part D sponsor or its 

supporting FDRs have had experience 

actually performing key Part D 

functions. When both the new sponsor 

and its FDRs lack experience in Part D, 

there is no source of Part D expertise 

associated with the operation of a 

Medicare contract that could be counted 

on not only to establish and maintain 

systems that would ensure the effective 

delivery of the drug benefit, but also to 

identify emerging operational problems 

and promptly develop and implement 

necessary corrective action plans. Thus, 

we have found that the marriage of Part 

D novices under a single contract has 

proven to be a particularly risky and 

disruptive combination. 

At the heart of the Part D benefit is the 

sponsor’s ability to process claims for 

prescription drugs in real time because, 

unlike health benefits, where claims 

payment normally follows the delivery 

of services, pharmacies require 

confirmation of claims payment at point 

of sale either from an insurer or 

payment from the individual. While 

there are many operational functions 

that must run smoothly for a Part D plan 

to be successful (for example, pharmacy 

network development/maintenance, 

enrollment processing, prescription 

drug discount negotiation, and 

provision of customer service), we are 

proposing to require Part D experience 

in only three critical areas in which 

beneficiaries are particularly vulnerable 

should the sponsor demonstrate 

significant non compliance. We believe 

limiting our new requirement proposal 

to just three targeted areas offers a 

balanced approach which protects 

beneficiaries while at the same time 

provides needed flexibility to new 

sponsors to structure their business 

arrangements to address the dozens of 

other Part D functions. The three areas 

for which we are proposing to require 

prior experience in Part D at the time of 

application to become a new Part D 

sponsor are 

• (1) Authorization, adjudication and 

processing of pharmacy claims at the 

point of sale; 

• (2) Administration and tracking of 

enrollees’ drug benefits in real time, 

including automated coordination of 

benefits with other payers; and 

• (3) Operation of an enrollee appeals 

and grievance process. 

It is in these three areas where—in 

our view, based on our experience with 

Part D enrollee health is placed at the 

most significant risk by Part D sponsor 

compliance failures. Further, our audit 

work has indicated that these are the 

operational areas where sponsors are 

most likely to have significant failures 

that require immediate corrective 

action. While other areas, like 

enrollment processing, also present 

risks of direct beneficiary harm, our 

experience has shown that organizations 

usually can overcome enrollment 

problems in a manner that minimizes 

direct beneficiary harm fairly quickly. 

Also, our audit findings have shown far 

fewer serious problems in the 

enrollment area compared to the three 

selected areas (see http://www.cms.gov/ 

Medicare/ComplianceandAudits/PartC 

andPartDComplianceandAudits/

Downloads/2012PartCPartDProgram

AuditAnnualReport.pdf). 

Authorization, adjudication and 

processing of pharmacy claims at the 

point of sale are the most basic features 

of the Part D program, allowing Part D 

plan enrollees to have their 

prescriptions filled at the pharmacy 

counter. When presented with a 

prescription by a beneficiary, the 

pharmacy communicates electronically 

with the Part D sponsor to determine 

eligibility, coverage, and cost sharing for 

the item according to the formulary and 

benefit structure of the plan in which 

the beneficiary is enrolled. Aspects of 

eligibility and coverage unique to Part D 

include eligibility for the Low Income 

Subsidy and transition benefits. 

Assuming that the sponsor informs the 

pharmacy that the prescribed drug is 

covered under the beneficiary’s plan, 

the pharmacy charges the beneficiary 

the appropriate cost share or deductible 

amount, as determined by the plan 

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sponsor. The Part D sponsor also uses 

the online, real time system to conduct 

concurrent drug utilization review 

(DUR), a process through which 

pharmacists receive a message warning 

of potential safety issues given the drug 

requested and the patient’s drug history. 

If any of the cost sharing information is 

incorrect, or if the claim fails to 

adjudicate electronically for any reason, 

the beneficiary may be forced to pay out 

of his own pocket costs that are not his 

responsibility or leave the pharmacy 

without his prescription drugs. If 

concurrent DUR is not performed 

correctly, the beneficiary’s health and 

safety is at risk. 

Administration and tracking of 

enrollees’ drug benefits in real time 

refers to a Part D sponsor correctly 

adjudicating the formulary it had 

submitted to CMS and that had been 

approved by CMS, along with accurately 

tracking an enrollee’s drug spend within 

the Part D benefit, and coordinating 

benefits in real time with other payers. 

Sponsors must insure that the drug 

dispensed meets the definition of a 

covered Part D drug, including a 

medically accepted indication that is 

not otherwise covered under Part A or 

B of Medicare. Sponsors must also 

insure that any approved prior 

authorization, step therapy, and 

quantity limit edits are processed 

consistent with those approved by us, so 

that drugs are not denied 

inappropriately at the point of sale. 

Sponsors are also required to insure that 

enrollees are charged correct cost 

sharing, as amounts vary depending on 

the drug’s tier placement, the enrollee’s 

drug spend to date, contributions from 

other payers, and other factors such as 

whether the beneficiary receives a low 

income subsidy. Critically, compliance 

also includes correct application of our 

transition requirements, which is a 

beneficiary protection that is unique to 

Part D, and ensures beneficiaries facing 

a situation where their drugs are not on 

the plan’s formulary have access to a 

temporary fill of the prescription, giving 

beneficiaries time to switch to another 

drug or seek a formulary exception. 

Failures in this area can have significant 

negative health consequences for 

enrollees because they are likely to be 

denied access to Part D drugs or face 

incorrect charges at the point of sale. 

The third key function we selected as 

part of the experience requirement is 

operation of an enrollee appeals process 

(including coverage determinations). A 

sponsor’s appeals operations serve as a 

‘‘safety net’’ for improper benefits 

administration. Medicare enrollees have 

the right to contact their sponsor to 

make a complaint about the denial of 

coverage for drugs or services to which 

the enrollee believes he or she is 

entitled. Generally, sponsors are 

required to classify and process 

complaints about coverage for drugs or 

payment as a request for a coverage 

determination or appeal. Improper 

processing of a coverage determination 

denies an enrollee their due process and 

appeal rights and may delay an 

enrollee’s access to medically necessary, 

even life sustaining services or drugs. 

There are different decision making 

timeframes for the review of coverage 

determinations and appeals. We have a 

beneficiary protection in place that 

requires plans to forward coverage 

determinations and redeterminations to 

an Independent Review Entity (IRE) 

when the plan has missed the 

applicable adjudication timeframe. If 

the plan sponsor reverses its initial 

adverse coverage determination or the 

IRE reverses the plan sponsor’s adverse 

decision, the plan sponsor must 

correctly authorize or provide the 

benefit under dispute within the 

timeframes set forth in regulation. If the 

plan sponsor does not effectuate the 

decision timely and correctly, this can 

result in delays to an enrollee’s access 

to medically necessary or even life 

sustaining drugs. Thus, the appeals 

process is a vital beneficiary protection 

that serves as the beneficiary’s safety net 

when something goes wrong with 

claims adjudication or benefit 

administration, and once again, directly 

affects a beneficiary’s access to 

prescription drugs. 

Under our proposal, multiple separate 

organizations could together combine 

their experience to meet the prior 

qualification requirements for the three 

key Part D functions. That is, no one 

single entity would need to have prior 

experience in all three areas. Rather, the 

requirement would be for the Part D 

applicant in combination with its FDRs, 

if any, to have Part D experience 

covering the three key functions. 

We believe there will be minimal 

impact on the prescription drug benefit 

administration market stemming from 

our proposal, particularly since large 

numbers of experienced organizations 

currently perform this Part D work. Fifty 

nine entities currently perform 

authorization, adjudication and 

processing of pharmacy claims at the 

point of sale; 66 entities perform 

administration and tracking of enrollees’ 

drug benefits in real time; and 203 

entities operate an enrollee appeals and 

grievance process. The ready 

availability of entities that would meet 

the criteria we establish here is 

demonstrated by the fact that the vast 

majority of new Part D sponsors each 

year choose to contract with 

experienced Part D FDRs. For example, 

as of late May 2013, there are 21 new 

organizations (at the parent level) with 

active Part D contract qualification 

applications for 2014, and each 

applicant has contracted with an FDR 

having at least one year of recent Part D 

experience. Some of the applicants for 

2014 that attempted to apply with 

inexperienced entities performing the 

selected key functions withdrew their 

applications upon learning that they 

contained significant deficiencies. 

Our proposal also does not prohibit 

additional organizations from gaining 

Part D experience in the selected key 

functional areas. Should an organization 

wish to become a new Part D FDR for 

one or more of the key functions, this 

‘‘novice’’ entity could provide the 

service for just one of the hundreds of 

existing Part D sponsors. After a period 

of one year, the novice entity would 

then be qualified to provide its services 

to existing Part D sponsors as well as 

partner with new Part D applicants. We 

are comfortable with this scenario 

because during the novice entity’s first 

year gaining Part D experience the 

existing Part D sponsor would apply its 

knowledge of how to oversee its FDRs, 

have institutional knowledge of the 

functional area, understand the 

complexity of the program, and know 

the risks of failing to implement the 

program successfully. 

In the somewhat the opposite 

scenario, a new Part D sponsor 

contracting with experienced FDRs will 

have the opportunity to gain its 

experience in the key Part D functions 

by working closely with its FDRs, 

developing in house expertise, and 

providing oversight. After a period of 

one or more years, if desired, the Part 

D sponsor itself could conceivably take 

responsibility for carrying out one or 

more of the key Part D functions. We 

fully believe that our proposed 

approach allows for new organizations 

to develop Part D expertise, yet 

minimizes the significant risk to 

beneficiaries that would be caused by 

the types of widespread failures we 

have seen in the selected key Part D 

functions performed by inexperienced 

entities. 

While our proposal does not require 

the Part D experience to be current at 

the time of an application to become a 

Part D sponsor, we are proposing that 

the experience be recent (that is, within 

the past 2 years) and have lasted for at 

least one full benefit year. As stated 

previously, the Part D program is 

complex, and program policies evolve 

each year, requiring organizations 

working in Part D to adapt and adjust 

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their operations. We believe that any 

experience older than 2 years would be 

out of date and would not represent 

experience with the current state of the 

Part D program. As for our proposed 

requirement that the experience be for at 

least a term of one full benefit year, this 

approach is appropriate because 

operating the benefit involves cyclical 

activities, some of which take place only 

one time per year, and thus an 

organization can only gain full 

experience by operating its Part D 

functional area for an entire benefit 

year. 

We intend to implement this proposal 

through our existing Part D contract 

qualification application process, and 

we have proposed to amend 

§ 423.504(b) accordingly. Today, at the 

time of application, an entity seeking a 

Part D sponsor contract must provide 

evidence that it has contractual 

arrangements in place for any key Part 

D function that the applicant itself will 

not be performing. For the three key 

functions identified under this proposal, 

new application procedures will require 

the applicant to submit evidence that 

the entity to perform such functions 

(whether itself or an FDR) has provided 

the same function for another Part D 

sponsor within the past 2 years, for at 

least one full benefit year. Applicants 

with existing Part D contracts or whose 

parents or other subsidiaries of the same 

parent hold Part D contracts will not be 

required to submit evidence of their Part 

D experience. 

18. Requirement for Applicants for 

Stand-Alone Part D Plan Sponsor 

Contracts To Be Actively Engaged in the 

Business of the Administration of 

Health Insurance Benefits 

(§ 423.504(b)(9)) 

The Medicare prescription drug 

benefit program has matured into a 

generally stable, well-functioning 

program, and the Part D sponsors with 

which CMS contracts have developed 

vast expertise in the operational 

complexities of the program. The market 

for stand-alone Part D Prescription Drug 

Plans (PDPs) has also matured 

significantly since the program’s 

inception and what was once a novel 

product is now available to residents of 

every state from multiple sponsors who 

offer several plan options. Over the 

same period, we have noticed that the 

Part D program has in some cases 

attracted sponsors wishing to offer 

stand-alone PDPs who have no prior 

experience in the delivery of health or 

prescription drug insurance benefits, 

often to the detriment of the Part D 

program and the Medicare beneficiaries 

who elect plans offered by these 

sponsors. We are committed to 

establishing an approach to contracting 

with organizations new to the standalone PDP program that ensures that 

their first experience in the health 

insurance and health benefits market is 

not as the sponsor of a stand-alone PDP. 

To address this problem, we are 

proposing, pursuant to our authority at 

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

adopt additional contract terms that are 

necessary and appropriate to administer 

the Part D program, regulatory 

provisions that would require any entity 

seeking to contract as a stand-alone PDP 

sponsor, to have either actively 

provided health insurance or health 

benefits coverage for 2 continuous years 

immediately prior to submitting a 

contract qualification application, or 

provided certain prescription drug 

benefit management services to a 

company providing health insurance or 

health benefits coverage for 5 

continuous years immediately prior to 

submitting an application. This 

requirement would not apply to an 

entity seeking to contract as the sponsor 

of a stand-alone PDP if its parent or 

another subsidiary of itself or its parent 

possesses the requisite experience. 

This proposal may appear similar to 

the immediately-preceding proposal 

(section III.A.17) of this proposed rule 

requiring, at § 423.504(b)(8), that new 

Part D sponsors engage first tier, 

downstream, and related entities with 

prior Part D experience. However, the 

proposed change we are discussing in 

this section, which we propose to codify 

at § 423.504(b)(8), would apply only to 

entities seeking to contract as a Part D 

sponsor of a stand-alone PDP, whereas 

the proposed requirement at 

§ 423.504(b)(8) would apply to all new 

Part D sponsors, including those seeking 

to contract as Medicare Advantage 

organizations offering Part D through an 

MA–PD plan. We are proposing both 

requirements because the problems 

encountered by new PDP sponsors with 

no experience in the health insurance 

market are distinct from those 

encountered by new PDP sponsors and 

MA organizations who use PBMs with 

no experience in the Part D market. New 

PDPs with no prior health insurance or 

health benefits experience have 

demonstrated significant problems even 

when using experienced PBMs. 

The Part D program has matured to 

the point where beneficiaries in every 

state now have access to several options 

for basic and enhanced stand-alone Part 

D coverage. In 2013, there is an average 

of 15 enhanced stand-alone plans and 

16 basic plans per PDP Region and no 

region had fewer than 23 plans from 

which beneficiaries may choose. These 

numbers are consistent with the 

quantity of available PDPs in recent 

benefit years and are well above the 

minimum of two plans per region 

required by section 1860D–(a)(1) of the 

Act. Also, a total of 57 parent 

organizations that own 72 legal entities 

hold 75 Part D contracts for stand-alone 

PDPs, numbers that indicate that CMS 

has kept the PDP marketplace open to 

a significant number of entities that 

compete to serve beneficiaries. 

Among the patterns we have 

identified during our implementation 

and administration of the Part D 

program is the extent to which the 

program has attracted organizations 

with no experience in the delivery of 

health or prescription drug benefits 

prior to their entry into the Part D 

program. These organizations often have 

experience in other lines of business, 

such as information technology, or are 

formed by investment groups with no 

other health care business for the sole or 

primary purpose of entering the Part D 

market. The Part D program is 

effectively used by these organizations 

as a means to finance their first (and 

often only) foray into the health 

insurance or health benefits industry. It 

appears to CMS that these sponsors 

view the Part D program as simply 

another line of business to which they 

can profitably apply their information 

management expertise, especially if they 

believe they can sell these new contracts 

to a larger participant at a substantial 

profit after several years. While 

relatively few sponsors fit this profile 

each year, they have caused 

disproportionate problems for 

beneficiaries and CMS, as described in 

the following paragraphs. The proper 

administration of the Part D benefit 

involves much more than claims 

adjudication. Our interaction with these 

novice sponsors leads us to believe that 

they underestimate the value of clinical 

expertise in administering Part D 

benefits, particularly in conducting 

effective coverage determination and 

appeals processes. Also, we believe they 

often do not recognize the critical role 

that relationships, particularly those 

among beneficiaries, physicians, 

pharmacists, other health care 

professionals, and insurers, play in the 

successful delivery of a healthcare or 

prescription drug benefit. Yet, the stakes 

involved in administering a Part D plan 

are likely higher than those associated 

with any other line of business in the 

novice sponsor’s portfolio. Operational 

failures in Part D can cause improper 

denials at the pharmacy counter of 

beneficiaries’ valid claims for 

prescriptions or improper denial of 

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appeals, leading to interruptions in their 

therapies, which can have lifethreatening implications. In short, we 

have found that these types of 

applicants have been unable to 

administer a Part D benefit. 

The compliance record of PDP 

sponsors with no healthcare-related 

experience confirms our assessment of 

the risks they pose to the Part D 

program. Time and again, these 

sponsors fail our past Medicare contract 

performance and audit tests or receive 

low quality scores (that is, star ratings) 

because they lack the ability to 

administer even the most basic elements 

of a health or drug benefit program, let 

alone one as complex as Medicare Part 

D. For example, we recently sanctioned 

a new stand-alone PDP sponsor (a 

situation we describe in section III.A.17 

of this rulemaking where we propose to 

establish the requirement that all new 

Part D sponsors engage subcontractors 

with Part D experience). The sponsor 

had no recent experience providing or 

administering health benefits. It only 

began offering healthcare-related 

benefits when it became a Part D plan 

sponsor. We believe the sponsor’s 

inexperience administering health 

insurance and health benefits, as well as 

its apparent reliance on Medicare as its 

sole source of revenue, compounded the 

problems it experienced, as the sponsor 

was unable to independently and 

expeditiously identify and resolve 

problems with benefits administration. 

Another, more dramatic case, 

involved a CMS decision in 2010 to 

immediately terminate a PDP sponsor’s 

contract under urgent circumstances in 

which beneficiaries were being 

significantly harmed. Prior to 

contracting with CMS, the PDP sponsor 

involved had no experience providing 

or administering health insurance or 

health benefits coverage. We terminated 

the sponsor’s contract when an audit 

(prompted by urgent complaints from 

providers) revealed that the sponsor’s 

compliance failures resulted in 

improperly denied access to Part D 

drugs and put the health of enrollees in 

the sponsor’s PDP at imminent and 

serious risk. Numerous compliance 

failures resulted in beneficiaries being 

denied drugs that they were entitled to, 

including those needed to treat HIV, 

cancer, and seizures, or receiving 

delayed access to these drugs, 

sometimes after being required to 

undergo medically unnecessary and 

invasive procedures. The problems were 

so egregious and widespread that we 

were compelled to terminate the 

contract less than a month after we were 

first alerted to the problems and less 

than a week after an onsite audit of the 

sponsor. This termination created 

massive disruption for beneficiaries and 

to the program and required significant 

resources from CMS to resolve. As 

discussed previously, we believe that 

these failures would not have occurred, 

or would not have been as catastrophic, 

if the sponsors had prior, recent 

experience providing health insurance, 

health benefits coverage, or key services 

related to health benefits coverage. 

When the sponsor is a novice not only 

to Medicare Part D, but also to virtually 

every aspect of health benefits 

administration, there is no assurance 

that the entity will be able to administer 

or oversee the most basic elements of 

health benefits coverage, such as 

processing claims, administering a 

coverage determination and appeals 

process, enrolling beneficiaries, or 

administering the benefit as approved. 

Its systems and procedures for doing so 

are by definition new and unproven. We 

do not believe that health care is a 

commodity that can be reduced to a 

programmable data set, or that 

administering the Part D benefit 

involves little more than having the 

right software package. To entrust 

inexperienced applicants with 

responsibility for correctly operating a 

program for which even experienced 

health insurers have had to develop new 

expertise has proven to be unacceptably 

risky. Part D sponsors are charged with 

both ensuring that beneficiaries get the 

drugs they need and applying clinically 

appropriate utilization management 

protocols to control costs and protect 

beneficiary safety. In this capacity, they 

have a role in clinical decision making 

that is usually reserved for physicians 

and health care providers with years of 

academic training and clinical practice. 

Permitting an organization with prior 

experience limited to, for example, 

developing payroll software, to design 

and broker individuals’ access to 

prescription drugs for potentially lifethreatening conditions is an 

unacceptable mismatch between a set of 

tasks and the expertise applied to it. 

We propose that new applicants have 

two years of experience providing 

health insurance or health benefits 

coverage (that is, operating as riskbearing entities licensed in the states 

where they offer benefits) prior to 

applying as stand-alone Part D Sponsors 

because we believe that this provides 

sufficient time to demonstrate the 

applicant’s ability to operate a health 

plan. A risk-bearing entity with 

significant problems administering 

health benefits would be unlikely to 

remain in good standing with its 

licensing authority for two years. While 

a longer record of successful operations 

would likely provide better evidence of 

the organization’s competence, we are 

also sensitive to the need to promote 

innovation and competition that can 

come from new PDP sponsors. We 

believe that requiring two years of 

experience as a risk bearing entity 

offering health insurance or health 

benefits coverage ensures that new 

sponsors of stand-alone PDPs have 

minimal experience operating a health 

benefits program without unduly 

limiting new entrants to the 

marketplace. 

We recognize that a number of PBMs 

and Third Party Administrators with 

experience administering prescription 

drug benefits have entered the standalone PDP market and have adapted to 

providing the Part D benefit despite 

their lack of previous experience as 

health insurers. We believe this success 

is the result, at least in part, of their 

substantial experience operating key 

functions that form the core of PDP 

benefits on behalf of insurers. This 

experience is not sufficient in and of 

itself to administering a Part D plan, but 

it is certainly necessary. Therefore, we 

are proposing elsewhere in this 

proposed rule that organizations 

applying to contract as stand-alone PDP 

sponsors that do not have experience as 

a risk-bearing entity providing health 

insurance or health benefits coverage 

would, in the alternative, be eligible to 

hold a PDP contract if they had 

experience performing services on 

behalf of an insurer in the delivery of 

benefits in any health insurance market 

in the three key areas indicated in this 

section III.A.17 of this proposed rule. 

The three areas that we are proposing as 

meeting the experience requirements 

are: (1) Adjudication and processing of 

pharmacy claims at the point of sale; (2) 

administration and tracking of enrollees’ 

drug benefits in real time, including 

automated coordination of benefits with 

other payers; and (3) operation of an 

enrollee appeals and grievance process. 

Our reasons for selecting these three 

areas as meeting the experience 

requirements are described in more 

detail in the section of this rulemaking 

notice relating to the proposed 

requirement at § 423.504(b)(8) that new 

Part D sponsors employ experienced 

FDRs for these functions. 

We are proposing that entities without 

two years of experience as a risk bearing 

entity offering health insurance or 

health benefits coverage have five 

continuous years’ experience providing 

services in the three key areas listed 

previously. We are proposing a longer 

experience requirement for these 

entities because entities offering these 

services face fewer barriers to entry in 

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the marketplace and are not as tightly 

regulated as risk bearing entities. An 

entity seeking to become a risk bearing 

entity must qualify for a state license, 

which requires the entity to demonstrate 

on a continuous basis that it meets 

extensive financial, capitalization, and 

administrative requirements. By 

contrast, an entity seeking to become a 

PBM or Third Party administrator faces 

little or no regulatory oversight for the 

services it offers. The investment 

required to start a PBM or Third Party 

Administrator may be significantly 

lower than that required of risk bearing 

entities operating health insurance 

programs. While a PBM that performs 

poorly may lose contracts, it is unlikely 

to be subject to regulatory action that 

would become part of the publicly 

available record that CMS could use to 

evaluate its application to operate a 

stand-alone PDP. However, we do 

believe that over a longer period of time, 

a PBM or Third Party Administrator’s 

poor reputation would become known 

among participants in the health and 

prescription drug insurance markets, 

making it difficult for that organization 

to retain current contracts or obtain new 

ones with insurers and remain in 

business. We therefore believe that 

entities that seek to qualify on the basis 

of their experience as PBMs or Third 

Party Administrators should be required 

to have provided services in these key 

areas for five continuous years, rather 

than merely two. 

We believe our proposal will not have 

significant impact on the availability of 

stand-alone PDP plans in the 

marketplace, but that it will simply 

function to keep out a small number of 

inexperienced organizations who are 

likely to perform poorly as stand-alone 

PDPs. Fortunately, the vast majority of 

new sponsors of stand-alone PDPs each 

year have the requisite experience. For 

example, eight organizations filed initial 

applications during 2013 to qualify to 

offer stand-alone PDPs in 2014 and 6 of 

them had at least two years’ experience 

as a health insurer or 5 years’ 

experience managing prescription drug 

benefits for health insurers. Of the six 

new stand-alone Part D plans in 2013, 

five had the level of experience we are 

proposing to require. Thousands of 

entities nationally possess the requisite 

experience providing health insurance, 

health benefits coverage, or PBM 

services. 

If this proposed change is finalized, 

we intend to incorporate it into our 

existing Part D application process. At 

the time of application, an entity 

seeking a Part D sponsor contract must 

provide evidence that it is currently 

licensed or is in the process of being 

licensed in a state and provide certain 

information about its organizational 

experience and history. New application 

procedures would require an applicant 

for a stand-alone PDP contract to submit 

evidence that the entity, its parent, or a 

subsidiary of the same parent has 

actively provided health insurance or 

health benefits coverage for the prior 2 

years, or has engaged in the three key 

functions identified here continuously 

for the prior 5 years. 

19. Limit Parent Organizations to One 

Prescription Drug Plan (PDP) Sponsor 

Contract per PDP Region (§ 423.503) 

Each year, we accept and review 

applications from organizations seeking 

to qualify to offer stand-alone 

prescription drug plans in one or more 

PDP regions. With limited exceptions 

(for example, poor past contract 

performance, limited Part D experience), 

we approve all applications submitted 

by organizations that demonstrate that 

they meet all Part D application 

requirements. CMS proposes, under our 

authority at section 1860D–12(b)(3)(D) 

of the Act to adopt additional contract 

terms, not inconsistent with the Part C 

and D statutes, that are necessary and 

appropriate to administer the Part D 

program, to add as a basis upon which 

we may deny a PDP sponsor application 

the fact that the applicant is applying 

for qualification in a PDP Region where 

another subsidiary of the applicant’s 

parent organization already holds a PDP 

sponsor contract. In our description of 

this proposal, the term ‘‘parent 

organization’’ refers to an entity that 

controls a subsidiary through ownership 

of more than 50 percent of the 

subsidiary’s shares. 

During the 2013 contract year, there 

are 72 unique contracting entities (that 

is, entities licensed as risk bearing 

entities) holding 75 PDP sponsor 

contracts. There are 57 parent 

organizations that hold more than one 

PDP sponsor contract through a 

subsidiary contracting organization over 

which they maintain a controlling 

interest. 

To promote the effective 

administration of a Part D program that 

involves so many parent organizations 

and contracting entities, we have 

consistently taken steps to ensure that 

the numbers of PDP sponsors, PDP 

sponsor contracts, and plan offerings are 

kept at a level that allows sponsors to 

fully exercise their rights as PDP 

sponsors but avoids the duplication and 

confusion that can result when 

reasonable limits are not placed on 

sponsors’ requests for contracting 

arrangements that serve only their 

internal business operations. During the 

initial Part D contracting conducted 

during 2005, we approved a handful of 

contracts that were held by subsidiaries 

of a common parent organization. Since 

then, we have worked with the affected 

parent organizations to consolidate 

almost all of those ‘‘duplicate’’ contracts 

down to one PDP contract per 

participating parent organization per 

PDP region. The remaining duplicate 

contracts accommodate parent 

organizations that made binding 

business arrangements while acting in 

reliance on our previous allowance of 

multiple PDP sponsor contracts in the 

same PDP region. We expect to continue 

to work with those parent organizations 

to explore options for discontinuing 

their reliance on the second PDP 

sponsor contract in the immediate 

future. 

Section 1860D–12(b)(1) of the Act 

provides that PDP sponsors may offer 

multiple plan benefit packages (referred 

to as PBPs or plans) under one PDP 

sponsor contract. Therefore, parent 

organizations need only one PDP 

sponsor contract to offer the full range 

of the possible plan options in a 

particular PDP Region. We recognize 

that many parent organizations that 

offer plans in multiple PDP regions 

must use more than one subsidiary to 

administer their full array of plans 

throughout the United States and the 

territories. For example, parent 

organizations may adopt these 

arrangements to accommodate unique 

state licensure requirements or the 

terms of trademark licensing 

agreements. However, none of these 

justifications, which are based on a 

parent organization’s need to serve more 

than one PDP Region, would support a 

request, like several we have received 

during the CY 2014 contract 

qualification application cycle, by a 

parent organization to be granted a 

second PDP sponsor contract in a PDP 

Region it already serves. As discussed 

more fully in the following paragraphs, 

there are significant inefficiencies to the 

program of having duplicate contracts 

that do not provide more benefit plan 

options than could be offered under a 

single contract. Additionally, informal 

communications made by past 

requestors of duplicate contracts 

indicated that the purpose has been to 

either (a) segregate low income 

beneficiaries into their own contract, or 

(b) corral the experience of a particular 

low-performing plan into its own CMS 

contract so as not to taint the 

performance rating of the better 

performing plan offering, as 

performance ratings are calculated at the 

contract level. CMS opposes the 

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inefficiencies of duplicate contracts and 

the gaming duplicate contracts can 

support. That said, we welcome 

comments from industry, advocates, and 

others as to circumstances for our 

consideration under which duplicate 

contracts may be beneficial. 

One of the fundamental principles of 

the Part D program is that the selection 

of plans made available to beneficiaries 

is the product of true competition 

among PDP sponsors. Two subsidiaries 

of the same parent organizations 

offering plans in the same PDP region 

are not truly competitors as decisions 

concerning their operations are 

ultimately controlled by a single entity, 

or parent organization. Also, we only 

approve those PDP offerings that meet 

the meaningful differences test stated at 

§ 423.265(b)(2), and we apply that test at 

the parent organization level. A parent 

organization would not gain an 

opportunity to offer more plan benefit 

packages under two or more contracts it 

controlled through its subsidiaries than 

it would under one contract because we 

would, as part of our bid review, 

evaluate whether all the plans proposed 

by the same parent organization met the 

meaningful differences test. 

The proposed limitation on the 

number of PDP sponsor contracts a 

parent may control in a PDP Region is 

also necessary to preserve the integrity 

of CMS’ star ratings. CMS assigns star 

ratings at the contract level, and they are 

intended to reflect all aspects of the PDP 

operations controlled by a unique 

contracting entity. However, that 

principle is compromised when a parent 

organization to one of the contracting 

entities is permitted to control, through 

other subsidiaries, more than one PDP 

contract. While the contracting entities 

(that is, PDP sponsors) are legally 

accountable for the delivery of benefits 

under a PDP sponsor contract, when 

those sponsors are subsidiaries to a 

parent organization, it is the parent that, 

in reality, controls the quality of the 

sponsor’s contract performance. The 

parent does this by using its controlling 

interest in the subsidiaries to establish 

the budget priorities and operational 

policies of those entities. As a result, 

allowing a parent organization to 

effectively administer two or more PDP 

sponsor contracts would allow it 

potentially to artificially inflate the star 

ratings on one contract by excluding the 

poor performance under its other 

contract from the rating calculation. In 

that instance, some beneficiaries could 

make a plan election without complete 

information about the performance of 

the organization ultimately responsible 

for the quality of services they would 

receive by enrolling in that plan. A 

beneficiary for whom quality ratings are 

an important factor in choosing a plan 

is best served by contracting 

arrangements and rating systems that 

provide the most transparency about the 

performance of all the PDP products 

offered under the authority of the single 

parent organization. This goal is best 

served by limiting parent organizations 

to one PDP sponsor contract per PDP 

Region. 

Based on our experience in 

administering the Part D prescription 

drug benefit program we do not believe 

that there is a compelling justification 

for parent organizations to administer 

two PDP sponsor contracts in the same 

PDP region. Moreover, such 

arrangements impede our ability to 

efficiently administer the PDP and 

provide a means by which the integrity 

and reliability of our star ratings system 

can be compromised. Therefore, we 

propose to amend § 423.503(a) by 

adding a paragraph (3) stating that CMS 

will not approve an application when it 

would result in the applicant’s parent 

organization holding more than one PDP 

sponsor contract in the PDP region for 

which the applicant is seeking 

qualification as a PDP sponsor. We 

anticipate that we would most 

frequently use this authority to deny an 

application in instances where the 

applicant’s parent organization already 

controls a PDP sponsor contract, either 

directly by acting as a PDP sponsor itself 

(in instances when the parent is 

licensed as a risk-bearing entity) or 

through its ownership of a subsidiary 

that qualifies as a PDP sponsor and is a 

party to a stand-alone PDP sponsor 

contract. In the less likely situation 

where two or more subsidiaries of the 

same parent organization each submit 

applications in the same year for PDP 

regions where the parent organization 

controls no PDP sponsor contracts, we 

would request that the parent withdraw 

all but one of the applications. In the 

absence of a withdrawal election, CMS 

will deny all of the parent organization’s 

applications. 

20. Limit Stand-Alone Prescription Drug 

Plan Sponsors To Offering No More 

Than Two Plans per PDP Region 

(§ 423.265) 

Under our authority at section 1860D– 

11(d) of the Act, we conduct 

negotiations with stand-alone 

prescription drug plan (PDP) sponsors 

concerning our approval of the bids they 

submit each year. As the Part D program 

has evolved, we have adopted 

regulations designed to authorize us to 

use that negotiating authority to ensure 

that the number of plans offered in a 

given PDP region reflects a balance 

between sponsors’ interest in providing 

options tailored to meet the needs of a 

diverse Medicare population and the 

need to avoid creating undue confusion 

for beneficiaries as they consider 

various plan offerings. We continue here 

our process of updating our bid review 

authority to reflect the evolution of the 

Part D program by proposing to limit to 

two the number of plans stand-alone 

PDP sponsors may offer in each PDP 

region. 

PDP sponsors must offer throughout a 

PDP region at least one basic plan that 

consists of: Standard deductible and 

cost sharing amounts (or actuarial 

equivalents); an initial coverage limit 

based on a set dollar amount of claims 

paid on the beneficiary’s behalf during 

the plan year; a coverage gap during 

which a beneficiary pays more of his 

drug costs; and finally, catastrophic 

coverage that applies once a 

beneficiary’s out-of-pocket expenditures 

for the year have reached a certain 

threshold. Prior to our adopting 

regulations requiring meaningful 

differences among each PDP sponsor’s 

plan offerings in a PDP Region, CMS 

guidance allowed sponsors that offered 

a basic plan to offer in the same region 

additional basic plans, as long as they 

were actuarially equivalent to the basic 

plan structure described in the statute. 

These sponsors could also offer 

enhanced alternative plans which 

provide additional value to beneficiaries 

in the form of reduced deductibles, 

reduced copays, coverage of some or all 

drugs while the beneficiary is in the gap 

portion of the benefit, or some 

combination of those features. 

As we have gained experience with 

the Part D program, we have made 

consistent efforts to ensure that the 

number and type of plan benefit 

packages PDP sponsors may market to 

beneficiaries are no more numerous 

than necessary to afford beneficiaries 

choices from among meaningfully 

different plan options. In addition to 

setting differential out-of-pocket-cost 

(OOPC) targets each year to ensure 

contracting organizations submit bids 

that clearly offer differences in value to 

beneficiaries, we issued regulations in 

2010 that established at § 423.265(b)(2) 

our authority to deny bids that are not 

meaningfully different from other bids 

submitted by the same organization in 

the same service area. Our application 

of this authority has effectively 

eliminated PDP sponsors’ ability to offer 

more than one basic plan in a PDP 

region since all basic plan benefit 

packages must be actuarially equivalent 

to the standard benefit structure 

discussed in the statute. That regulation 

also effectively limited to two the 

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number of enhanced alternative plans 

that we can approve for a single PDP 

sponsor in a PDP region. As part of the 

same 2010 rulemaking, we also 

established at § 423.507(b)(1)(iii) our 

authority to terminate existing plan 

benefit packages that do not attract a 

number of enrollees sufficient to 

demonstrate their value in the Medicare 

marketplace. Both of these authorities 

have been effective tools in encouraging 

the development of a variety of plan 

offerings that provide meaningful 

choices to beneficiaries without creating 

undue confusion for beneficiaries. 

We believe that the progressive 

closure of the coverage gap provided for 

in the Affordable Care Act affords us 

another opportunity to promote even 

greater clarity in the set of stand-alone 

PDP plan options from which 

beneficiaries may make an election. 

Under the statute, beginning in 2011, 

applicable beneficiaries enjoy discounts 

of 50 percent off negotiated prices on 

brand name drugs when purchased 

while in the coverage gap portion of the 

benefit. Also, since 2011, the required 

coverage in the gap has increased and 

will continue to do so gradually until 

2020, when the combination of required 

coverage and manufacturer discounts 

covers 75 percent on average for both 

brand-name and generic drugs. This 

‘‘closing’’ of the coverage gap effectively 

will leave the beneficiary with only a 25 

percent cost share on average across the 

entire benefit (or its actuarial 

equivalent) before the catastrophic 

threshold. 

Our experience in applying the 

meaningful differences standard 

indicates that, as the Part D coverage 

gap is closed, it will become 

increasingly difficult for a PDP sponsor 

to qualify to offer more than two plans 

in the same service area and still meet 

the meaningful differences test. Since 

we began applying the meaningful 

differences standard to our bid reviews, 

we have generally approved two types 

of enhanced alternative plans. The first 

type of plan offers beneficiaries, in 

exchange for a higher premium than 

that charged for basic plan coverage, 

significant reductions in the cost 

sharing and deductible amounts 

associated with the basic Part D benefit. 

The second type offers even greater cost 

sharing and deductible reductions as 

well as coverage for many drugs in the 

gap. Since coverage of Part D drugs in 

the gap is the distinguishing feature 

between the two types of enhanced 

alternative plans currently available, 

closing the coverage gap also means that 

sponsors can no longer rely on it to 

establish that their proposed second 

enhanced alternative plan is 

meaningfully different than their first. 

Our enrollment data indicate that 

beneficiaries are already making plan 

choices based on their recognition of the 

shrinking significance of the coverage 

gap and with it, the value of PDP 

sponsors’ second enhanced plans. Since 

the start of the coverage gap discount 

program in 2011, enrollment levels in 

the second enhanced alternative plans 

offered by PDP sponsors that offer two 

enhanced alternative plans have 

declined from approximately 12 percent 

of those sponsors’ total enhanced 

alternative plan enrollment in 2010 to 

between 7 percent and 8 percent in the 

2011, 2012, and 2013 benefit years. This 

finding suggests that the proportion of 

beneficiaries for whom the additional 

supplemental coverage offered by these 

plans is worth the supplemental 

premium continues to decline, and we 

expect this trend to continue as the 

coverage gap closes. 

Despite these developments, many 

sponsors continue to submit three bids 

per region each year, at least in part, we 

believe (based on conversations with 

various stakeholders), to ensure that 

they are not perceived as a weaker 

participant in the Part D market by 

offering a smaller set of plans than their 

PDP competitors. CMS believes that 

plan sponsors and beneficiaries, as well 

as the taxpayers, would be better served 

by a more streamlined bid submission 

process that limited sponsors to 

submitting two PDP bids (one basic and 

one enhanced) per PDP region each 

year. This limitation would provide a 

consistent bidding framework for all 

sponsors, allowing them to focus on 

quality, rather than quantity, in 

development of their bids. It would also 

reduce some of the sponsors’ 

administrative costs associated with 

preparing, marketing, and administering 

a third benefit package. It may also help 

ensure that beneficiaries can choose 

from a less confusing number of plans 

that represent the best value each 

sponsor can offer. 

For CY 2013, there are seven parent 

organizations that offer two enhanced 

plans (that is, three plans total, one 

basic and two enhanced alternative) 

within a given PDP region. This 

amounts to 264 enhanced alternative 

plans in total (two for each affected PDP 

region) among the seven parent 

organizations. The application of this 

proposed regulation, if finalized, would 

result in the elimination of 132 

enhanced alternative plans, representing 

13 percent of the total number of standalone PDP plans, and 25 percent of all 

enhanced alternative plans in 2013. If 

implemented today, these proposed 

reductions would affect a combined 

522,742 beneficiaries, approximately 2 

percent of the overall stand-alone PDP 

enrollment of 22,529,197 (based on 

April 2013 enrollment data). We expect 

that most sponsors would attempt to 

consolidate their current beneficiaries in 

one of their two remaining plan options, 

so we believe adoption of this proposal 

would result in minimal disruption to 

beneficiaries currently enrolled in a 

sponsor’s second enhanced plan. 

While the incremental closure of the 

coverage gap continues until 2020, CMS 

believes that the observed enrollment 

trends in these plans demonstrate the 

reduction in beneficiaries’ coverage gap 

costs that has occurred already has 

moved the stand alone PDP plan market 

in a way that warrants the imposition of 

the two plan limit as soon as possible. 

The list of plan options today is 

cluttered with those that the record 

shows appeal to only approximately 2 

percent of the overall stand alone PDPplan-enrolled beneficiaries of which 

522,742 are enrolled in second 

enhanced plans). In addition, in many 

cases one of the two enhanced plans 

offers the minimum level of 

supplemental coverage required to meet 

our meaningful differences tests. We 

refer to these as ‘‘low value enhanced 

plans’’ to distinguish them from second 

enhanced plans with substantially more 

supplemental coverage. In some cases, 

the premiums for these low value 

enhanced plans have been less than the 

premiums for the sponsors’ basic plans 

due to favorable risk selection. This 

occurs because many of the 

beneficiaries with more serious health 

issues and higher utilization of 

prescription drugs are in the lowincome subsidy (LIS) eligible 

population which will not receive the 

full LIS subsidies in plans with 

supplemental coverage. For this reason 

we neither auto-assign the LIS eligible 

population into such plans, nor will this 

population generally voluntarily enroll 

in such plans. Thus, continuing to 

permit multiple enhanced plans, 

particularly low value enhanced plans, 

facilitates risk segmentation. This can 

increase costs for the Part D program 

and the taxpayers overall. During the 

most recently completed CY 2014 bid 

review cycle, we continued to encounter 

bids submitted by sponsors for low 

value enhanced plans with premiums 

lower than the premiums for their basic 

plans. We believe it is urgent that we 

adopt this proposed policy as soon as 

possible so that we can bring an end to 

this bidding practice. However, because 

such a change would entail substantial 

changes to bidding processes for both 

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Part D sponsors and CMS that could not 

realistically be undertaken until the 

proposal was final, we propose to adopt 

this policy for the 2016 Part D 

contracting cycle. We believe that 

beneficiaries and the Part D program 

would be better served by sponsors that 

are focused on developing plans with 

broad beneficiary appeal rather than 

those intended to enable the sponsor to 

either pursue a diminishing niche in the 

Part D market or segment favorable risk 

into low value enhanced plans. We 

solicit comments on whether there is 

any real need for more than two 

standalone plan options per PDP 

sponsor. 

Therefore, we propose to amend the 

Part D regulations at § 423.265 to add a 

revised subsection (b)(3), which states 

that ‘‘CMS shall not accept more than 

one basic bid and one enhanced bid for 

a coverage year from a single PDP 

sponsor in the same PDP region.’’ We 

would adopt this provision under our 

authority at section 1860D–11(d) of the 

Act. In instances where a parent 

organization owns a controlling interest 

in more than one subsidiary that 

operates as a PDP sponsor in a single 

PDP region, we would apply subsection 

(b)(3) at the parent organization level. 

That is, in the same way that we 

currently apply the meaningful 

differences test, a parent organization 

with two subsidiary PDP sponsors could 

offer no more than one plan under each 

sponsors’ contract. We anticipate that 

the need to use this interpretation will 

be infrequent as existing multi-contract 

arrangements are phased out through 

plan consolidation and the creation of 

new ones would be prohibited by the 

implementation of the provision 

described elsewhere in this proposal (if 

finalized) authorizing CMS to deny 

applications from organizations owned 

by a parent that already has a subsidiary 

operating a PDP sponsor contract in the 

same PDP region. 

In a proposed rule we published in 

October 10, 2010, announcing our intent 

to codify the Affordable Care Act 

provision in the Part D regulations, we 

solicited comments on whether we 

should use the Affordable Care Act 

authority to impose limits on the 

number of plans in a PDP region. In the 

preamble to the final rule that followed 

on April 15, 2011, we noted that among 

the comments we received were those 

stating that we should not consider 

imposing limits on plan offerings until 

the impact of previous statutory and 

regulatory changes governing our bid 

review process could be fully evaluated. 

At the time we declined to codify such 

limits. Now, we believe that the record 

in support of the adoption of a two-plan 

limit has had time to fully develop, 

including, as discussed previously, the 

dwindling popularity of the second 

enhanced option, the shrinking 

differences between the first and second 

enhanced options, and the role the 

second enhanced option plays in 

enabling risk segmentation, and 

therefore we make the proposal 

described here and seek comment from 

the public. 

In addition to proposing to limit PDP 

sponsors to submitting one basic and 

one enhanced bid per coverage year, we 

are also considering several regulatory 

proposals for limiting the type of 

coverage offered in those two plans to 

reduce or eliminate the risk 

segmentation described previously. We 

believe that risk segmentation is not 

consistent with the Congressional 

design for the Part D program, or with 

the policy goal of obtaining the best 

value for the government and the 

taxpayer. We believe the Congress 

intended sponsors to compete in the 

Part D market by offering their best bids 

for basic plans, in order to attract the 

greatest enrollment through the lowest 

premiums, and that this competition 

would maintain downward pressure on 

Part D bids and government subsidies. 

We do not believe that the Congress 

intended that instead sponsors would 

offer their best bids for a segment of the 

market that represents individuals who 

are low utilizers of prescription drugs 

due to better health and who can afford 

unsubsidized supplemental premiums 

due to better socioeconomic status. 

When many healthy individuals are not 

included in the basic plans, the cost of 

the basic plans is increased, and this in 

turn increases low-income premium 

subsidies. Therefore, permitting risk 

segmentation does not generate the best 

value for the Part D program as a whole. 

To reduce or eliminate risk 

segmentation, we are considering three 

options. We solicit comments on our 

conclusions with respect to risk 

segmentation and on the effectiveness of 

the following options. 

The first option we are considering 

would be to continue to allow separate 

basic and enhanced plans, but require 

that enhanced plans offer a substantial 

minimum level of supplemental 

coverage defined in regulation. This 

would differ from current practice in 

that we currently set meaningful 

differences requirements by observing 

the distribution of benefits submitted 

independently by sponsors and using 

statistical techniques to identify outlier 

thresholds. The problem with the 

current approach is that, when all or 

most sponsors reduce their 

supplemental coverage over time—the 

trend that we have observed—the 

outlier thresholds will decline as well. 

When this occurs the supplemental 

coverage will again tend to converge on 

the value of basic coverage. Instead, for 

instance, we could require that the 

enhanced plan offering had to cover a 

minimum of 50 percent (or another 

higher percentage) of the remaining 

actuarial value of the Part D benefit not 

included in the standard benefit for any 

coverage year. The additional coverage 

would be in the form of reduced 

deductibles and cost sharing and the 

inclusion of excluded drugs, consistent 

with the statutory definition of 

supplemental coverage. We solicit 

comment on whether such an approach 

would be sufficient to accomplish our 

goal of eliminating risk segmentation. 

In the second option we are 

considering, instead of setting minimum 

supplemental coverage requirements for 

a sponsor’s enhanced plan offering, we 

would propose to use the authority 

provided in section 3209 of the 

Affordable Care Act which amends 

section 1860D–11(d)(3) of the Act to 

deny any enhanced plan bid with a 

premium equal to or lower than the 

sponsor’s basic plan premium. 

Alternatively we might require the 

enhanced premium to be no less than a 

specified multiple of the basic premium, 

such as 115 percent or another multiple. 

Again, the additional coverage in the 

enhanced plan would be in the form of 

reduced deductibles and cost sharing 

and the inclusion of excluded drugs. We 

solicit comments on this approach, and 

on the appropriate multiple of the basic 

premium necessary to eliminate risk 

segmentation. We also solicit comment 

on whether there is a possibility that 

this approach might effectively 

eliminate the offering of supplemental 

coverage if favorable risk selection were 

to continue and the actuarial value of 

such coverage could not generate 

sufficient premiums to pass these sorts 

of tests. 

The third option we are considering 

would be to reinterpret the provisions of 

section 1860D–11(b) and (c) of the Act 

governing the submission of bids that 

include supplemental benefits. We 

would propose that enhanced 

alternative coverage would be redefined 

to consist of supplemental coverage 

added to the sponsor’s one basic 

benefits offering (for an additional 

premium). This could be thought of as 

basic benefits plus a supplemental 

benefit rider. This would mean that all 

Part D enrollees in a sponsor’s Part D 

plans would be enrolled in the 

sponsor’s one basic plan with the same 

formulary and pharmacy network, and 

some portion of those enrollees would 

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also elect the optional supplemental 

coverage in the form of the second plan 

that would be the combination of the 

basic plan and the supplemental 

benefits. Thus, the risk of the basic 

benefits would be estimated at the PDP 

Regional level and the risk of the 

supplemental benefits would be 

estimated in accordance with that of the 

projected enrollees in the second plans. 

This means that the supplemental 

benefits would have to constitute actual 

enhancements to the basic benefit and 

that the notion of actuarial equivalence 

would not apply to the combination of 

the basic and supplemental benefits. 

This change would bring standalone 

PDP coverage more in line with both 

commercial coverage designs and with 

the offering of Part C optional 

supplemental benefits. We believe this 

option would eliminate the possibility 

of risk segmentation because every 

enrollee participating in a sponsor’s Part 

D line of business would be enrolled in 

the one basic plan and beneficiaries that 

elect supplemental benefits will be 

charged the additional premium for the 

extra coverage. The sponsor’s Part D 

offerings would consist of two plan 

benefit packages, one comprised solely 

of basic coverage and the other (if 

offered) consisting of the combination of 

the basic coverage with the 

supplemental coverage. 

We solicit comments on this approach 

and on our belief that this approach 

would be the most effective strategy for 

eliminating risk segmentation and 

providing the best value for the 

government and the taxpayer. 

21. Efficient Dispensing in Long-Term 

Care Facilities and Other Changes 

(§ 423.154) 

We are proposing changes to the rule 

requiring efficient dispensing to 

Medicare Part D enrollees in Long Term 

Care (LTC) facilities. For background, 

section 3310 of the Affordable Care Act 

amended the Act to add a new 

paragraph (3) to section 1860D–4(c) of 

the Act. Section 1860D–4(c)(3) of the 

Act provides that the Secretary shall 

require Medicare Part D sponsors of 

prescription drug plans to utilize 

specific, uniform dispensing techniques, 

such as weekly, daily, or automated 

dose dispensing, when dispensing 

covered Part D drugs to enrollees who 

reside in a LTC facility in order to 

reduce waste associated with 30-day 

fills. The section states that the 

techniques shall be determined by the 

Secretary in consultation with relevant 

stakeholders. 

After extensive consultation with 

stakeholders, in the April 15, 2011 

Federal Register entitled ‘‘Medicare 

Program; Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2012 and Other Changes’’ 

(‘‘April 15, 2011 Final Rule’’), we 

published a final rule at 76 FR 21432 

which governs the appropriate 

dispensing of prescription drugs in LTC 

facilities under Part D plans. Pursuant to 

this regulation, Part D sponsors 

generally must require their network 

pharmacies to dispense certain solid 

oral brand covered Part D drugs in 

quantities of 14 days or less, unless an 

exemption applies. The regulation is 

found at § 423.154. 

We are proposing the following 

specific changes to the LTC short cycle 

dispensing requirements: 

• Add a prohibition on payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques. 

• Eliminate language that has been 

misinterpreted as requiring the 

proration of dispensing fees. 

• Incorporate an additional waiver for 

LTC pharmacies using restock and reuse 

dispensing methodologies under certain 

conditions. 

• Make a technical change to 

eliminate the requirement that Part D 

sponsors report on the nature and 

quantity of unused brand and generic 

drugs. 

After providing a summary of the 

current LTC short cycle dispensing rule, 

we will address each proposed change 

in more detail. 

Section 423.154 requires that all Part 

D sponsors require all pharmacies 

servicing LTC facilities to dispense solid 

oral doses of covered Part D brand name 

drugs to enrollees in such facilities in 

no greater than 14 day increments at a 

time. Part D sponsors must also require 

such pharmacies to permit the use of 

uniform dispensing techniques, as 

defined by the LTC facility. The 

regulation refers to definitions in 

existence at the time of its 

promulgation. Brand name and generic 

drugs are defined in § 423.4, and the 

definition specifically refers to a brand 

name drug as being one approved under 

an NDA. 

In order to quantify waste more 

precisely, the regulation requires Part D 

sponsors to collect and report 

information to CMS on the dispensing 

methodology used for each dispensing 

event, and on the nature and quantity of 

unused brand and generic drugs 

dispensed to enrollees in LTC facilities. 

Reporting on unused drugs is waived for 

Part D sponsors when both brand and 

generic drugs are dispensed in no 

greater than 7-day increments. 

The regulation excludes: (1) Solid oral 

doses of antibiotics; and (2) solid oral 

doses that are dispensed in their 

original container as indicated in the 

Food and Drug Administration (FDA) 

prescribing information or that are 

customarily dispensed in their original 

packaging to assist patients with 

compliance. Thus, the regulation does 

not apply to drugs that are not typically 

dispensed in greater than 14-day 

supplies (for example: inhalers, eye 

drops, ear drops, steroid dose packs). 

LTC facilities are defined in 

§ 423.100, which definition excludes 

assisted living facilities. Intermediate 

care facilities for the mentally retarded 

and institutes for mental disease are 

specifically waived from the 

requirement in the regulation, as are I/ 

T/U pharmacies, due to specific 

problems with delivery and dispensing 

to closed (often locked) facilities. 

With respect to copayments, the 

regulation states that regardless of the 

number of incremental dispensing 

events, the total cost sharing must be no 

greater than the total cost sharing that 

would be imposed if the regulation did 

not apply. 

When permitted under applicable 

law, the regulation requires Part D 

sponsors to include provisions that 

address the disposal of drugs that have 

been dispensed to an enrollee in an LTC 

but not used, and then returned to the 

pharmacy, in the terms and conditions 

that they must offer to pharmacies, 

including whether return for credit and 

reuse is authorized. 

a. Prohibition on Payment 

Arrangements That Penalize the 

Offering and Adoption of More Efficient 

LTC Dispensing Techniques (§ 423.154) 

Our first proposed change is to add a 

clause to § 423.154 prohibiting payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques. It is our 

understanding that for 2013, some of the 

largest PBMs have prorated LTC 

pharmacy dispensing fees for 

medications subject to the LTC short 

cycle requirements. Under such 

dispensing fee payment arrangements, if 

a medication is discontinued before a 

month’s supply has been dispensed, a 

pharmacy that dispenses the maximum 

amount of medication at a time 

permitted under § 423.154 collects more 

in dispensing fees than a pharmacy that 

utilizes dispensing techniques that 

result in less than maximum quantities 

being dispensed at a time. 

We provide the following example of 

two pharmacies—one more efficient at 

dispensing than the other— to illustrate 

our concern: A $4.00 dispensing fee for 

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a 30-days’ supply is prorated, and a 

medication is discontinued after 21 

days. The first pharmacy dispenses 14- 

days’ supply at a time and receives 

approximately $3.73 in total dispensing 

fees for a 28-days’ supply, which results 

in 7 days’ worth of medication waste. 

The second pharmacy dispenses 3-days’ 

supply at a time and receives 

approximately $2.80 in dispensing fees 

for a 21-days’ supply in total, which 

results no medication waste. 

We believe this example is contrary to 

the Congress’ intent in enacting section 

3310 of the Affordable Care Act. In this 

example, the second pharmacy’s more 

efficient dispensing techniques save 

facility, sponsor, and Part D program 

costs associated with reducing the 

amount of medication waste, but the 

pharmacy itself receives less in 

dispensing fees than it would if it had 

dispensed in 14-day increments. This 

approach creates a perverse incentive 

for LTC pharmacies to adopt less 

efficient dispensing techniques, if 

available. Rational self- interest on the 

part of any LTC pharmacy with the 

flexibility to dispense greater quantities 

encourages wasteful dispensing and 

additional costs to the Part D program, 

in direct opposition to the intent of the 

law. 

During the extensive industry 

consultation conducted prior to the 

rulemaking required to implement 

section 3310 of the Affordable Care Act, 

CMS was repeatedly informed by 

multiple stakeholders that dispensing 

costs did not vary on the basis of the 

quantity of medication dispensed, but 

only by the number of dispensing events 

and the type of dispensing technique 

utilized. Therefore, there is no 

justifiable rationale for proration, since 

the cost of dispensing is not directly 

related to the quantity dispensed. In 

order to align incentives, we encouraged 

Part D sponsors to do quite the opposite 

to prorating dispensing fees, and offer 

differentially higher dispensing fees to 

promote the adoption of the most 

efficient dispensing methodologies. 

Starting in the fall of 2012, we have 

received numerous complaints about 

proration of dispensing fees from 

multiple LTC pharmacy organizations, 

LTC pharmacies, and LTC facilities that 

represent, offer, or have contracted to 

utilize more efficient dispensing 

methodologies. Some smaller LTC 

pharmacies, which rely upon their 

relative greater efficiency in reducing 

waste from unused drugs for 

competitive advantage, have 

complained that they were unable to 

negotiate appropriate terms through 

their intermediary group purchasing 

and contracting organizations and could 

not negotiate directly with Part D 

sponsors. Small LTC pharmacies have 

also reported that they risked losing 

their LTC facility contracts to larger LTC 

pharmacies if they did not accept the 

payment terms that, in effect, penalize 

their efficiency. These pharmacies have 

indicated that prorated dispensing fees 

are not mutually agreeable terms, and 

that this fee structure threatens the 

survivability of the most efficient 

dispensing techniques. 

It is unclear why Part D sponsors and 

their agents would choose to reimburse 

LTC pharmacies in a manner that does 

not promote more efficient dispensing 

methodologies. One possibility is that 

the smaller LTC pharmacies lack the 

leverage to negotiate differential fees 

due to the market power of the largest 

LTC pharmacies, which control more 

than 60 percent of the market. This 

would be the case only if the largest 

LTC pharmacies had the market power 

over the largest PBMs to not only set 

their own dispensing fees, but also the 

dispensing fees of their competitors. 

However, we have not heard any 

evidence or testimony that would 

support that conclusion. 

Another possibility is that Part D 

sponsors are not motivated to promote 

efficiencies in long-term care 

prescription drug utilization. This could 

be the case because their liability for 

these costs is substantially less than that 

of the federal government. Since most 

LTC residents are LIS-entitled 

individuals or likely to incur costs 

subject to catastrophic coverage, or both, 

sponsor liabilities are actually 

minimized when the LTC resident 

beneficiary reaches the TrOOP 

threshold as quickly as possible. Thus, 

sponsors’ interests may actually be 

aligned with those LTC pharmacies with 

the least efficient dispensing 

methodologies, since both parties’ 

interests may be served by higher costs. 

A final possibility is that Part D 

sponsors believe the § 423.154 and/or 

the upcoming daily cost-sharing rate 

requirement at § 423.153(b)(4)(i) (which 

becomes effective January 1, 2014) 

mandate the proration of dispensing 

fees when less than 30 days is 

dispensed. This is not accurate, and we 

discuss this misunderstanding both 

further in this section and in the section 

entitled, ‘‘Application and Calculation 

of Daily Cost-Sharing Rates’’ of this 

proposed rule. 

Given the clear intent of the 

Affordable Care Act to reduce wasteful 

dispensing in the LTC setting, CMS is 

proposing to prohibit payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques. This would be 

accomplished by adding a new clause (f) 

in § 423.154 that would state that a Part 

D sponsor must not, or must require its 

intermediary contracting organizations 

not to, penalize long-term care facilities’ 

choice of more efficient uniform 

dispensing techniques by prorating 

dispensing fees based on days’ supply 

or quantity dispensed. This clause 

would also state that a sponsor or its 

intermediary contracting organizations 

must ensure that any difference in 

payment methodology among LTC 

pharmacies incentivizes more efficient 

dispensing techniques. 

b. Misinterpretation of Language as 

Requiring the Proration of Dispensing 

Fees (§ 423.154) 

Our second proposed change to 

§ 423.154 is to eliminate paragraph (e), 

which we believe has caused confusion. 

Section 423.154(e) currently states: 

‘‘Regardless of the number of 

incremental dispensing events, the total 

cost sharing for a Part D drug to which 

the dispensing requirements, under this 

paragraph (a) apply must be no greater 

than the total cost sharing that would be 

imposed for such Part D drug if the 

requirements under paragraph (a) of this 

section did not apply.’’ The purpose of 

this language was to ensure that 

sponsors did not assess multiple 

monthly copayments for each 

incremental dispensing event. We 

believe misinterpretation of paragraph 

(e) may have prompted some sponsors 

to prorate dispensing fees, even though 

the regulation does not address 

dispensing fees. 

Moreover, effective January 1, 2014, 

the daily cost-sharing rate requirement 

will apply whenever a prescription is 

dispensed by a network pharmacy for 

less than a 30 days’ supply, unless the 

drug is excepted pursuant to 

§ 423.153(b)(4)(i), regardless of the 

setting in which the applicable drugs 

are dispensed. In other words, the daily 

cost-sharing rate requirement will apply 

to brand drugs dispensed in LTC 

facilities to the extent they must be 

dispensed in supplies less than 30 days 

pursuant to § 423.154, and to generic 

drugs, to the extent a sponsor 

voluntarily dispenses generic drugs in 

LTC facilities in supplies less than 30 

days. Consequently, the requirement of 

§ 423.153(b)(4)(i) will make § 423.154(e) 

unnecessary, and we believe retaining 

both provisions could cause further 

confusion. (Note that we propose some 

technical changes to the daily costsharing rate requirement in the section, 

entitled ‘‘Application and Calculation of 

Daily Cost-Sharing Rates’’ of this 

proposed rule) For these reasons, we 

propose to delete § 423.154(e). 

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c. Additional Waiver for LTC 

Pharmacies Using Restock and Reuse 

Dispensing Methodologies Under 

Certain Conditions (§ 423.154) 

Our third proposed change to 

§ 423.154 is to waive the short-cycle 

dispensing requirements for LTC 

pharmacies meeting certain conditions. 

Currently, § 423.154(c) waives the 

requirements for pharmacies when they 

dispense brand name Part D drugs to 

enrollees residing in intermediate care 

facilities for the mentally retarded and 

institutes for mental disease, as well as 

for I/T/U pharmacies. We have learned 

that some institutional pharmacies 

maintain custody of medications within 

the LTC facilities through operating a 

closed pharmacy within the facility, and 

as a result can ensure sufficient quality 

control over these medications to return 

all unused medications to stock for 

reuse that are eligible for return and 

reuse under applicable law. This has led 

us to believe there is another category of 

pharmacies, such as some on site 

pharmacies in veterans’ homes, for 

which a waiver from the LTC short 

cycle dispensing requirement may be 

appropriate, if they meet certain 

conditions that demonstrate that 

applying the 14-day dispensing 

requirements in these instances would 

not serve to reduce waste. 

We are proposing to waive the 

requirements of § 423.154(a) for an LTC 

pharmacy that exclusively uses the 

dispensing technique of returning all 

unused medications to stock that can be 

restocked under applicable law for reuse 

and rebating full credit for the 

ingredient costs of the unused 

medication to the PDP sponsor. The 

proposed waiver would also require that 

for those drugs that cannot be returned 

for full credit and reuse under 

applicable law, such as controlled 

substances, the pharmacy uses a 

dispensing methodology that results in 

the delivery of no more than 14 days of 

a drug at a time. We would propose that 

the waiver would apply on a uniform 

basis to all similarly situated LTC 

pharmacies, but not to a pharmacy 

organization that is contracted to use 

this technique at some, but not all, of its 

pharmacies. Rather, the waiver would 

only apply to the qualifying pharmacies 

themselves. We would not require the 

pharmacy to credit back any amount of 

the dispensing fee when drugs are 

returned for reuse, since the level of 

effort for the pharmacies would not be 

expected to be decreased in any way. If 

anything, the level of effort would be 

increased to implement the appropriate 

internal controls for inspection and 

return to inventory of the unused 

medication. 

We solicit comments on whether 

there are any variations in operations 

that may exist among LTC pharmacies 

that we need to consider in determining 

whether to implement this waiver. We 

also solicit comments on how such 

pharmacies could be identified in 

industry standard transaction coding, as 

well as in network contracting and 

auditing protocols. We believe that such 

pharmacies would be expected to have 

documentation of relevant protocols 

approved by Pharmacy and 

Therapeutics (P&T) committees of the 

LTC facility, as well as records 

supporting the returns to inventory that 

could be compared with billing credits. 

We solicit comments on this 

understanding as well. 

We further solicit comments on our 

proposal that to qualify for the waiver, 

a pharmacy would have to dispense any 

drugs that cannot be restocked under 

applicable law, such as controlled 

substances, in no greater than 14-day 

supply increments. Our rationale in 

proposing this condition to the waiver 

is that we do not want the waiver to 

inadvertently result in large quantities 

of medications being dispensed to Part 

D enrollees serviced by the pharmacies 

that would qualify for the waiver 

because they cannot be restocked under 

applicable law. Therefore, we are 

proposing that such drugs should still 

effectively be subject to the short-cycle 

dispensing requirement. In this regard 

we wish to understand the extent of 

waste in pharmacies that would qualify 

for the waiver we are proposing, if we 

did not impose the requirement that 

drugs that cannot be restocked would be 

subject to a dispensing increment of 14- 

day supply or less if they cannot be 

restocked under applicable law. If 

persuaded that the waste would be 

insignificant, we may be persuaded to 

eliminate this condition to the waiver. 

We acknowledge that in the 

aforementioned April 15, 2011 Final 

Rule, we responded to some comments 

requesting that we exempt from the 

short-cycle dispensing requirement 

those pharmacies that already utilize 

low waste practices or ‘‘return for credit 

and reuse.’’ In response, we stated that 

although ‘‘return for credit and reuse’’ 

could reduce unused drugs in LTC 

facilities, there are limitations to this 

approach, especially because not all 

states allow ‘‘return for credit and 

reuse,’’ and reuse of controlled 

substances is limited by the Drug 

Enforcement Administration. Because of 

these limitations, we stated that we 

believe financial waste is more 

effectively reduced by preventing the 

accumulation of unused drugs in the 

first place, rather than addressing 

handling of unused drugs after they 

have accumulated in the LTC facilities. 

This proposal means that we have 

reconsidered our decision not to waive 

the short-cycle dispensing requirement 

for LTC pharmacies that use ‘‘return for 

credit and reuse’’ dispensing practices, 

because we did not fully consider such 

a waiver previously in the context of 

comments received about return and 

reuse being a universal alternative 

approach to short-cycle dispensing. In 

addition, we continue to receive 

persuasive arguments that such 

pharmacies should be exempt; for 

example, from some veterans’ homes 

with on-site pharmacies. However, as 

we explained previously, we are still 

concerned about waste associated with 

drugs that are not permitted to be 

returned for reuse and credit under 

applicable law in such LTC pharmacies 

in considering this additional 

exemption, and for this reason have 

specifically solicited comments on the 

extent of waste in such pharmacies that 

would qualify for the proposed 

additional waiver. 

d. Technical Change To Eliminate the 

Requirement That PDP Sponsors Report 

on the Nature and Quantity of Unused 

Brand and Generic Drugs (§ 423.154) 

Finally, we are proposing to make a 

technical change to § 423.154(a)(2), 

which requires Part D sponsors to 

collect and report information, in a form 

and manner specified by CMS, on the 

dispensing methodology used for each 

dispensing event described by 

paragraph (a)(1) of this section, as well 

as on the nature and quantity of unused 

brand and generic drugs dispensed by 

the pharmacy to enrollees residing in a 

LTC facility. This latter reporting 

requirement is waived for sponsors for 

drugs dispensed by pharmacies that 

dispense both brand and generic drugs 

in no greater than 7-day increments. 

In a memorandum titled, 

‘‘Modifications to the Drug Data 

Processing System (DDPS) in Relation to 

Appropriate Dispensing of Prescription 

Drugs in Long Term Care Facilities,’’ 

issued by CMS on August 3, 2012, we 

explained that we planned to use the 

PDE data in conjunction with other 

CMS data (such as MDS) to determine 

the extent to which 14 day or less 

dispensing to enrollees in LTC facilities 

reduces the amount of unused drugs in 

LTC. We did this to lessen the burden 

on sponsors that would be created by a 

separate reporting requirement. 

Therefore, it is no longer necessary to 

waive the reporting requirement for any 

Part D sponsor, because Part D sponsors 

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comply with the requirement (in the 

form and manner we specified in the 

previously-referenced memorandum) 

via PDE submission. Thus, we are 

deleting the first sentence of 

§ 423.154(a)(2) to eliminate any 

confusion that there is a separate 

reporting requirement. 22. Applicable 

Cost-Sharing for Transition Supplies. 

Transition Process Under Part D 

§ 423.120(b)(3) 

We established transition 

requirements under § 423.120(b)(3) for 

Part D sponsors to address the needs of 

new Part D plan enrollees who are 

transitioning from other prescription 

drug coverage (Part D or otherwise), and 

whose current drug therapies may not 

be included on their Part D plan’s 

formulary (including Part D drugs that 

are on a plan’s formulary but require 

prior authorization or step therapy 

under the plan’s utilization management 

requirements). While § 423.120(b)(3)(iii) 

specifies that PDP plans must provide a 

temporary fill when an enrollee requests 

a fill of a non-formulary drug during the 

transition time period (including Part D 

drugs that are on a plan’s formulary but 

require prior authorization or step 

therapy under a plan’s utilization 

management rules), it does not currently 

specify the cost sharing that should 

apply to such fills. Current guidance (at 

§ 30.4.9 of Chapter 6 of the Medicare 

Drug Benefit Manual, found at http://

www.cms.gov/Medicare/PrescriptionDrug-Coverage/

PrescriptionDrugCovContra/Downloads/

Chapter6.pdf) states that a Part D 

sponsor may charge cost sharing for a 

temporary supply of drugs provided 

under its transition process. Further, 

cost sharing for transition supplies for 

low-income subsidy (LIS) eligible 

beneficiaries cannot exceed the 

statutory maximum copayment 

amounts. However, for non-LIS 

enrollees, we stated that a sponsor must 

charge cost sharing based on one of its 

approved drug cost sharing tiers (if the 

sponsor has a tiered benefit design), and 

this cost sharing must be consistent 

with cost sharing that the sponsor 

would charge for non-formulary drugs 

approved under a coverage exception. 

This guidance created a great deal of 

confusion on the part of sponsors and 

beneficiaries. Charging the same cost 

sharing for non-formulary drugs, which 

are approved during transition, as for 

formulary drugs subject to utilization 

management edits (such as prior 

authorization or step therapy), that are 

overridden during transition while 

waiting for the utilization management 

requirement to be satisfied, is likely to 

be inconsistent with a tiered benefit 

design. It is possible that beneficiaries 

may pay more during transition than for 

his or her drug’s normal designated 

formulary tier. Conversely, it is also 

possible that the beneficiary may pay 

more once the utilization management 

edit had been satisfied than he or she 

did under the transition fill. The 

following examples will illustrate these 

scenarios, assuming that the beneficiary 

is eligible for a transition fill, using the 

following hypothetical formulary 

structure: 

TABLE 3—HYPOTHETICAL FORMULARY STRUCTURE

Tier Tier description Beneficiary cost sharing 

1 .................................................. Generics ......................................................................................... $5 copay/30-days’ supply. 

2 .................................................. Preferred Brands ............................................................................ $10 copay/30-days’ supply. 

3 * ................................................ Non-preferred Brands ..................................................................... $15 copay/30-days’ supply. 

4 .................................................. Specialty drugs (includes both generics & brands) ....................... 25% coinsurance/30-days’ supply. 

* Tier 3 is the designated formulary exception tier. 

Each of the following examples shows 

the fill date, quantity filled, the 

associated days’ supply, whether a 

transition fill was applied, and as a 

result, if either formulary tiering or 

exception tiering was applied to the 

enrollee’s cost sharing. In all cases, if a 

transition fill was applied, the enrollee’s 

cost sharing used exception tiering. 

TABLE 4—EXAMPLE 1—THE BENEFICIARY’S DRUG IS ON TIER 2 WITH A PRIOR AUTHORIZATION REQUIREMENT

Date of fill Quantity Days’ supply Transition fill 

applied 

Cost share used formulary tiering (FT) 

or exception tiering (ET) 

1/1/13 ..................................................... 30 30 Y $15.00—ET. 

The beneficiary obtains the PA, and the drug is no long considered a transition fill. 

2/1/13 ..................................................... 30 30 N $10.00—FT. 

In this example, if the exception tier 

is used on the transition fill, the 

beneficiary’s cost sharing amount is 

reduced once he or she obtains the prior 

authorization approval. However, if the 

drug’s designated formulary cost sharing 

amount had been used, the cost sharing 

amount would have stayed the same, 

and would have been the same cost as 

the cost sharing amount shown on the 

formulary. 

TABLE 5—EXAMPLE 2—THE BENEFICIARY’S DRUG IS ON TIER 4 WITH A PRIOR AUTHORIZATION

Date of fill Quantity Days’ supply Transition fill 

applied 

Cost share used formulary tiering (FT) 

or exception tiering (ET) 

1/1/13 ..................................................... 30 30 Y $15.00—ET. 

The beneficiary obtains the PA, and the drug is no long considered a transition fill. 

2/1/13 ..................................................... 30 30 N 25%—FT. 

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In this example, if the exception tier 

is used on the transition fill, the 

beneficiary’s cost sharing amount will 

increase once he or she obtains the PA 

since the designated formulary tier has 

a higher cost sharing amount than the 

exception tier. If instead, the drug’s 

designated formulary cost sharing had 

been used, the cost sharing amount 

would have remained the same for both 

fills. This scenario is particularly 

confusing for enrollees, since they pay 

more after receiving the required 

approval than they did under transition. 

TABLE 6—EXAMPLE 3—THE BENEFICIARY’S DRUG IS NOT ON FORMULARY WITH A FORMULARY EXCEPTION

Date of fill Quantity Days’ supply Transition fill 

applied 

Cost share used formulary tiering (FT) 

or exception tiering (ET) 

1/1/13 ..................................................... 30 30 Y $15.00—ET. 

The beneficiary obtains the FE, and the sponsor continues to treat the drug as non-formulary. 

2/1/13 ..................................................... 30 30 N $15.00—ET. 

Plan sponsors are currently required 

to designate to which tier a nonformulary drug will apply once a 

formulary exception is granted. 

Sponsors can continue to treat the drug 

as non-formulary and continue the 

exception for the remainder of the 

coverage year, in which case, cost 

sharing at the exception tiering 

continues. 

We believe that more consistent 

treatment of formulary and nonformulary drugs, respectively, will 

simplify the benefit and reduce sponsor 

and beneficiary confusion. 

Consequently, we propose to add a 

paragraph at § 423.120(b)(3)(vi) 

clarifying that when providing a 

transition supply, the cost sharing is 

determined as follows: A Part D sponsor 

must charge cost sharing for a temporary 

supply of drugs provided under its 

transition process such that the 

following conditions are met: 

• For low-income subsidy (LIS) 

enrollees, a sponsor must not 

charge higher cost sharing for 

transition supplies than the 

statutory maximum copayment 

amounts. 

• For non-LIS enrollees, a sponsor must 

charge— 

++ The same cost sharing for nonformulary Part D drugs provided 

during the transition that would 

apply for non-formulary drugs 

approved through a formulary 

exception in accordance with 

§ 423.578(b); and 

++ The same cost sharing for 

formulary drugs subject to 

utilization management edits 

provided during the transition that 

would apply once the utilization 

management criteria are met. 

23. Medicare Coverage Gap Discount 

Program and Employer Group Waiver 

Plans (§ 423.2325) 

Section 3301 of the Affordable Care 

Act, codified in section 1860D–43 and 

1860D–14A of the Act, established the 

Medicare Coverage Gap Discount 

Program (Discount Program), beginning 

in 2011. Under the Discount Program, 

manufacturer discounts are made 

available to applicable Medicare 

beneficiaries receiving applicable 

covered Part D drugs while in the 

coverage gap. Section 1860D– 

14A(c)(1)(A)(ii) of the Act requires the 

manufacturer discount to be provided to 

beneficiaries at the point-of-sale. 

Employer Group Waiver Plans 

(EGWPs) are customized employeroffered plans available exclusively to 

employer/union health plan Part D 

eligible retirees and/or their Part D 

eligible spouse and dependents. Section 

423.458(c)(4) requires sponsors offering 

EGWPs to comply with all Part D 

requirements unless those requirements 

have been specifically waived or 

modified by us using our authority 

under section 1860D–22(b) of the Act. 

We do not regulate any supplemental 

benefits that EGWPs offer outside of Part 

D prescription coverage. Employers/

Unions offering EGWPs must ensure 

that any supplemental benefits comply 

with any applicable requirements for 

issuance under state insurance laws 

and/or ERISA rules (see January 25, 

2013 Insurance Bulletin from the Center 

for Consumer Information and 

Insurance Oversight: http://

www.cms.gov/cciio/resources/

Regulations-and-Guidance/

index.html#Health Market Reforms). 

EGWP benefits are generally 

structured to provide additional 

coverage so that their enrollees do not 

actually experience a coverage gap. 

However, the Affordable Care Act did 

not exclude EGWP enrollees from the 

Discount Program. Therefore, in order 

for an applicable drug to be covered by 

EGWPs, it must be covered under a 

manufacturer agreement, and the 

manufacturer must pay applicable 

discounts as invoiced. Beginning in 

2014, all EGWP benefits beyond the 

parameters of the defined standard 

benefit will be treated as non-Medicare 

Other Health Insurance (OHI) that wraps 

around Part D. We specifically excluded 

supplemental coverage offered through 

EGWPs from the definition of Part D 

supplemental benefits in § 423.100. We 

made this a requirement with respect to 

EGWPs so that the discount amount 

could be consistently and reliably 

determined. This was necessary to 

ensure that we can determine that the 

discount is always calculated accurately 

since we do not collect information on 

all EGWP retiree benefit arrangements to 

determine actual supplemental benefits. 

Not only would collecting such 

information be impractical, but we also 

believe instituting a requirement to 

collect the specific information on all 

such benefits would be so burdensome 

as to hinder the design of, the offering 

of, or the enrollment in employer plans. 

Consequently, the discount calculation 

will be based upon the Part D Defined 

Standard benefit for all EGWPs 

beginning in 2014. While we believed 

that our justification for excluding any 

supplemental benefits offered through 

EGWPs from Part D benefits clearly 

indicated that the basic EGWP Part D 

benefits would be limited to Defined 

Standard benefit because that is the only 

way we can determine that the discount 

is calculated accurately, we are taking 

the opportunity now to propose this 

specific requirement in § 423.2325(h)(1) 

to remove any ambiguity. 

Treating EGWP supplemental benefits 

as OHI and always calculating the 

manufacturer discount based on the 

Defined Standard benefit means that 

discount payments likely will increase 

for some applicable beneficiaries 

enrolled in EGWPs over the amounts 

that would have been calculated when 

these benefits were considered as 

supplemental benefits for purposes of 

the coverage gap discount program. As 

noted previously, EGWPs’ benefits are 

generally structured to provide 

additional coverage so that their 

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enrollees do not actually experience a 

coverage gap. Now that the Part D 

portion of the EGWP plan is based on 

the Defined Standard benefit, the 

coverage gap discount pays before the 

EGWP supplemental benefits (that is, 

OHI) are applied. Consequently, Part D 

sponsors that administer EGWP plans 

will receive discount amounts that may 

not offset the enrollees’ final out-ofpocket cost-sharing, as the discounts do 

in individual market Part D plans when 

it is applied after Part D supplemental 

benefits. Nevertheless, we think it is 

important that these discounts that are 

calculated and paid prior to the 

application of OHI are apparent to the 

employer and union group clients of our 

Part D sponsors. This transparency 

ensures that the parties who are 

ultimately responsible for the both the 

EGWPs’ plan design and the financial 

integrity of the plans are aware of the 

discount amounts received. We 

anticipate that the employer and union 

group administrators will take the 

additional funds into account when 

negotiating and designing retiree 

prescription drug benefits. We believe 

that his will ultimately benefit the 

beneficiaries enrolled in these plans. 

We considered several approaches for 

ensuring that all manufacturer payments 

accrue to the benefit of beneficiaries 

enrolled in EGWPs. The most obvious 

approach would have been to require 

EGWPs to use manufacturer payments 

to reduce beneficiary premiums or costsharing in the non-Part D portion of 

benefit. While this approach would 

have offered the most straightforward 

benefit for beneficiaries, it has several 

serious obstacles. First, we do not 

believe that we have the authority to 

require any specific application of the 

coverage gap discount payments to OHI 

benefits that are by definition nonMedicare private market benefits 

outside our regulatory purview. In 

addition, since we do not collect 

premium or benefit information for 

EGWPs, monitoring compliance with 

such requirements would not be 

feasible. Moreover, establishing an 

affirmative requirement would 

necessitate establishing standards for 

how the discount amounts should be 

applied to the retiree benefits. We 

frankly do not have the depth of 

knowledge of private and public sector 

retiree benefits necessary to establish 

such standards. We can envision that 

more prescriptive requirements about 

how discount amounts can be used 

might interfere with critical utilization 

management and cost control features of 

these benefits, conflict with 

employment or bargaining agreements 

particulars, or have other unintended 

consequences. We also considered not 

taking any action since anecdotal 

evidence suggests that some employer 

groups are already using the discounts 

to reduce premiums, and we have no 

reason to believe that this is not 

generally the case. However, we cannot 

be sure that all employer groups are 

aware of how Discount Program 

payments are calculated or the value of 

the payments attributable to their 

enrollees. After consideration, we 

believe that our best course is to pursue 

full disclosure and transparency so that 

employer groups have the information 

they need to take full advantage of these 

discounts to strengthen and safeguard 

their enrollees’ retiree benefits. Through 

the proposed regulation we are seeking 

to ensure that employer groups are fully 

aware of Discount Program payments 

attributable to their enrollees so that the 

payments can be accurately anticipated 

and incorporated into EGWP benefit 

designs. Equipped with projected and 

actual payments received, each 

employer group can design a benefit 

package that best meets the needs of its 

retirees. 

To ensure that Discount Program 

payments are communicated to 

employer groups in a uniform fashion, 

we propose to codify notification 

requirements by amending § 423.2325 to 

add a new paragraph (h) requiring Part 

D sponsors of EGWPs to disclose to each 

employer group the projected and actual 

manufacturer discount payments under 

the Discount Program attributable to the 

employer group’s enrollees. We further 

propose that such disclosures happen at 

least annually or upon request. Part D 

sponsors must also be prepared to 

demonstrate to CMS that such 

notifications have been made upon 

request. 

24. Interpreting the Non-Interference 

Provision (§ 423.10) 

Since the MMA created the Part D 

benefit in 2003, we have never formally 

interpreted section 1860D–11(i) of the 

Act, which is known as the 

noninterference provision. In practice 

we have generally invoked the spirit of 

this provision in declining to intervene 

in negotiations or disputes involving 

payment-related contractual terms 

between participants in the drug 

distribution channel. However, it is 

increasingly clear from the many 

questions that continue to arise when 

working with stakeholders on matters 

ranging from lawsuits to policy 

clearance to complaint resolution that 

the agency and all Part D stakeholders 

would benefit from a clear, formal 

interpretation of these limits on our 

authority. Some stakeholders appear to 

believe the prohibition on interference 

in negotiations extends far beyond the 

boundaries that we consider relevant, 

while others insist our authority extends 

into arbitrating matters that seem to us 

to clearly fall within the intended 

prohibition. Therefore, we are proposing 

an interpretation through rulemaking in 

order to clarify and codify the extent of 

these limits on our authority. 

The noninterference provision at 

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

that, ‘‘In order to promote competition 

under this part and in carrying out this 

part, the Secretary: (1) May not interfere 

with the negotiations between drug 

manufacturers and pharmacies and PDP 

sponsors; and (2) may not require a 

particular formulary or institute a price 

structure for the reimbursement of 

covered Part D drugs.’’ In beginning 

with the words ‘‘In order to promote 

competition under this part and in 

carrying out this part . . .’’ we believe 

that the Congress intended that the 

activities addressed in the rest of the 

provision should take place through 

private market competition. We 

interpret this to mean two separate but 

related goals. The first goal is that the 

Secretary through CMS should promote 

private market competition in the 

selection of Part D drugs for Part D 

sponsor formularies. The second goal is 

that CMS should not create any policies 

that would be expected to interfere with 

competitive market negotiations leading 

to the selection of drug products to be 

covered under Part D formularies. 

Therefore, in light of these two goals we 

believe there is both a duty to act—to 

promote competition in the private 

market for Part D drugs—and a duty to 

refrain from acting—to avoid 

intervention in private market 

negotiations that take place in the 

context of that competitive market. 

Economic theory on competitive 

markets suggests that the duty to ensure 

a competitive market means that within 

the limits of our authority we should 

seek to encourage certain features of the 

market that promote more perfect 

competition. This would include such 

goals as decreasing the transaction cost 

of acquiring information on products 

offered in the market, increasing the 

transparency of prices, ensuring a large 

number of buyers and sellers, and 

minimizing barriers to entry to the 

extent possible while still ensuring 

quality. We have pursued these types of 

goals since the start of Part D program 

implementation through such efforts as 

the Medicare Prescription Drug Plan 

Finder, the development of the 

Medicare star ratings, our extensive 

efforts to provide technical assistance to 

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new and existing sponsors, and our 

meaningful differences policies that 

improve the comparability of Part D 

formularies and benefit packages. We 

will continue to seek opportunities to 

improve competition. As an initial 

matter, in light of our interpretation of 

the general purpose of section 1860D– 

11(i) of the Act, we propose a general 

rule at § 423.10(a) that CMS promotes 

fair private market competition in the 

market for Part D drugs. 

There is also a duty to avoid 

intervention in private market 

negotiations that take place in the 

context of that competitive market. We 

believe the intent of 1860D–11(i) is to 

ensure that we do not create any 

policies or become a participant in any 

discussions that could be expected to 

interfere with negotiations leading to 

the selection of drug products to be 

covered under Part D formularies. By 

this we mean selection by Part D 

sponsors (or other intermediary 

contracting organizations) of specific 

manufacturers’ products for inclusion 

on formularies, formulary tier 

placement, and negotiations of 

acquisition costs, rebates, and any other 

price concessions. We believe this 

interpretation is consistent with a 

textual reading of 1860D–11(i) and with 

how private market transactions 

determine which prescription drug 

products are covered under Part D 

plans. 

Private market competition for 

prescription drugs is a complex process 

that has been described in detail 

elsewhere, such as in the 2007 CBO 

report entitled ‘‘Prescription Drug 

Pricing in the Private Sector’’ at: http:// 

www.cbo.gov/publication/18275. This 

process involves specific transactions 

between manufacturers and distribution 

channel participants (generally 

wholesale distributors and dispensing 

pharmacies) that are different than the 

transactions that take place between 

manufacturers and ultimate purchasers 

(primarily health plans or self-insured 

employers and/or their intermediate 

contracting organizations, such as 

pharmacy benefit managers (PBMs)). 

Pharmacies will stock most commonly 

used brand medications but will 

selectively stock generic products to 

leverage volume in return for the best 

prices from competing generic 

manufacturers. Thus, generally 

speaking, the price negotiations between 

manufacturers and pharmacies 

differentially determine which generic 

products are stocked and dispensed by 

pharmacies. These price negotiations 

are generally based on discounts off 

manufacturer list prices. Health plans 

and PBMs, in contrast, will base 

decisions on which multiple-source or 

therapeutically equivalent brand drug 

products will be covered under a plan 

in part on the evaluation of the relative 

cost effectiveness of the competing drug 

products. This will be determined by 

comparing both the list prices of the 

drug products and the level of rebates 

negotiated between the sponsor and the 

manufacturers of the brand products. 

Thus the price negotiations between 

manufacturers and health plans 

determine which brand products are 

placed on the plan’s formulary and 

available to enrollees. These additional 

price negotiations are generally around 

the level of rebates for both formulary 

and tier placement. These distinct sets 

of negotiations in the private market 

between manufacturers and pharmacies 

on the one hand, and between 

manufacturers and plan sponsors on the 

other hand, support our textual reading 

of section 1860D–11(i)(1) of the Act to 

prohibit CMS involvement in 

negotiations between manufacturers and 

pharmacies, and between manufacturers 

and plan sponsors. There are also 

separate price negotiations between 

plan sponsors (or their intermediary 

contracting organizations) and 

pharmacies around the negotiated prices 

required for network participation. 

However, as will be discussed in more 

detail in this section, since the statute 

establishes numerous requirements that 

CMS must regulate concerning access to 

network pharmacies and negotiated 

prices, we believe that a CMS role in 

negotiations between plan sponsors and 

pharmacies is not prohibited under 

section 1860D–11(i)(1) of the Act. 

We note that in The Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 Conference 

Agreement (Conference Agreement), in 

addition to the statutory language, MMA 

drafters included the following 

sentence: ‘‘Conferees expect PDPs to 

negotiate price concessions directly 

with manufacturers.’’ We believe this 

statement supports our understanding 

that the primary focus of section 1860D– 

11(i) of the Act is on the negotiations 

between plan sponsors (or their 

intermediary contracting organizations) 

and manufacturers for rebates and other 

price concessions that ultimately 

determine which multiple source 

products will be placed on a sponsor’s 

formulary. The outcome of these 

negotiations also determine tier 

placement, or the level of cost sharing 

that will be charged for the drug, 

whether the drug will be subject to 

certain utilization management controls, 

and may even influence the list prices 

that manufacturers submit to the 

commercial databases and that form the 

basis of most purchasing contracts in 

the drug distribution channel. 

Section 1860D–11(i)(1) of the Act 

states that we ‘‘may not interfere with 

the negotiations between drug 

manufacturers and pharmacies and PDP 

sponsors’’. We believe that the term 

‘‘interference’’ in this context should be 

interpreted as prohibiting our 

involvement in discussions between 

manufacturers and their distribution 

channel customers (such as wholesalers 

and pharmacies) or the ultimate 

purchasers of prescription drugs (such 

as plan sponsors and PBMs) leading to 

signed contracts. We believe that the 

negotiations addressed by the first 

clause should be read to apply to 

discussions manufacturers have with 

their customers because, as discussed 

previously, this textual reading 

comports with the nature of the 

transactions that occur in the private 

market that determine which drug 

products will be covered under Part D 

plans. We also believe section 1860D– 

11(i)(1) of the Act should be interpreted 

as prohibiting our involvement in 

arbitration of agreements already 

executed between any of these parties. 

It would not make sense to prohibit 

CMS involvement in discussions 

leading up to an executed agreement 

only to allow involvement in arbitrating 

the terms of the agreement afterwards. 

Thus we interpret the word 

‘‘negotiations’’ to mean not only the 

initial discussions leading to executed 

agreements, but also any subsequent 

discussions between the parties as to 

what those agreements require. We are 

periodically asked to become involved 

in both initial negotiations and in 

disputes and renegotiations by parties 

trying to get CMS to weigh in on one 

side or another on the premise that 

failure to do so will lead to access issues 

for Medicare beneficiaries. We also 

periodically are asked to address terms 

and conditions of executed agreements 

that one of the parties believes is unfair. 

We believe that our involvement in 

these sorts of issues is precisely what 

the statute prohibits in section 1860D– 

11(i)(1) of the Act—our weighing in on 

a contract negotiation or dispute could 

influence the outcome. In other words, 

government involvement could affect 

market forces around prescription drugs 

in ways that change the value that 

would otherwise be assigned to these 

products in a competitive market. We 

believe we should not pick winners and 

losers in formulary selection 

negotiations, and that the remedies for 

disputes should be determined in 

accordance with the terms of the 

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contracts or in the courts having 

jurisdiction over the contracts. 

Therefore we interpret the prohibition 

in section 1860D–11(i)(1) of the Act on 

interference in negotiations to pertain to 

discussions either between prescription 

drug manufacturers and pharmacies, or 

between prescription drug 

manufacturers and Part D sponsors (or 

their intermediary contracting 

organizations, hereafter included by 

association whenever we refer to Part D 

sponsors). Our interpretation is based 

on the sequential phrasing of the clause 

‘‘negotiations between drug 

manufacturers and pharmacies and PDP 

sponsors.’’ Because in general these 

negotiations are not among all three 

parties at once, and because 

manufacturers separately contract with 

pharmacies for the purchase of 

inventory and with sponsors for 

formulary placement, we believe the 

quoted phrase can be interpreted as 

recognizing these distinct types of 

negotiations. Under such a reading, the 

prohibition on interference in 

negotiations, as described in section 

1860D–11(i)(1) of the Act, would not 

pertain to negotiations between Part D 

sponsors and pharmacies. 

This does not mean, however, that we 

would be free to interfere in sponsorpharmacy negotiations. Indeed, we 

believe section 1860D–11(i)(2) of the 

Act sets forth specific limits on our 

ability to involve ourselves in Part D 

sponsors’ arrangements with their 

network pharmacies, as discussed in 

more detail later in this section. 

However, we believe that our proposed 

interpretation of section 1860D–11(i)(1) 

of the Act as not applying to the 

sponsor-pharmacy negotiations is 

supported by the provision’s context. 

There are numerous statutory provisions 

that require us to directly intervene in 

the contractual relationship between 

Part D sponsors and network 

pharmacies, and these provisions 

clearly signal that the Congress expected 

CMS involvement in at least some of 

these negotiations. The Congress has 

provided many contractual 

requirements for CMS to enforce 

between sponsors and pharmacies; just 

the drug-cost-related of these include: 

Interpretation of what ‘‘access to 

negotiated prices’’ means, any-willingpharmacy standard terms and 

conditions, prohibition on any 

requirement to accept insurance risk, 

prompt payment, and payment standard 

update requirements. So it is clear that 

Part D sponsors and pharmacies do not 

have sole discretion to interpret these 

specific matters. We would be obligated 

to intervene in disputes over whether 

proposed or finalized contractual 

arrangements violated our rules in any 

area where our oversight is directed 

under the statute. Therefore, it is clear 

that such involvement could not be 

what the Congress intended to prohibit. 

Moreover, we observe a growth in 

related-party relationships between Part 

D sponsors and network pharmacies, 

where the distinction between the 

sponsor and the pharmacy is 

increasingly unclear, and there is no 

reason to believe that the Congress 

intended that we are prohibited from 

oversight of the sponsor’s dealings with 

itself. In addition, we believe the goals 

of the non-interference provision 

generally support CMS avoidance of 

being an arbiter of private disputes. 

Thus, we would also decline to 

intervene in contractual disputes 

between sponsors and network 

pharmacies except in matters 

implicating CMS requirements, because 

to do so might distort private market 

outcomes in unpredictable ways. 

Therefore, we propose at § 423.10(b) 

that CMS may not be a party to 

discussions between prescription drug 

manufacturers and pharmacies, or 

between drug manufacturers and Part D 

sponsors, and may not arbitrate the 

meaning of or compliance with the 

terms and conditions of agreements 

reached between these parties, except as 

necessary to enforce CMS requirements 

applicable to those agreements. Thus, 

we could only be involved in such 

discussions in order to explain CMS 

requirements and to ensure compliance 

with Part D rules and regulations. We 

also add that nothing in this prohibition 

limits our authority to require 

documentation of and access to all such 

agreements, or to require the inclusion 

of terms and conditions in agreements 

when necessary to implement 

requirements under the Act. 

The first part of the section 1860D– 

11(i)(2) of the Act states that CMS ‘‘may 

not require a particular formulary’’. The 

noninterference clause must be read in 

context of the other provisions that give 

CMS authority with respect to 

formularies, so we propose to interpret 

the term ‘‘particular formulary’’ to mean 

the selection of specific manufacturer 

licensed drug products to be on 

formulary, or on any particular tier of a 

formulary, assuming the product meets 

the definition of a Part D drug. We 

interpret the first part of section 1860D– 

11(i)(2) of the Act to prohibit us from 

developing formulary guidelines that 

prefer one manufacturer’s product over 

another’s in Part D formularies, leading 

to more limited formularies such as 

provided by the Department of Defense 

and the Veteran’s Administration. The 

most efficient formularies will make 

formulary selections and then exclude 

all or most competing multi-source and 

therapeutically equivalent brand 

products in order to concentrate volume 

and maximize rebates. Given the size of 

the Part D market, if CMS were able to 

similarly limit access to Part D 

formularies to certain products, this 

would bestow significant competitive 

advantage on the manufacturers of 

selected products and significant 

competitive disadvantage on 

manufacturers of competing products. 

Such limits would be expected to 

fundamentally alter supply and demand 

in the marketplace. This prohibited sort 

of selection would be distinguished 

from CMS formulary requirements that 

may require particular types of drug 

entities to be on all formularies, or on 

preferred tiers, in order to provide nondiscriminatory access to drugs necessary 

to treat conditions in all Medicare 

beneficiaries, or to address drug classes 

of clinical concern (see section III.A.14 

of this proposed rule). Therefore, we 

propose a provision prohibiting 

establishment of formulary drug product 

selection at § 423.10(c) that specifies 

that CMS does not determine the 

specific drug products to be included on 

Part D sponsor formularies or any tier 

placement of such products, except as 

required to comply with 

§ 423.120(b)(1)(v) or § 423.272(b)(2). 

The second part of section 1860D– 

11(i)(2) of the Act states that CMS ‘‘may 

not institute a price structure for the 

reimbursement of covered Part D 

drugs’’. Again, the noninterference 

clause must be read in context of the 

other provisions that give CMS 

responsibilities in a number of areas 

that pertain to pricing, so we interpret 

the phrase ‘‘price structure’’ to refer to 

establishing either absolute or relative 

indices of price for Part D drugs. 

Specifically, we believe the intent of 

this provision is to prohibit two types of 

intervention by CMS. The first 

prohibited activity is that CMS may not 

require Part D drug acquisition costs or 

sales prices to be a function of (be 

defined relative to) any particular 

published or unpublished pricing 

standard, either existing or future. Thus, 

we could not require that Part D prices 

be based on, or be any particular 

mathematical function (such as a 

percentage or multiple) of established 

pricing standards such as Average 

Wholesale Price, Wholesale Average 

Cost, Average Manufacturer Price, 

Average Sales Price, Federal Supply 

Schedule, 340b pricing, etc. The second 

prohibited activity is that CMS cannot 

require price concessions (from any 

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standard or basis) to be at any specific 

(absolute) dollar amount or equal to a 

level specified in other legislative 

requirements for other federal programs. 

Thus, we could not, for example, set 

minimum or maximum dollar prices for 

a drug product or require that Part D 

prices be offered at acquisition cost, or 

at the ‘best price’ applicable under the 

Medicaid program. However, since the 

statute requires us to regulate many 

aspects of how drug costs are made 

available and displayed to beneficiaries 

and treated in Part D bidding and 

payment processes, it is clear that we 

have an important role to play in 

establishing rules for consistent 

treatment of drug costs in the program. 

Consequently, we may establish 

definitions of what constitutes a pricing 

standard, a price concession, a cost, etc. 

We may also establish rules concerning 

how drug costs are treated under Part D, 

including, but not limited to, how such 

amounts are disclosed in the 

marketplace, projected in Part D bids, 

made available to beneficiaries at point 

of sale, reported in Explanation of 

Benefits (EOBs), submitted to CMS, and 

treated in CMS payments to Part D 

sponsors. Therefore, we propose a 

provision prohibiting establishment of 

drug price reimbursement 

methodologies at § 423.10(d) that 

specifies that CMS does not establish 

drug product pricing standards or the 

dollar level of price concessions at any 

stage in the drug distribution channel 

for Part D drugs. Nothing in this 

prohibition limits our authority to 

require full disclosure or uniform 

treatment and reporting of drug costs 

and prices. 

25. Pharmacy Price Concessions in 

Negotiated Prices (§ 423.100) 

We have learned that some Part D 

sponsors have been reporting costs and 

price concessions to CMS in different 

ways. This reporting differential matters 

because this variation in the treatment 

of costs and price concessions affects 

beneficiary cost sharing, CMS payments 

to plans, federal reinsurance and lowincome cost-sharing (LICS) subsidies, 

and manufacturer coverage gap discount 

payments. Differential treatment of costs 

would also be expected to affect plan 

bids. We do not collect sufficient detail 

in price concession data reported to 

CMS to quantify this impact, but this 

conclusion follows from the admitted 

reporting of some pharmacy price 

concessions in the annual aggregate 

price concession reporting (that is, the 

DIR reporting) during the coverage year 

payment reconciliation process, rather 

than as part of the negotiated price. 

(This issue, and its financial effect, have 

been discussed in the Announcement of 

Calendar Year (CY) 2014 Medicare 

Advantage Capitation Rates and 

Medicare Advantage and Part D 

Payment Policies and Final Call Letter 

(2014 Call Letter), [at http://

www.cms.gov/Medicare/Health-Plans/

MedicareAdvtgSpecRateStats/

Downloads/Announcement2014.pdf] 

and will be discussed in more detail in 

the discussion which follows.) If the 

projected net costs a sponsor is liable for 

in its bid are understated because the 

sponsor has been reporting certain types 

of price concessions as direct or indirect 

remuneration (DIR) rather than as price 

concessions that affect the negotiated 

price, it follows that the sponsor may be 

able to offer a lower bid than its 

competitors and may achieve a 

competitive advantage stemming not 

from greater efficiency, but rather from 

a technical difference in how costs are 

reported to CMS. When this happens, 

such differential reporting could result 

in bids that are no longer comparable, 

and in premiums that are no longer 

valid indicators of relative plan 

efficiency. We are therefore proposing 

changes to rectify this concern. 

The MMA established Part D as a 

voluntary, private-market-based 

program that would rely on private 

plans to provide coverage and to bear 

some of the financial risk for drug costs. 

These private plans would determine 

premiums through a bid process and 

would compete with other plans based 

on premiums and negotiated prices. 

[The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 Conference Agreement 

(Conference Agreement), page 4] 

Premiums are set through a statutory 

formula that ensures that premium 

levels are commensurate with bid 

levels. Therefore, all other things being 

equal, the lowest premium for a given 

level of benefits should signal the most 

efficient plan. Premiums are established 

through a prospective bidding process 

in which costs are projected and 

evaluated in accordance with actuarial 

guidelines set by the CMS Office of the 

Actuary. 

Negotiated prices are the payment 

amounts pharmacies receive from plans 

for covered Part D drugs dispensed to 

plan enrollees. CMS payments to plans 

are based on the reporting of negotiated 

prices (through PDE reporting) that are 

actually paid and are then offset by any 

other price concessions (submitted in 

aggregate through the separate annual 

DIR reporting process). CMS establishes 

rules for cost and price concession 

reporting through both PDE and DIR 

guidance and other payment 

reconciliation rules, and has regulated 

the definition of negotiated price and 

how it is to be treated in Part D benefit 

administration and in payment 

reconciliation. Since 2010, the 

regulatory definition has been: 

‘‘Negotiated prices means prices for 

covered Part D drugs that: (1) The Part 

D sponsor (or other intermediary 

contracting organization) and the 

network dispensing pharmacy or other 

network dispensing provider have 

negotiated as the amount such network 

entity will receive, in total, for a 

particular drug; (2) Are reduced by 

those discounts, direct or indirect 

subsidies, rebates, other price 

concessions, and DIR that the Part D 

sponsor has elected to pass through to 

Part D enrollees at the point of sale; and 

(3) Include any dispensing fees.’’ 

We intended clause 2 to primarily 

refer to price concessions from parties 

other than pharmacies, since these 

would be price concessions that were 

not based on the sale of the drug by the 

pharmacy and calculated when the 

claim adjudicated and, in fact, could not 

be calculated until a later date. In 

particular, we expected these other nonclaim-based price concessions to be in 

the form of rebates offered by 

prescription drug manufacturers. Since 

prescription drugs are dispensed by 

pharmacies and purchased through 

transactions between Part D sponsors (or 

their intermediary contracting 

organizations) and pharmacies, 

manufacturers are never in a position to 

apply price concessions to negotiated 

prices at point of sale. We now 

understand that clause 2 is ambiguous 

and permits sponsors and their 

intermediaries to elect to take some 

price concessions from pharmacies in 

forms other than the negotiated price 

and report them outside the PDE. When 

this occurs, the increased negotiated 

prices generally shift costs to the 

beneficiary, the government and 

taxpayer, and when applicable to 

certain brand name drugs, to 

prescription drug manufacturers. (The 

mechanism of this sort of cost shift was 

discussed at length in the analogous 

context of lock-in pricing in our 2008 

proposed rule entitled ‘‘Medicare 

Program; Revisions to the Medicare 

Advantage and Prescription Drug 

Benefit Programs’’ which as published 

on May 16, 2008 in the Federal 

Register,—FR 28563 through 28566.) 

In addition, when price concessions 

from pharmacies are reflected in forms 

other than the negotiated price, the 

degree of price concession that the 

pharmacy has agreed to is no longer 

reflected in the negotiated prices 

available at point of sale or reflected on 

the Medicare Prescription Drug Plan 

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Finder (Plan Finder) tool. Thus, the true 

price of drugs at individual pharmacies 

is no longer transparent to the market. 

Consequently, consumers cannot 

efficiently minimize both their costs 

(cost sharing) and costs to the taxpayers 

by seeking and finding the lowest-cost 

drug/pharmacy combination. Moreover, 

as the coverage gap closes, there are 

fewer and fewer beneficiaries who are 

exposed to the full cost of drug 

products, either at the point of sale or 

as reflected in Plan Finder estimates. 

When this occurs, the basis of 

competition shifts from prices to cost 

sharing, and the pricing signals 

available to the market can be distorted 

when lower cost sharing is not aligned 

with lower prices. Thus, we believe the 

exclusion of pharmacy price 

concessions from the negotiated price 

thwarts the very price competition that 

the Congress intended when it said that 

private plans would compete with other 

plans on both premiums and negotiated 

prices. 

We are aware that certain pharmacy 

price concessions are being excluded 

from the determination of the negotiated 

price because they are being 

characterized as ‘‘network access fees’’, 

‘‘administrative fees,’’ ‘‘technical fees’’ 

or ‘‘service fees’’ that are frequently 

imposed through PBM-issued manuals 

rather than explicit contractual terms. 

Pharmacies and pharmacy organizations 

report that they do not receive anything 

of value for those fees other than the 

ability to participate in the Part D 

network. The itemized types of services 

for which their payments are offset 

reportedly include things such as 

transaction fees for submission of 

claims, help desk support, information 

technology and telecommunication 

systems connectivity, electronic funds 

transfers, and other expenses associated 

with credentialing, maintaining, and 

auditing pharmacy networks. These fees 

take the form of deductions from 

payments to pharmacies for drugs 

dispensed, but in our view clearly 

represent charges that offset sponsor/

PBM operating costs. We believe that if 

the sponsor or its intermediary 

contracting organization wishes to be 

compensated for these services and have 

those costs treated as administrative 

costs, such costs should be accounted 

for in the administrative costs of the 

Part D bid. If instead these costs are 

deducted from payments made to 

pharmacies for purchases of Part D 

drugs, such costs are price concessions 

and must be treated as such in Part D 

cost reporting. This is the case 

regardless of whether the deductions are 

calculated on a per-claim basis or not. 

In our view, the decision on how such 

network management costs are funded 

between the PBM and the sponsor is not 

governed by our rules, but our rules do 

require that price concessions be fully 

disclosed and net against drug costs in 

reconciliation. 

We have also heard from pharmacies 

that some sponsors apply dispensing 

fees to claims when they are adjudicated 

at point of sale, but require that these 

fees later be rebated back to the sponsor 

and deducted from payment 

remittances. Such practices again 

misstate the negotiated price. Our 

proposal would require that dispensing 

fees could only be applied at point of 

sale if they are received and retained by 

the pharmacy in the negotiated price. 

In comments on our related 

discussion in the 2014 Call Letter, one 

commenter argued that these other 

amounts charged to pharmacies are 

actually valid administrative costs. In 

contrast, all other sponsors and PBMs 

that commented on that section 

acknowledged these amounts to be price 

concessions. More significantly, all 

pharmacies and pharmacy organizations 

we have heard from assert that these are 

price concessions. When reported as 

DIR, these price concessions have the 

effect of offsetting price concessions 

disproportionally against just the costs 

the plan is most liable for, as discussed 

in the 2014 Call Letter. If not reported 

at all, these amounts would result in 

another form of so-called PBM spread in 

which inflated prices contain a portion 

of costs that should be treated as 

administrative costs. That is, even if 

these costs did represent services 

rendered by the PBM or other 

intermediary organization for the 

sponsor, then these costs would be 

administrative service costs, not drug 

costs, and should be treated as such. 

Failure to report these costs as 

administrative costs in the bid would 

allow a sponsor to misrepresent the 

actual costs necessary to provide the 

benefit and thus to submit a lower bid 

than necessary to reflect its revenue 

requirements (as required at section 

1860D–11(e)(2)(C) of the Act and at 

§ 423.272(b)(1)) relative to another 

sponsor that accurately reported 

administrative costs consistent with 

CMS instructions. Therefore, we agree 

with the pharmacy position that an 

amount deducted from the negotiated 

price otherwise payable to the pharmacy 

for these sorts of administrative fees is 

a price concession that should be 

reflected in the negotiated price. 

Consequently, we believe that the best 

interpretation of statutory intent is that 

all pharmacy price concessions must be 

reflected in the negotiated price. This 

would preclude the differential 

reporting that is taking place today, and 

put all plans on a level playing field in 

reporting drug costs and price 

concessions from network pharmacies. 

Consistent and transparent pricing 

would also promote increased price 

competition among network pharmacies 

and will align beneficiary and taxpayer 

interests in minimizing costs. Therefore, 

we do not believe that other pricing 

arrangements that cannot be calculated 

at the point of sale, such as risk sharing 

or conditional payments based on 

volume, are compatible with the price 

competition envisioned under the 

statute. Such arrangements will tend to 

overstate negotiated prices at point of 

sale, and require the subsequent 

adjustments through DIR reporting that 

may increase beneficiary and 

government costs if specified targets are 

met. We believe that the advantages of 

any such incentive arrangement could 

be achieved without the cost shifting by 

adjusting future negotiated prices. For 

instance, if specified volume targets 

were met in one quarter, rather than 

retroactively adjusting that quarter’s 

prices down through DIR reporting, the 

negotiated prices for the next quarter 

could be reduced, and so on. Therefore 

we propose to reinterpret section 

1860D–2(d)(1)(B) of the Act such that 

negotiated prices are the amounts that a 

network pharmacy receives in total for 

covered Part D drugs, and that these 

prices must reflect all price concessions 

from network pharmacies. Therefore, 

any other negotiated price concessions, 

such as discounts, direct or indirect 

subsidies, rebates, and (DIR) referenced 

in the statute would be those price 

concessions offered by sources other 

than network pharmacies (or their 

intermediary contracting organizations). 

In practice, this means prescription drug 

manufacturers. 

Some stakeholders have 

recommended that certain incentive 

payments to pharmacies, such as 

generic dispensing incentive fees, 

should not be included in negotiated 

prices. If these payments are included, 

they explain, the negotiated prices 

appear higher at the more efficient 

pharmacy as the result of the additional 

incentive payment. This higher price 

then proportionally increases costs 

borne by beneficiaries, the government, 

and manufacturers. These incentives 

really represent amounts that the 

sponsor is willing to bear in order to 

encourage the most efficient drug 

choices, which will drive down total 

costs overall, and thus the sponsor is 

willing to bear a disproportionate share 

of such expense. We agree with this 

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argument and we believe that this sort 

of arrangement would not conflict with 

our proposed requirement that all price 

concessions be reflected in the 

negotiated price since such additional 

payments are the opposite of price 

concessions. Instead such incentive fees 

represent contingent price increases that 

cannot be predicted in advance, and 

cannot therefore be programmed to be 

applied at point of sale or reflected in 

the price posted on Plan Finder. We 

believe it would be appropriate to treat 

this particular sort of price increase 

differently than price decreases because 

including such amounts in the 

negotiated price (incentive fee 

component) at point of sale could 

disguise the relative competitiveness of 

the underlying pharmacy prices. 

Incentive fees also primarily benefit the 

plan sponsor who benefits from the 

lower costs associated with the 

incentivized behavior, rather than the 

beneficiary. Therefore, in this case, we 

agree that it would be more appropriate 

for such incentive payments to be 

excluded from the negotiated price, and 

reported later in reconciliation as 

negative DIR. When reported as negative 

DIR, these amounts disproportionately 

affect (increase) the amounts the 

sponsor is liable for in risk sharing, 

which is appropriate given the intent of 

the incentives to promote least-cost drug 

product selection at point of sale. Leastcost drug product selection will directly 

reduce the sponsor’s allowable risk 

corridor costs, so any incentive paid to 

encourage this behavior would be 

expected to be more than offset by the 

ingredient costs savings achieved 

through avoidance of higher-cost drug 

selection. This is so because, as we 

learned from numerous commenters to 

the 2014 draft Call Letter, the incentive 

payments are generally in the range of 

a dollar or two and the difference 

between preferred and non-preferred 

drug products is generally much greater. 

Therefore, we propose to revise the 

definition of negotiated prices at 

§ 423.100 to require that all price 

concessions from pharmacies are 

reflected in these prices. Specifically we 

propose to redefine negotiated prices to 

mean prices for covered Part D drugs 

that: (1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug; and (2) are inclusive 

of all price concessions and any other 

fees charged to network pharmacies; 

and (3) include any dispensing fees; but 

(4) exclude additional contingent 

amounts, such as incentive fees, only if 

these amounts increase prices and 

cannot be predicted in advance; and (5) 

may not be rebated back to the Part D 

sponsor (or other intermediary 

contracting organization) in whole or in 

part. 

26. Payments to PDP Plan Sponsors for 

Qualified Prescription Drug Coverage 

(§ 423.308)) and Payments to Sponsors 

of Retiree Prescription Drug Plans 

(§ 423.882) 

We propose to revise the definition of 

the term actually paid at both § 423.308 

for the Part D program and § 423.882 for 

the Retiree Drug Subsidy program in 

order to reconcile this definition with 

the changes proposed to the definition 

of negotiated prices in this regulation. 

Since our proposal would require that 

all price concessions from network 

pharmacies must be reflected in the 

negotiated price, it would no longer be 

correct to include pharmacies in the list 

of sources from which price concessions 

could be received without qualification. 

Therefore, we propose to revise the 

definition of actually paid at § 423.308 

to include references to incentive 

payments, and to clarify that DIR may 

include additional payments to 

pharmacies, such as for incentive 

payments, but may not include any 

other price concessions from 

pharmacies as these must be in the form 

of the negotiated price as proposed in 

§ 423.100. We similarly propose to 

change the reference to ‘‘from any 

source’’ in the definition of actually 

paid at § 423.882 to ‘‘from any 

manufacturer or similar entity’’ to align 

these definitions. 

We also propose to remove any 

reference to coupons in the list of price 

concession types. The definition of 

‘‘actually paid’’ relates to costs incurred 

by Part D sponsors, and coupons would 

not affect those costs. Similarly, we are 

considering whether any or all of the 

surrounding terms ‘‘cash discounts, free 

goods contingent on a purchase 

agreement, up-front payments . . . 

goods in kind, free or reduced-price 

services, [or] grants’’ in both of those 

paragraphs would affect costs paid by 

Part D sponsors. We solicit comments 

on this question. We similarly propose 

to remove any reference to coupons in 

the definition of actually paid at 

§ 423.882 to align these definitions. We 

also solicit comments on whether the 

surrounding terms ‘‘cash discounts, free 

goods contingent on a purchase 

agreement, up-front payments . . . 

goods in kind, free or reduced-price 

services, [or] grants’’ in both of those 

paragraphs would affect costs paid by 

sponsors of qualified retiree 

prescription drug plans. 

Our reason for striking any such term 

is that we are not aware of any form of 

coupons (or the other forms of 

remuneration listed previously) that 

would affect the amount a Part D 

sponsor pays to the pharmacy on a 

claim. Therefore, the terms should be 

deleted to accurately reflect the types of 

price concessions a Part D sponsor 

might receive that would affect its 

financial obligation to pharmacies. 

Moreover, we do not want to signal any 

ambivalence with regard to the 

permissibility of copayment coupons to 

eliminate or reduce the cost-sharing 

obligations of Part D beneficiaries. The 

anti-kickback statute prohibits the 

knowing and willful payment of 

remuneration, directly or indirectly, in 

cash or in kind, to induce the recipient 

to purchase any item for which payment 

may be made in whole or in part under 

a federal health care program. (42 U.S.C. 

1320a–7b(b)(2)). The statute also 

prohibits the knowing and willful 

receipt of remuneration in return for 

such a purchase. (42 U.S.C. 1320a– 

7b(b)(1)). Because copayment coupons 

are provided to consumers for the 

purpose of inducing them to purchase 

specific prescription drugs, knowing 

and willful use of such coupons to 

reduce the cost-sharing obligations of 

federal health care program 

beneficiaries is prohibited by the antikickback statute. Pharmaceutical 

manufacturers are aware of this 

prohibition and typically include 

language on copayment coupons stating 

that persons whose prescriptions are 

paid for by federal programs are not 

eligible to use them. 

27. Preferred Cost Sharing (§ 423.100 

and § 423.120) 

In our original rule implementing the 

Part D Program, we codified an 

interpretation of section 1860D– 

4(b)(1)(B) of the Act at § 423.120(a)(9) 

that permitted Part D sponsors to offer 

lower cost sharing at a subset of network 

pharmacies, dubbed ‘‘preferred 

pharmacies,’’ than at other in-network 

pharmacies. This lower cost sharing was 

subject to certain conditions that 

seemed straightforward to us at the 

time, but which have proven to need 

clarification. We have recently 

discussed this concern in the 

Announcement of Calendar Year (CY) 

2014 Medicare Advantage Capitation 

Rates and Medicare Advantage and Part 

D Payment Policies and Final Call Letter 

(2014 Call Letter) on pages 175–176 [at 

http://www.cms.gov/Medicare/HealthPlans/MedicareAdvtgSpecRateStats/

Downloads/Announcement2014.pdf] 

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Section 1860D–4(b)(1)(B) of the Act 

contemplates the possibility of sponsors 

offering lower cost sharing at some 

network pharmacies than is offered in 

conjunction with the any willing 

pharmacy terms and conditions 

mandated in the immediately preceding 

paragraph (A). However, a plan’s ability 

to reduce cost sharing is contingent 

upon one condition: ‘‘In no case shall 

such a reduction result in an increase in 

payments made by the Secretary under 

section 1860D–15 of the Act to a plan.’’ 

In our original proposed rule entitled 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit; Proposed 

Rule,’’ published on August 3, 2004 in 

the Federal Register, 69 FR 46658 

through 46659, we did not offer an 

interpretation of this language but 

implied that any assessment of whether 

the condition was met would be a 

matter of actuarial equivalence analysis. 

We proposed to codify the requirements 

in regulation with the following two 

conditions: ‘‘. . . the plan must still 

meet the requirements under 

§ 423.104(e)(2) and (5); and [a]ny cost 

sharing reduction must not increase 

CMS payments under § 423.329.’’ In the 

final regulation entitled ‘‘Medicare 

Program; Medicare Prescription Drug 

Benefit; Final Rule’’, published on 

January 28, 2005 in the Federal 

Register, 70 FR 4247 through 4255, we 

reiterated the language from the 

aforementioned proposed rule (69 FR 

46658). ‘‘However, we note that while 

these within-network distinctions are 

allowed, the statute also requires that 

such tiered cost-sharing arrangements in 

no way increase our payments to Part D 

sponsors. Therefore, tiered cost-sharing 

arrangements based on within-network 

distinctions could be included in Part D 

plans’ benefits subject to the same 

actuarial tests that apply to formularybased tiered cost-sharing structures. 

Thus, a reduction in cost sharing for 

preferred pharmacies in a Part D plan 

network could be offered through higher 

cost sharing for non-preferred 

pharmacies (or as alternative 

prescription drug coverage).’’ (70 FR 

4254, January 28, 2005). This statement 

was immediately followed by an 

expression of our intent to ensure that 

such network benefit designs were nondiscriminatory: ‘‘We recognize the 

possibility that Part D plans could 

effectively limit access in portions of 

their service areas by using the 

flexibility provided in § 423.120(a)(9) of 

our final rule to create a within-network 

subset of preferred pharmacies. In other 

words, in designing its network, a Part 

D plan could establish a differential 

between cost-sharing at preferred versus 

non-preferred pharmacies—while still 

meeting the access standards in 

§ 423.120(a)(1) of our proposed rule— 

that is so significant as to discourage 

enrollees in certain areas (rural areas or 

inner cities, for example) from enrolling 

in that Part D plan. We emphasize that 

such a network design has the potential 

to substantially discourage enrollment 

by certain Part D enrollees, and that we 

have the authority under section 

1860D–11(e)(2)(D) of the Act to disallow 

benefit designs that are discriminatory.’’ 

And in fact, once sponsors began to 

submit preferred cost sharing benefit 

designs, we imposed limits on nonpreferred cost sharing in such plans 

(through plan benefit package (PBP) bid 

review) to ensure that non-preferred 

cost sharing in these designs did not 

represent a cost sharing outlier in 

comparison to Part D plans without 

preferred cost sharing. If we were to 

allow cost sharing in pharmacies not 

offering preferred cost sharing to rise 

above this outlier level, beneficiaries 

with significant utilization due to severe 

or chronic illness would clearly see that 

such plans were disadvantageous, and 

would avoid them. Thus, we would find 

any such designs to be discriminatory 

and would not approve the plan benefit 

package. However, what we failed to 

sufficiently explain in 2005 was that if 

cost sharing cannot rise beyond a 

certain level, then in return for lower 

cost sharing, preferred networks must 

reduce drug costs paid by the plan in 

order to prevent an increase in CMS 

payments to the plan. In part this 

omission may have been because we 

presumed that Part D sponsors would 

motivate enrollees to go to a subset of 

pharmacies through lower cost sharing 

only if those pharmacies offered 

significantly lower negotiated prices, 

and thus would provide a competitive 

advantage for the sponsor in lowering 

costs. As the concerns expressed in the 

2014 Call Letter indicate, this does not 

seem to have been the case for some 

sponsors. However, if drug costs 

(negotiated prices) are not lower in 

return for lower cost sharing, and the 

lower cost sharing cannot be completely 

offset by higher cost sharing on other 

beneficiaries due to our cost-sharingoutlier limits, then the amount that 

must be subsidized by the government 

and the taxpayer will increase. 

As noted in the Call Letter, we 

conducted an analysis of 2011 Part D 

drug costs in standalone PDPs with 

preferred networks, and compared these 

to costs in their non-preferred networks, 

as well as to costs in other PDPs without 

preferred networks. (The April 2013 

analysis by CMS, ‘‘Negotiated Pricing 

between Preferred and Non-Preferred 

Pharmacy Networks’’, is posted at: 

http://www.cms.gov/Medicare/

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/Downloads/

PharmacyNetwork.pdf). We expected to 

find that costs were consistently lower, 

although we had no preconceived 

estimate of how much lower. Instead we 

found that aggregate unit costs weighted 

by utilization (for the top 25 brand and 

top 25 generic drugs) were slightly 

higher in a few preferred networks than 

in non-preferred networks in some 

plans. The majority of sponsors offering 

preferred networks did not have these 

higher costs, although the range of cost 

savings in their preferred networks 

ranged from a high of 24.2 percent to as 

little as 0.1 percent when measured in 

this particular way. Surprisingly, the 

most significant driver of excess costs in 

the outlier sponsor preferred networks 

appeared in mail-order claims. In these 

cases the retail pharmacies in the nonpreferred network were actually offering 

savings through discounted generics at 

prices below those offered by 

pharmacies with preferred cost sharing. 

This is a primary reason we have 

proposed to interpret the any willing 

pharmacy requirements (see section 

III.A.29 of this proposed rule) to require 

plan sponsors to offer preferred cost 

sharing for any pharmacy that can offer 

sufficient discounts to qualify. Even 

assuming that preferred pharmacies 

were to offer lower negotiated prices 

than those available in the rest of the 

network, failure to allow access to any 

pharmacy willing to meet the pricing 

terms necessary to be included in the 

preferred network could mean that 

fewer beneficiaries would have 

convenient access to both lower cost 

sharing and lower negotiated prices 

than would otherwise obtain. We seek 

to not only ensure that preferred cost 

sharing is aligned with lower drug costs, 

but also to maximize the number of 

beneficiaries who can take advantage of 

such savings. We note that most PBMs 

own their mail order pharmacies, and 

we believe their business strategy is to 

move as much volume as possible to 

these related-party pharmacies to 

maximize profits from their ability to 

buy low and sell as high as the market 

will bear. 

Our findings—that a few sponsors 

have actually offered little or no savings 

in aggregate in their preferred pharmacy 

pricing, particularly in mail-order 

claims for generic drugs—are troubling. 

Instead of passing through lower costs 

available through economies of scale or 

steeper discounts, a few sponsors are 

actually charging the program higher 

negotiated prices. When these higher 

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prices are combined with significantly 

lower cost sharing offered in preferred 

pharmacy pricing, such pricing 

increases the proportion of costs borne 

by the plan and the government. All 

other things being equal, this increases 

payments to plans in violation of 

section 1860D–4(b)(1)(B) of the Act. 

Moreover, the lower cost sharing 

provides a defective price signal that 

distorts market behavior. As the 

coverage gap closes, there are fewer and 

fewer beneficiaries who are exposed to 

the full cost of drug products, either at 

the point of sale or in Medicare Plan 

Finder estimates. When sponsors 

compete on cost sharing unrelated to the 

underlying negotiated prices of drugs, 

beneficiaries may make choices that are 

rational and aligned with plan interests, 

but not in the best interests of the 

Medicare program and the taxpayer. In 

these cases, the lower cost sharing does 

not motivate enrollees to select 

pharmacies with lower prices and thus 

make more efficient choices in the 

market, but rather, motivates enrollees 

to do the opposite. This results in higher 

costs to the Part D program overall. 

Therefore, we propose to clarify that 

preferred cost sharing should signal 

consistently lower costs. When lower 

cost sharing correctly signals the best 

prices on drugs, then choosing 

pharmacies on the basis of that lower 

cost sharing lowers not only beneficiary 

out-of-pocket costs, but also Part D plan 

and other government subsidy costs. 

Lower plan and government subsidies 

translate into lower CMS payments to 

plans, consistent with the statutory 

requirements at section 1860D– 

4(b)(1)(B) of the Act. Therefore, we 

propose to revise § 423.120(a)(9) to state: 

‘‘Preferred cost-sharing in network 

pharmacies. A Part D sponsor offering a 

Part D plan that provides coverage other 

than defined standard coverage may 

reduce copayments or coinsurance for 

covered Part D drugs obtained through 

a subset of network pharmacies, as long 

as such preferred cost sharing is offered 

in accordance with the requirements of 

§ 423.120(a)(8) and for Part D drugs with 

consistently lower negotiated prices 

than the same drugs when obtained in 

the rest of the pharmacy network.’’ We 

propose that by ‘consistently lower’ we 

mean that sponsors must offer 

beneficiaries and the Part D program 

better (lower) negotiated prices on all 

drugs in return for the lower cost 

sharing. In practice we believe this 

would mean that whatever pricing 

standard is used to reimburse drugs 

purchased from network pharmacies in 

general, a lower pricing standard must 

be applied to drugs offered at the 

preferred level of cost sharing. For 

instance, if drugs offered at the standard 

retail level of cost sharing were 

reimbursed at 20 percent off the average 

wholesale price (AWP) pricing standard, 

then any drugs offered at the preferred 

level of cost sharing must be reimbursed 

at deeper discount than AWP minus 20 

percent. If generic drugs offered at the 

standard retail level of cost sharing were 

reimbursed according to a sponsor’s 

proprietary maximum allowable cost 

(MAC) pricing standard, then generic 

drugs offered at the preferred level of 

cost sharing must be reimbursed at 

deeper discount than the MAC pricing 

rates. We believe this is not only 

consistent with the statutory intent, but 

also reasonable since the mail-order 

operations and other large pharmacies 

where preferred cost sharing is currently 

offered have significantly more 

purchasing leverage with manufacturers 

and wholesalers than do smaller 

pharmacies. Our analysis shows that 

some sponsors are already achieving 

these levels of savings, and our 

proposed policy would apply a 

consistent standard across all sponsors 

to compete on negotiated prices, 

including in related-party pharmacy 

operations. We would welcome 

comments on alternative approaches to 

ensuring that the offering of preferred 

cost sharing does not increase our 

payments. We believe that any 

alternative methodology must be based 

solely on the level of negotiated prices 

and thus consistent with our proposal to 

amend that definition (section III.A.25 

of this proposed rule). As discussed in 

that section, we proposed to revise the 

definition to specify that all price 

concessions from pharmacies must be 

reflected in the negotiated price in order 

to promote transparent price 

competition, as well as to eliminate 

differential cost reporting and cost 

shifting that interfere with a fair and 

transparent competitive bidding 

process. We request that any alternative 

methodology suggestions be 

accompanied by specific proposals for 

how we could objectively validate 

compliance through data we already 

collect. 

In addition, we solicit comments on 

whether we should also establish 

standards on how much lower drug 

costs should be in return for preferred 

cost sharing. We are aware that there is 

a wide range of savings projections 

associated with the use of limited 

networks. For instance, a January 2013 

study prepared for the Pharmaceutical 

Care Management Association (PCMA) 

provides various estimates ranging from 

5 percent to 18 percent [at http://

www.pcmanet.org/images/stories/

uploads/2013/visantepcma%20pharmacy%20networks

%20study%201-24-13%20final.pdf]. We 

solicit comment on whether Medicare 

should require a minimum level of 

savings, such as 10 percent or 15 

percent, over the costs available at retail 

cost-sharing rates. We believe that 

substantial discounts in this range 

would be necessary to balance the 

extremely low preferred cost sharing 

rates offered by many sponsors in 2013. 

We also solicit comments on how 

broadly preferred cost sharing should be 

applied to drugs on a sponsor’s 

formulary. For instance, is it reasonable 

to offer cost sharing as low as $0 for 

only the least expensive generics on 

formulary? Or should preferred cost 

sharing have to apply to a minimum 

percentage of formulary products to be 

a meaningful benefit instead? Or should 

preferred cost sharing have to apply to 

all drugs available at pharmacies 

offering preferred cost sharing? This 

would require that the prices of all 

drugs at those pharmacies could be no 

higher than the prices at the other 

network pharmacies. Such a policy 

would prevent sponsors from offering 

lower prices on drugs with preferred 

cost sharing while offering higher prices 

on other drugs not subject to preferred 

cost sharing. Our concern is that 

without such rules, it is possible that 

the beneficiary is motivated to change 

pharmacies in order to pay very low 

copays on some drugs, but the program 

may end up paying higher costs on 

other drugs the beneficiary purchases at 

the same pharmacy out of convenience. 

We also propose a clarification in 

terminology to better describe the 

application of the policy to a sponsor’s 

approved Part D pharmacy network. As 

illustrated in the proposed revision to 

§ 423.120(a)(9), we would like to change 

the point of reference in our guidance 

away from ‘‘preferred pharmacies’’ to 

‘‘preferred cost sharing’’. This is not 

only a more accurate interpretation of 

the statute, but it also avoids the use of 

the corollary term ‘‘non-preferred’’. We 

regret the unintended connotation that 

some network pharmacies are ‘‘nonpreferred pharmacies’’ when, in most 

cases, these pharmacies have had no 

opportunity to meet the terms and 

conditions for qualifying for preferred 

cost sharing. The use of the term nonpreferred also has caused confusion for 

some stakeholders since non-preferred 

is also a term of art referring to noncontracted and, therefore, non-network 

pharmacies. In addition, we believe it is 

generally misleading for our sponsors to 

refer to preferred pharmacies, when 

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only a limited number of tiers (for 

instance, generics) may be available at 

the lower preferred cost sharing rates at 

these pharmacies. Consequently, we are 

proposing to delete the definitions of 

‘‘preferred pharmacy’’ and ‘‘nonpreferred pharmacy’’ from § 423.100 and 

to add a new definition of preferred cost 

sharing. ‘‘Preferred cost sharing’’ would 

mean lower cost sharing for certain 

covered Part D drugs at certain network 

pharmacies offered in accordance with 

the requirements of § 423.120(a)(9). We 

would then require that Part D sponsors 

would revise any marketing materials to 

reflect the revised nomenclature, and 

eliminate any references to preferred or 

non-preferred network pharmacies. We 

solicit comment on whether any further 

clarifications of terminology are needed 

for this policy proposal. 

28. Prescription Drug Pricing Standards 

and Maximum Allowable Cost 

(§ 423.505(b)(21)) 

We are proposing a change to the 

regulations governing the disclosure and 

updating of prescription drug pricing 

standards used by Part D sponsors to 

reimburse network pharmacies to make 

clear that drug pricing based on 

maximum allowable cost (MAC) is 

subject to these regulations. Section 173 

of MIPPA amended sections 1860D– 

12(b) and 1857(f)(3) of the Act to add a 

provision requiring the regular updating 

of prescription drug pricing standards. 

Thus, for plan years beginning on or 

after January 1, 2009, CMS’s contracts 

with Part D sponsors must include a 

provision requiring sponsors to update 

any standard they use to reimburse 

network pharmacies based on the cost of 

the drug to accurately reflect the market 

price of acquiring the drug. These 

updates must occur not less frequently 

than once every 7 days, beginning with 

an initial update on January 1 of each 

year. 

We codified this requirement in 

§ 423.505(b)(21). We also amended 

§ 423.505(i)(3) with respect to contracts 

or written arrangements between Part D 

sponsors and pharmacies or other 

providers, first tier, downstream and 

related entities, to ensure that Part D 

sponsors’ contracts with these entities 

include provisions for regularly 

updating any prescription drug pricing 

standard used by sponsors to reimburse 

their network pharmacies, as provided 

in § 423.505(b)(21). Specifically, 

§ 423.505(i)(3)(viii)(A) requires that 

sponsors’ pharmacy contracts include a 

provision establishing regular updates 

of any prescription drug pricing 

standard used by the Part D sponsor, 

consistent with § 423.505(b)(21), and 

§ 423.505(i)(3)(viii)(B) requires that a 

Part D sponsor’s pharmacy contract 

indicate the source used by the Part D 

sponsor for making any such pricing 

updates. We finalized these regulations 

in a final rule entitled, ‘‘Medicare 

Program; Medicare Advantage Program 

and Prescription Drug Benefit 

Programs’’ at 76 FR 54600 (September 1, 

2011) (‘‘September 2011 final rule’’). 

When we finalized these regulations, 

we did not provide a specific definition 

for ‘‘prescription drug pricing 

standard,’’ because we believed that it 

was unnecessary at that time. Instead, 

we provided the following examples of 

prescription drug pricing standards: 

ones that are based on ’’wholesale 

average cost, average manufacturer 

price, and average sales price.’’ At the 

time, we believed these examples 

sufficiently illustrated what is meant by 

a prescription drug pricing standard, 

which we described as ‘‘an accepted 

methodology based on published drug 

pricing.’’ We also stated that defining 

the standard beyond this may be overly 

prescriptive and might not be flexible 

enough to evolve with industry changes. 

Since publication of the September 

2011 final rule, we have concluded that 

our description of ‘‘prescription drug 

pricing standard’’ in the preamble to the 

final rule was unintentionally too 

restrictive. Pharmacy representatives 

have noted that many contracts between 

Part D sponsors/PBMs and their 

network pharmacies set reimbursement 

through the application of MAC prices. 

It is our understanding that MAC prices 

generally refer to lists of drugs that 

include the maximum amount that a 

plan will pay for multi-source drugs, 

whether generics or multi-source 

brands. Based on numerous 

conversations with pharmacy 

representatives, we further understand 

that there is no standardization in the 

pharmacy benefits industry as to the 

criteria used to determine inclusion of 

drugs on MAC lists or as to the 

methodology used to determine the 

MAC prices, but that the latter is based 

in part on the costs of the drugs and 

fluctuate, sometimes frequently. We also 

understand that MAC prices seem to be 

set in some relation to a lowest cost 

generic product alternative available on 

the market at a given time. Additionally, 

we understand that MAC prices are not 

typically based exclusively on 

published drug pricing, but are based at 

least in part on internal Part D sponsor/ 

PBM methodologies. Finally, we 

understand that many Part D sponsors 

and PBMs have asserted that because 

MAC prices are not based solely on 

published drug pricing, MAC prices are 

not a ‘‘prescription drug pricing 

standard,’’ and thus, not subject to the 

updating requirements. 

Pharmacy representatives further 

report to us that pharmacies are forced 

to sign contracts that reimburse based 

on MAC prices that change without 

notice. These representatives state that 

pharmacies consequently do not know 

exactly what price they will be paid for 

which drugs, and thus the pharmacies 

cannot confirm that their 

reimbursements are correct nor engage 

in proper business planning. 

As noted previously, we stated in the 

preamble to the final regulation that a 

‘‘prescription drug pricing standard’’ is 

an accepted methodology based on 

published drug pricing. This is because 

we were unaware at the time that there 

is at least one standard based on costs 

of the drugs that is not based strictly on 

published drug pricing. Now that we 

have become aware of these types of 

pricing standards, we wish to clarify our 

regulatory requirement. We believe that 

the updating requirement should apply 

to pricing standards based on the cost of 

a drug, even when the standard is not 

based on published drug pricing, an 

approach consistent with the intent of 

the statute. The text of MIPPA section 

173 itself indicates the provision’s 

purpose—Part D sponsors must update 

their prescription drug pricing 

standards regularly ‘‘to accurately 

reflect the market price of the drug.’’ We 

believe that this statement of purpose 

indicates that the Congress intended to 

provide pharmacies with a means of 

ensuring that they have current data on 

the amount of reimbursement that they 

can expect. 

When the source of a prescription 

drug pricing standard is published 

publicly, such as with AWP or WAC, 

pharmacies can determine their 

reimbursement for all drugs at any given 

time and can monitor these sources to 

ensure they are being reimbursed 

correctly. However, when a prescription 

drug pricing standard is not published 

publicly, network pharmacies are 

unable to promptly determine whether 

their reimbursement is consistent with 

their contractual arrangements. This, in 

turn, presents risks to the Medicare Part 

D program in a number of ways. For 

example, disclosure of the source used 

to determine drug prices is necessary for 

pharmacies to ensure accurate payment 

of their claims, which is necessary for 

accuracy in the costs submitted to CMS 

by Part D sponsors on PDEs without 

unnecessary later adjustments that are 

disruptive to the operation of the Part D 

program. 

In addition, when network 

pharmacies are unable to determine 

whether their reimbursement is 

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consistent with their contractual 

arrangements, the accuracy of the prices 

displayed in the Medicare Prescription 

Drug Plan Finder (‘‘MPDPF’’) is 

questionable. While these prices only 

provide an estimate of Part D drugs 

costs at particular pharmacies, 

beneficiaries do use the MPDPF to make 

drug purchasing choices. If a pharmacy 

does not know what it will be paid for 

drugs on any given day, it cannot test 

the MPDPF and validate the prices. 

Thus, there is no assurance that the 

posted prices are accurate, and 

pharmacies are deprived of the 

opportunity to compete based on more 

accurate prices, and beneficiaries may 

make choices based on erroneous 

estimated drug costs. This is contrary to 

the public policy goal of facilitating 

competition in the health care system 

and supporting consumers to be 

informed purchasers of health care. 

Also, when CMS compares posted 

prices to prices submitted on PDEs to 

evaluate the estimates provided in the 

MPDPF, there can be no assurance that 

those values correspond to the 

payments pharmacies actually receive. 

For these reasons, we now believe it 

is necessary to define ‘‘prescription drug 

pricing standard’’ in regulation. 

Therefore, we propose to add a 

definition to § 423.501 that would state 

that a ‘‘prescription drug pricing 

standard’’ means ‘‘any methodology or 

formula for varying the pricing of a drug 

or drugs during the term of a pharmacy 

reimbursement contract that is based on 

the cost of a drug, which includes, but 

is not limited to, drug pricing references 

and amounts that are based upon 

average wholesale price, wholesale 

average cost, average manufacturer 

price, average sales price, maximum 

allowable cost (MAC), or other cost, 

whether publicly available or not.’’ We 

propose to include the phrase, 

‘‘includes, but is not limited to,’’ to 

signify that the examples specified in 

the regulation text are not exhaustive. 

We expect some commenters may ask 

what pharmacy reimbursement method 

would not be considered a ‘‘prescription 

drug pricing standard,’’ since the 

regulations apply only ‘‘if’’ a Part D 

sponsor uses a standard for 

reimbursement that is based on the cost 

of the drug. In our view, a fixed fee drug 

price schedule that is not expected by 

the parties to vary during the term of the 

contract between the Part D sponsor/

PBM would be not be a ‘‘prescription 

drug pricing standard,’’ as there would 

be no reason to update the list at least 

every 7 days. 

In addition, in order to make the 

regulations regarding prescription drug 

pricing standards easier to reference, we 

are proposing the following technical 

changes for consolidation purposes: (1) 

To combine the current requirements 

contained in § 423.505(b)(21) (i) and (ii) 

into (i) and eliminate the reference to 

the effective contract year 2009 as no 

longer necessary. These requirements 

generally state that Part D sponsors 

agree to update any prescription drug 

pricing standard (as would be defined in 

§ 423.501) on January 1 of each contract 

year and not less frequently than once 

every 7 days thereafter. We also propose 

to move the current requirement to 

indicate the source used for making any 

such updates to (b)(21)(ii) from 

§ 423.505(i)(3)(viii)(B). We propose this 

latter move of regulation text, so that it 

is clearer by its placement in the 

regulation that this requirement is on 

Part D sponsors. 

For new paragraph 

§ 423.505(b)(21)(iii), to be clear, we are 

proposing a new requirement and not a 

technical change. We are proposing that 

Part D sponsors agree in their contracts 

with CMS to disclose all individual 

drug prices to be updated to the 

applicable pharmacies in advance of 

their use for reimbursement of claims, if 

the source for any prescription drug 

pricing standard is not publicly 

available. This means, in conjunction 

with the proposed definition of a 

‘‘prescription drug pricing standard’’ 

discussed previously, that Part D 

sponsors would have to convey to 

network pharmacies in advance the 

actual MAC prices to be changed. We 

are requiring that the actual MAC prices 

be disclosed in advance because, if the 

pharmacies are not able to use the 

updates as a reference against which 

they can check their reimbursements, 

there would be no point to the statutory 

requirement. 

As a final technical change, we are 

proposing to eliminate language in 

§ 423.505(i)(3)(viii)(A) about 

establishing regular updates of any 

prescription drug pricing standard used 

by the Part D sponsor which is and 

would be duplicative to language in 

423.505(b)(21). As a result of the 

changes described previously, there 

would be no paragraphs (A) and (B) to 

§ 423.505(i)(3)(viii), and this provision 

would simply require that, if applicable, 

each and every contract governing Part 

D sponsors and first tier, downstream, 

and related entities, must contain 

provisions addressing the prescription 

drug pricing standard requirements of 

§ 423.505(b)(21). We believe these 

proposed technical changes will make 

the regulation text easier to reference 

and understand. 

29. Any Willing Pharmacy Standard 

Terms & Conditions (§ 423.120(a)(8)) 

Section 1860D–4(b)(1)(A) of the Act 

requires Part D plans to permit any 

pharmacy meeting the standard Terms 

and Conditions (T&C) to participate in 

the plan’s network. We used this 

authority to establish requirements 

under § 423.120(a)(8) and 

§ 423.505(b)(18) that plan sponsors have 

reasonable and relevant T&C for 

network participation in their standard 

contract, and allow any pharmacy 

meeting the T&C to participate as a 

network pharmacy for that plan. Section 

1860D–4(b)(1)(B) of the Act permits 

sponsors to reduce cost sharing ‘‘below 

the level otherwise required,’’ 

notwithstanding paragraph (A). Thus, 

the statute permits a ‘‘preferred’’ cost 

sharing level (using the definition 

specified in section III.A.27 of this 

proposed rule) to be offered at some 

network pharmacies. Since the 

beginning of the program, we have 

required sponsors to offer standard 

T&Cs to any willing pharmacy in order 

to achieve broad network access, but 

have permitted sponsors to offer 

different T&Cs in return for preferred 

cost sharing to a smaller subset of its 

network. We have previously stated that 

we believed our interpretation of these 

two seemingly conflicting statutory 

provisions struck an appropriate 

balance between the need for broad 

pharmacy access and the need for Part 

D plans to have appropriate contracting 

tools to lower costs. In this section we 

are proposing that in place of sponsors 

having one contract with standard terms 

for any willing pharmacy and a second 

preferred cost sharing contract for a 

limited subset of pharmacies, that 

sponsors instead have standard T&C for 

network participation that list all 

combinations of cost sharing and 

negotiated prices possible for retail 

settings under the plan, allowing any 

willing pharmacy the opportunity to 

offer preferred cost sharing if the 

pharmacy can offer the requisite level of 

negotiated prices. 

When discussing cost sharing, 

distinctions are made in this section 

between plans offering a preferred cost 

sharing level and plans that do not. For 

the purposes of this section, the cost 

sharing levels offered at retail 

pharmacies not contracted to offer 

preferred cost sharing (previously 

referred to as ‘‘non-preferred 

pharmacies’’) are referred to as standard 

cost sharing levels. Cost sharing levels 

offered at retail pharmacies at the 

preferred T&C (previously referred to as 

‘‘preferred pharmacies’’), are referred to 

as preferred cost sharing levels. 

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Because under our proposal for 

preferred cost sharing, pricing terms for 

pharmacies offering preferred cost 

sharing could not exceed the pricing 

terms for pharmacies offering standard 

cost sharing (see discussion in section 

III.A.27 of this proposed rule), we will 

use the terms ‘‘ceiling price’’ and ‘‘floor 

price’’ to refer to the upper and lower 

limits put on pricing terms. As 

proposed, the negotiated prices charged 

by pharmacies offering preferred cost 

sharing must be at or below the agreed 

upon ceiling price (determined by using 

the defined preferred cost sharing T&C 

pricing), which must be less than the 

floor price, or lowest negotiated price, 

charged at network pharmacies offering 

standard cost sharing. 

We heard from many pharmacies, 

many of them small independent 

community pharmacies, that plans do 

not offer any willing pharmacy the 

opportunity to offer preferred cost 

sharing. Instead, some pharmacies are 

being offered only the plan’s standard 

T&C, at the highest level of beneficiary 

cost sharing. We received more than 200 

comments in response to our discussion 

of this topic in the Announcement of 

Calendar Year (CY) 2014 Medicare 

Advantage Capitation Rates and 

Medicare Advantage and PDP Payment 

Policies and Final Call Letter (2014 Call 

Letter) pp. 175–176 at http://

www.cms.gov/Medicare/Health-Plans/

MedicareAdvtgSpecRateStats/

Downloads/Announcement2014.pdf. 

Most of these comments were from 

pharmacies concerned about barriers to 

entry for participation in preferred 

networks, and many of these argued that 

such limited networks violate the 

statutory intent of the network access 

provisions at section 1860D–4(b)(1) of 

the Act. In particular, these commenters 

disagreed that such barriers were 

consistent with the any willing 

pharmacy requirement as stated in 

1860D–4(b)(1)(A) of the Act. 

Consequently, we have reviewed our 

original regulatory interpretation of 

these provisions, not only in light of 

these complaints, but also in light of our 

experience in the Part D program. We 

believe that an alternative reading of 

sections 1860D–4(b)(1)(A) of the Act 

and (B) of the Act to reduce barriers is 

not only permissible, it would have the 

following key policy benefits, which we 

describe as follows: 

• Increased access for beneficiaries to 

preferred level cost sharing with any 

willing pharmacy able to agree to the 

T&C that include preferred cost sharing. 

• Improved opportunity for 

competition among pharmacies 

contracting with the sponsor to charge 

no more than the ceiling price stated in 

the contract for preferred cost sharing, 

reducing costs charged to the program. 

• Improved clarity for beneficiaries 

surrounding cost sharing levels 

available at retail and mail order 

pharmacies. 

Elsewhere in this proposed regulation 

we discuss clarifications to the 

requirements for offering preferred cost 

sharing within a sponsor’s network (see 

section III.A.27 of this proposed rule). In 

III.A.27 we discuss our analysis of 2011 

benefit designs incorporating preferred 

cost sharing. We found that some retail 

pharmacies are actually offering to sell 

Part D drugs (particularly generic 

versions) at prices below those offered 

by the network pharmacies eligible for 

preferred cost sharing. In such cases, the 

lower negotiated prices offering the 

program superior savings are offered to 

enrollees at the higher standard cost 

sharing levels, while the same drugs 

being offered to enrollees at lower 

preferred cost sharing levels may be 

costing the program as much or more. 

The lower cost sharing ‘‘price’’ signal is 

not aligned with either the true price of 

the drug or better overall value to the 

program, and therefore the defective 

signal incentivizes inefficient 

purchasing decisions from the 

perspective of the Part D program. If 

some retail pharmacies are willing to 

provide deeper discounts than those 

that sponsors are currently negotiating 

with pharmacies in return for offering 

preferred cost sharing, we can conclude 

that, all other things being equal, 

competition will be increased and 

aggregate negotiated prices will be 

reduced if these more competitive retail 

pharmacies have the opportunity to 

qualify for preferred cost sharing. 

Therefore, we now believe that this 

opportunity for pharmacies to gain entry 

into previously limited networks should 

be a component of the any willing 

pharmacy requirements for retail 

pharmacies, allowing more pharmacies 

the option to offer preferred level cost 

sharing if they are willing to charge no 

more than the ceiling price stated in the 

contract. 

We have heard the assertion that 

limited networks achieve greater savings 

than broader networks, and that 

moreover, allowing more participants 

into a limited network than those handpicked by the sponsor will necessarily 

lead to increased prices. However, we 

have been running a natural experiment 

of sorts relative to this assertion in the 

Part D program. If limited networks per 

se led to significantly lower costs, we 

would see consistently significant 

savings in those network segments 

relative to the rest of the sponsors’ 

networks. However, an April 2013 

analysis by CMS, ‘‘Negotiated Pricing 

Between Preferred and Non-Preferred 

Pharmacy Networks’’, reviewed actual 

program experience and indicated that 

this is not the case across the board (see 

http://www.cms.gov/Medicare/

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/Downloads/

PharmacyNetwork.pdf). As the 2012 

claims show, there is wide variation in 

discounting across sponsors. Consistent 

savings are not seen uniformly. In some 

cases, pharmacies extending high 

discounts are ones that have been 

excluded from limited networks offering 

preferred cost sharing, while some 

pharmacies within the limited networks 

offer effectively no discounts compared 

to the rest of the network. Therefore, we 

believe that opening up these limited 

networks to any pharmacy willing to 

charge no more than the contract’s 

ceiling price to qualify for offering the 

lower preferred cost sharing is necessary 

to restore price competition in these 

networks. Consequently, for any 

sponsor that offers both standard and 

preferred cost sharing under any of its 

benefit packages, we propose that the 

sponsor’s contracts for network retail 

pharmacies include not only the T&C 

for standard cost sharing, but also the 

T&C for offering preferred cost sharing, 

stating negotiated pricing levels that 

must be agreed upon to qualify for 

offering preferred cost sharing. As 

discussed previously, the ceiling price 

that a pharmacy can charge for a drug 

filled at a preferred cost sharing level, 

must be less than the floor price, or 

minimum price, charged by network 

pharmacies under that plan offering 

standard cost sharing levels. Retail 

pharmacies would elect to participate 

according to one set of terms or the 

other, but not both. 

We have also heard the argument that 

the pharmacies in currently limited 

networks are offering deeper discounts 

solely in return for increased market 

share and that they will withdraw such 

offers if the limited network is opened 

up to other pharmacies that can meet 

those T&C. We are skeptical that such 

participants in the highly competitive 

retail market will abandon their market 

share by returning to the broader 

network T&C. As some network 

pharmacies offering standard cost 

sharing have been able to extend 

discounts in pricing even deeper than 

what is seen in some pharmacies 

offering preferred cost sharing, it is not 

obvious that negotiated prices would 

necessarily increase in the aggregate in 

the event that a limited number of 

pharmacies consider changing from 

preferred to standard cost sharing. We 

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have also been informally told by one 

sponsor with preferred cost sharing in a 

limited network that its preferred cost 

sharing T&C already are offered to any 

willing pharmacy. For these reasons, we 

do not believe that our proposal would 

result in increased prices. We note that 

our proposed alternative statutory 

interpretation still would permit 

sponsors to limit preferred cost sharing 

to those pharmacies accepting T&C with 

stated ceiling prices. Aggressive price 

concessions to fall below the stated 

ceiling price (solely in the form of lower 

negotiated price, in accordance with our 

proposed change to that definition at 

§ 423.100 discussed at section III.A.25 of 

this proposed rule) would have to be 

met by all pharmacies offering preferred 

cost sharing, including pharmacies that 

are related parties of the Part D sponsor 

or its PBM. Sponsors could not offer 

preferred cost sharing for higher 

negotiated prices than the ceiling price 

listed in the T&C, but would be free to 

negotiate even deeper discounts from 

individual pharmacies in the limited 

network. Publicly posted pricing 

standards would effectively set a pricing 

floor for all pharmacies accepting a 

plan’s standard T&C and set a pricing 

ceiling for pharmacies accepting the 

preferred cost sharing T&C. These 

benchmarks better align price with 

value, while maintaining sponsor 

flexibility to negotiate with all 

pharmacies in its network. Therefore, 

we are confident that requiring that a 

Part D plan sponsor offer T&C for every 

level of cost sharing approved in its 

benefit packages to any willing 

pharmacy would not limit competitive 

negotiations, nor would it in and of 

itself lead to increased negotiated 

prices. 

We also believe that there is a limit to 

the number of cost sharing levels offered 

under a benefit plan that can be well 

understood by beneficiaries. When 

establishing its network, a Part D 

sponsor does not offer identical T&C for 

network participation to every 

pharmacy. Certain terms will 

necessarily differ among contracts with 

the different types of pharmacies 

needed to provide all Part D drugs, if for 

no other reason than to address the 

different access and service standards 

established by CMS. These various 

types include at a minimum: Retail, 

mail-order, long-term care institutional, 

limited-distribution-drug specialty, and 

home infusion therapy pharmacies. 

Terms will also differ with respect to 

negotiated prices and the level of cost 

sharing that a pharmacy’s claims will be 

subject to. For instance, long-term care 

institutional, specialty, and infusion 

pharmacies are generally offered at the 

standard level of cost sharing (for the 

applicable formulary tier) for a month’s 

supply of a covered drug. Retail and 

mail-order pharmacies, in contrast, 

currently may contract with plans to be 

offered at more than one cost sharing 

level. 

Cost sharing at retail and mail-order 

pharmacies currently vary on three 

dimensions: Whether the cost sharing is 

standard or preferred, on the quantity 

dispensed (or ‘‘days’ supply’’), and on 

dispensing location. 

a. Preferred Cost Sharing 

Under § 423.120(a)(9), sponsors can 

offer lower preferred cost sharing levels 

to some retail and mail order 

pharmacies in their network who agree 

to offer superior price concessions. 

While beneficiaries may actively seek 

out preferred cost sharing among retail 

and mail order pharmacies, this is less 

common among long term care, 

specialty, and infusion pharmacy 

settings. Any preferred cost sharing 

structure would be required to meet 

certain conditions as previously 

proposed and would be required to be 

submitted to CMS for approval as part 

of a sponsor’s plan benefit package. 

Plans are not currently required to offer 

a preferred cost sharing level, nor would 

they be required to if this proposal is 

implemented. However, for pharmacies 

that do contract to offer preferred cost 

sharing, our proposal means that 

preferred cost sharing must be available 

to all enrollees covered by that plan’s 

contract and electing to use that 

pharmacy. This would include 

consistently charging preferred cost 

sharing and consistently billing no more 

than the ceiling price for all 

prescriptions, whether a one month or 

extended days’ supply is dispensed. 

b. Extended Days’ Supply 

Additionally, different cost sharing 

levels may be offered for extended days’ 

(generally greater than 34 and no more 

than 102) supplies, at both retail and 

mail order pharmacies. To avoid 

unnecessarily complicated benefit 

designs, plans should create no more 

than two cost sharing distinctions based 

on days’ supply: One month supply (not 

to exceed 34 days) or extended days’ 

supply (greater than 34-days’ supply). In 

manual guidance (see section 50.10 of 

Chapter 5 of the Medicare Prescription 

Drug Benefit Manual) we have further 

interpreted the ‘‘level playing field’’ 

provision to mean that sponsors electing 

to offer extended days’ supplies of 

covered Part D drugs need to make 

available to retail pharmacies, upon 

request, an ‘‘Extended Supply 

Addendum’’ to their standard 

contracting terms and conditions for 

retail pharmacies. This Addendum 

provides one of two extended-days’- 

supply contracting options: (1) To be 

offered at the same cost sharing rate as 

mail order if a retailer can match the 

mail-order T&C, or (2) to be offered at 

another higher cost-sharing level, but in 

no case higher than three times the 

amount enrollee would have paid at the 

same retail pharmacy had the enrollee 

had his or her prescription filled in 

multiple 1-month supply increments at 

the applicable retail pharmacy cost 

sharing (standard or preferred) cost 

sharing rate. The nature of long term 

care, specialty, and infusion pharmacy 

dispensing makes a price differential 

based on days’ supplies largely 

unnecessary. 

c. Mail Order Cost Sharing 

Section 1860D–4(b)(1)(D) of the Act 

(and § 423.120(a)(10)) require sponsors 

to provide for extended days’ supplies 

at retail when extended days’ supplies 

are available at mail, but explicitly 

permits differential cost sharing 

between the two settings. For plans 

offering both preferred cost sharing and 

mail order options, the mail order cost 

sharing for an extended days’ supply 

can be less than the preferred cost 

sharing for an extended days’ supply 

filled at retail. However, for 1-month 

supplies, we propose that the cost 

sharing at mail order (for prescriptions 

for 34 days or less) cannot be less than 

the standard cost sharing at retail (for 

prescriptions for 34 days or less), 

regardless of whether a preferred cost 

sharing level is available. In general, we 

believe that filling initial prescriptions 

or routine 30-day supplies at mail-order 

is not good practice. Given the need to 

order or re-order mail order 

prescriptions well in advance of when 

the medication runs out (to allow time 

for shipping), the opportunity for gaps 

in therapy caused by delayed orders 

rises. When using mail order for one 

month supplies, a beneficiary would 

have to order the next month’s supply 

shortly after receiving a new order, and 

complaints received by CMS indicate 

that billing errors and delayed 

shipments occur. It is our understanding 

that mail order is most efficient when 

processing extended days supplies, 

when all billing and processing can be 

addressed well in advance of needing to 

ship the next supply. However, we 

recognize that for some populations, 

monthly mail order supplies are an 

acceptable option, so we are not seeking 

to disincentivize this option. Rather, we 

are proposing that 1-month supplies 

filled by mail order pharmacies cannot 

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have cost sharing lower than a 

comparable one month supply filled at 

retail, so as not to provide an incentive 

to fill short supplies of chronic 

medications through mail order. 

We believe that a more simplified 

benefit design, incorporating these three 

variables and accommodating a more 

clearly defined set of cost sharing levels, 

would promote better understanding of 

Part D plan benefits, both in terms of 

beneficiary cost sharing and prices 

charged to the program, as well as 

streamlined contracting options. We 

also find it important to expressly state 

the total number of possible cost-sharing 

levels, to clarify expectations and to 

preempt the introduction of additional 

or unauthorized cost-sharing levels in 

the future. 

For prescriptions not subject to Long 

Term Care, specialty pharmacy, or home 

infusion pricing, the interaction of the 

following four provisions of section 

1860D–4(b)(1) of the Act point to three 

authorized levels of cost sharing: 

Standard, preferred, and extended days’ 

supplies for retail and mail order 

pharmacies. 

• Section 1860D–4(b)(1)(A) of the Act 

details the participation of Any Willing 

Pharmacy in a plan’s network, provided 

that they meet T&C offered by the plan, 

authorizing a standard cost sharing 

level. This proposal offers retail and 

mail order pharmacies a chance to not 

just participate in the plan’s network, 

but to select among a plan’s various T&C 

for participation. By listing the T&C 

required for offering preferred cost 

sharing on the contract offered to any 

willing pharmacy, instead of only 

offering these T&C to select pharmacies, 

a greater percentage of network 

pharmacies can offer beneficiaries the 

lower cost sharing, while also offering 

reduced negotiated prices and savings to 

the Part D program. 

• Section 1860D–4(b)(1)(B) of the Act 

permits discounting for some network 

pharmacies, authorizing a preferred cost 

sharing level. This proposal continues 

to permit both a standard and preferred 

cost sharing level within a plan’s 

network. 

• Section 1860D–4(b)(1)(C) of the Act 

defines the authority to establish rules 

defining convenient access, permitting a 

mail order cost sharing level. Expanding 

requirements for any willing pharmacy 

contracts, with any pharmacy (and 

presumably a greater number of 

pharmacies) now offered the 

opportunity to compete for preferred 

cost sharing if the pharmacy can offer 

the requisite level of negotiated prices, 

would expand beneficiary access to 

lower cost sharing options within the 

network. 

• Section 1860D–4(b)(1)(D) of the Act 

creates a level playing field by ensuring 

that if extended days’ supply benefits 

are available at mail order, beneficiaries 

can get the same benefit at retail 

pharmacies. Extended days’ supply cost 

sharing at mail order does not have to 

equal extended days’ supply cost 

sharing at retail, however, we propose to 

require that it cannot be less than the 

standard cost sharing offered at retail 

pharmacies for extended days’ supply. 

As previously discussed, it is our 

understanding that mail order is most 

efficient when processing extended days 

supplies, when all billing and 

processing can be addressed well in 

advance of needing to ship the next 

supply. While we are not proposing to 

disincentivize mail order for supplies of 

less than 90 days, nor do we believe it 

is appropriate to incentivize through 

lower cost sharing the use of mail order 

in situations where gaps in therapy may 

be more likely to occur. 

When assessed together, we believe 

these four sections direct Part D plans 

to create a network offering convenient 

access not only to various types of 

pharmacies but also to various types of 

cost sharing. Permitting three retail cost 

sharing levels, as the statute implies, 

reflects the levels of cost sharing also 

observed in the commercial market. 

However, unique to Part D, the available 

cost sharing levels must also meet the 

Medicare requirements assuring 

pharmacy access for Medicare 

beneficiaries. 

We would like to minimize the 

number of variations on these three 

levels to the following options and to 

ensure that standard T&C for network 

participation offer every level available 

for each respective pharmacy type. First, 

we propose to limit long term care, 

specialty, and infusion pharmacy cost 

sharing to the standard monthly rate, as 

is industry practice today. Second, we 

propose to limit retail pharmacies to the 

three authorized levels; either the 

standard or preferred monthly rate (for 

supplies up to 34 days), and one 

extended days’ supply cost sharing rate 

not exceeding three times the monthly 

retail rate (either three times the 

standard monthly retail rate or three 

times the preferred monthly retail rate, 

depending upon the T&C of the 

pharmacy’s contract). Third, we propose 

to limit the levels of cost sharing at 

mail-order pharmacies to one monthly 

rate and one extended day mail order 

cost sharing rate (for any supplies 

greater than 34 days) for reasons 

discussed previously. We additionally 

solicit comments on the frequency of 

mail order being used to fill 

prescriptions lasting one month or less. 

We note that these proposals would not 

alter our requirements around the 

dispensing of any days’ supplies less 

than 30 days, which is still subject to 

the ‘‘daily cost sharing’’ provision at 

§ 423.153(b)(4) (which we propose to 

further clarify in section III.E.9 of this 

proposed rule). 

In summary, we propose to use the 

authority in section 1860D–4(b)(1)(C)(i) 

of the Act to establish rules defining 

convenient access within a Part D 

pharmacy network, combined with the 

authority in section 1860D–4(b)(1)(A) of 

the Act to revise the any willing 

pharmacy requirements, to ensure that 

any pharmacy that can meet the 

applicable T&C for offering standard or 

preferred cost sharing can join the 

network on those terms. We believe the 

network access provisions in section 

1860D–4(b)(1) of the Act support 

expanding § 423.120(a)(8) to all levels of 

cost sharing offered under a sponsor’s 

benefit plans. We believe that doing so 

supports the Congressional intent to 

have plans compete on negotiated prices 

by making this price competition more 

open and accessible to pharmacies. 

Specifically, we propose to revise 

§ 423.120(a)(8) to require that, in 

establishing its contracted pharmacy 

network, a Part D sponsor offering 

qualified prescription drug coverage 

must comply with all of the following 

requirements: 

• Must offer and publicly post 

standard terms and conditions for 

network participation for each type of 

pharmacy in the network subject to the 

following: 

++ May not require a pharmacy to 

accept insurance risk as a condition of 

participation in the PDP sponsor’s 

contracted pharmacy network. 

++ Must offer payment terms for 

every level of cost sharing offered under 

the sponsor’s plans consistent with CMS 

limitations on the number and type of 

cost sharing levels, and for every type of 

similarly situated pharmacy. 

• Must contract with any willing 

pharmacy able to meet one set of the 

terms and conditions offered by that 

plan for that type of pharmacy. 

We also propose to make conforming 

changes to the contracting provisions at 

§ 423.505(b)(18) to require Part D 

sponsors to agree to have standard T&C 

for network participation that meet the 

requirements described in 

§ 423.120(a)(8), with reasonable and 

relevant T&C of participation for each 

type of pharmacy in its network. We 

believe these proposed requirements 

would better ensure that each Part D 

plan: (1) Provides convenient access to 

Part D drugs in all Part D settings and 

to the extent practical, at all cost sharing 

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levels; and (2) offers cost sharing levels 

that encourage beneficiaries to make 

choices that minimize costs not only for 

themselves, but also to the Medicare 

Part D program as a whole. 

We solicit comments on these 

proposals to expand the any willing 

pharmacy T&C and to streamline the 

levels of cost sharing offered under 

those standard T&C. Based on the 

current level of negotiated prices in the 

Part D program, we conclude that if a 

greater number of pharmacies were 

given the option to compete for each 

cost-sharing level offered under the 

plan, that beneficiaries would have 

more pharmacy options offering the 

lowest cost-sharing level for reduced 

prices. We cannot compel sponsors to 

negotiate lower negotiated prices, nor 

can we compel pharmacies to accept 

plan sponsors’ T&C for participation, 

but we can create benefit specifications 

and network access standards that 

promote streamlined benefit 

comparisons and that maximize 

opportunities for price competition. We 

believe these proposals will increase 

beneficiary understanding of and access 

to cost sharing that is better aligned 

with the lowest negotiated prices, 

improve market competition, and 

increase downward pressure on total 

program costs. 

30. Enrollment Requirements for the 

Prescribers of Part D Covered Drugs 

(§ 423.120(c)(5) and (6)) 

To improve our ability to oversee the 

Medicare Part D program, we are 

proposing to implement section 6405(c) 

of the Affordable Care Act effective 

January 1, 2015. This section provides 

the Secretary with authority to require 

that prescriptions for covered Part D 

drugs must be prescribed by a physician 

enrolled under section 1866(j) of the Act 

(42 U.S.C. 1395cc(j)) or an eligible 

professional as defined at section 

1848(k)(3)(B) of the Act (42 U.S.C. 

1395w–4(k)(3)(B)). We are proposing in 

revised 42 CFR 423.120(c)(5) and new 

(6) that a prescriber of Part D drugs must 

have: (1) An approved enrollment 

record in the Medicare FFS program 

(that is, original Medicare); or (2) a valid 

opt-out affidavit on file with a Part A/ 

Part B Medicare Administrative 

Contractor (A/B MAC) for a prescription 

to be eligible for coverage under the Part 

D program. 

Our long-standing Part D policy has 

been that drugs cannot be eligible for 

Part D coverage unless they are 

dispensed upon prescriptions that are 

valid under applicable state law. We 

incorporated this policy (§ 423.100 and 

§ 423.104) in the April 12, 2012 final 

rule (77 FR 22072) entitled, ‘‘Medicare 

Program: Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2013 and Other Changes.’’ 

Inherent in this policy is the notion 

that valid prescriptions of covered Part 

D drugs are written by qualified 

prescribers, meaning prescribers who 

have an active professional health care 

license that conveys prescribing 

privileges to them under applicable 

state law. A prescription is not valid 

under any state law if it is not written 

by a qualified prescriber. Indeed, we 

note that not all of the eligible 

professional types under section 

1848(k)(3)(B) of the Act can necessarily 

prescribe drugs under state law. 

To help ensure that Part D drugs are 

prescribed only by qualified prescribers, 

we are proposing that physicians and 

eligible professionals enroll in the 

Medicare program in order to prescribe 

covered Part D drugs. We are proposing 

an enrollment deadline of January 1, 

2015, which would provide physicians 

and eligible professionals with at least 

6 months after the publication of a final 

rule to initiate and complete the 

Medicare enrollment process for the 

purposes of prescribing covered Part D 

drugs. We are soliciting comments 

regarding the effective date of this 

provision and the reason(s) why we 

should consider an earlier or later 

implementation date for this provision. 

Our proposal to implement section 

6405(c) of the Affordable Care Act with 

respect to Part D prescribers 

complements our recent steps to help 

ensure that prescriptions covered by the 

Part D program are written by qualified 

health care practitioners. In 2012, we 

provided sponsors with guidance in an 

October 1, 2012 HPMS memorandum 

titled, ‘‘Revised Reporting Requirements 

for Prescriber Identifiers and Other 

Prescription Drug Event Fields.’’ We 

also required every PDE record 

submitted by a Part D sponsor to CMS 

to contain an active and valid 

individual prescriber national provider 

identifier (NPI) beginning January 1, 

2013. PDE records are summary records 

of every prescription filled under the 

Part D program and contain prescription 

drug cost and payment data that enables 

CMS to make payments to plans and 

otherwise administer the Part D benefit. 

Thus, the PDE NPI requirement ensures 

that we have a record of the prescriber’s 

active and valid individual NPI for 

every prescription covered under the 

program. 

In the final rule implementing the NPI 

PDE requirement, we explained that the 

consistent use of a single validated 

identifier would enable us to provide 

better oversight over possible fraudulent 

activities in the Part D program. When 

promulgating § 423.120(c)(5) (77 FR 

22143, April 12, 2012), we stated that 

CMS, the National Benefit Integrity 

Medicare Drug Integrity Contractor, and 

oversight agencies would be able to 

more efficiently, and therefore more 

effectively, identify patterns of unusual 

prescribing that may be associated with 

improper and/or fraudulent activities. 

While requiring NPIs on every PDE 

record was an important first step in 

identifying and monitoring prescribers 

in the Part D program, the system that 

assigns and maintains NPI data—the 

National Plan and Provider 

Enumeration System (NPPES)—is not a 

practitioner credentialing system. The 

information stored in NPPES is selfreported by the applicant and is not 

required to be independently verified by 

HHS or CMS. This has left open some 

program vulnerabilities as described in 

recent OIG reports on this issue. For 

instance, in a June 2013 report, the OIG 

found that the Part D program 

inappropriately paid for drugs ordered 

by individuals who clearly did not 

appear to have the authority to 

prescribe. (See ‘‘Medicare 

Inappropriately Paid for Drugs Ordered 

by Individuals Without Prescribing 

Authority’’ (OEI–02–09–00608). This 

raises concerns about patient safety and 

the appropriateness of Part D payments. 

In addition, there have been reports that 

the prescriptions of physicians with 

suspended licenses have been covered 

by the Part D program. This should not 

happen, and we believe we can better 

address this type of vulnerability by 

verifying the credentials of prescribers 

as physicians or eligible professionals 

through either their enrollment in the 

Medicare FFS program with an 

approved enrollment record or their 

submission of a valid opt-out affidavit 

on file with a NPI at an A/B MAC. 

The Medicare FFS enrollment process 

requires that an A/B MAC screen and 

validate each enrollment application 

submitted by a physician or eligible 

professional prior to the decision to 

approve or deny enrollment in the 

Medicare program. Thus, when a 

physician, including an intern or 

resident, or eligible professional submits 

an enrollment application (for example, 

the CMS–855I or CMS–855O or the 

Internet-based Provider Enrollment, 

Chain and Ownership System (PECOS) 

version of these enrollment forms) to an 

A/B MAC, the A/B MAC approves or 

denies the application to enroll into the 

Medicare FFS program based on 

whether the practitioner meets the 

program requirements for his/her for 

medical specialty. The Medicare FFS 

enrollment application collects and 

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verifies identifying information about 

the applicant, and his or her credentials, 

such as the license number. For 

example, an A/B MAC verifies each 

applicant’s social security number and 

NPI at the time of enrollment, when 

changes or updates are submitted, and 

during the 5-year revalidation process. 

The A/B MAC also verifies state 

licensing board information prior to 

enrolling an individual practitioner, and 

monthly thereafter, to determine if the 

state suspended or revoked a physician 

or eligible professional’s medical 

license. In addition, A/B MACs verify 

that physician and eligible professionals 

are not excluded from receiving 

payments under any federal health 

program by checking the System for 

Award Management (SAM), a process 

similar to that which Part D sponsors 

currently use to ensure that physicians 

and eligible professionals are not 

excluded by the OIG). Thus, by 

leveraging the state licensing and OIG 

exclusion information maintained 

within PECOS, CMS’ national fee-forservice enrollment database, we believe 

that we can help ensure that physicians 

and eligible professionals are State 

licensed to prescribe covered Part D 

drugs. 

As an alternative to submitting an 

enrollment application for Medicare 

billing privileges, physicians and 

certain eligible professionals may enroll 

in Medicare for the sole purpose of 

ordering and certifying services in the 

Medicare program by completing the 

Medicare enrollment application— 

Registration for Eligible Ordering and 

Referring Physicians and Non-Physician 

Practitioners (CMS–855–O). Once an A/ 

B MAC determines that a physician or 

eligible professional meets all program 

requirements to solely order services, 

they are enrolled in the Medicare 

program and are placed into an 

approved status in PECOS. A physician 

or eligible professional may submit a 

CMS–855O application as a means of 

complying with our proposed 

requirement, if he or she is enrolling 

solely to order or certify Medicare items 

or services. 

Section 1861(r) of the Act, defines a 

physician as a doctor of medicine, 

doctor of osteopathy, doctor of dental 

surgery or dental medicine, doctor of 

podiatric medicine, doctor of optometry, 

or a chiropractor who is acting within 

the scope of his license when he/she 

prescribes a drug within Part D of 

Medicare. We note that physicians and 

eligible professionals may enroll in the 

Medicare program, but whether these 

individuals can prescribe is a matter of 

state law where the physician specialty 

or eligible professionals practices. For 

instance, a doctor of optometry may 

enroll in Medicare, but only be able to 

prescribe certain drugs within a state, 

and a clinical psychologist may enroll 

in Medicare, but may or may not be able 

to prescribe medications under state 

law. Our proposal to require physicians 

and eligible professionals to enroll in 

the Medicare program to prescribe 

covered Part D drugs does not solicit 

comment on the types of health care 

physicians and eligible professionals 

who can write a valid prescription 

under state law. We will continue to 

defer to state law regarding the 

physicians and eligible professionals 

that can prescribe covered Part D drugs. 

As such, a Part D sponsor would remain 

responsible for ensuring that a 

prescriber has the authority to prescribe 

under state law. 

Depending on state law, interns and 

residents may enroll in the Medicare 

FFS program to receive Medicare billing 

privileges or to solely order/certify 

services in Part A and Part B of the 

Medicare program. Under our proposal, 

interns and residents with an approved 

enrollment record in PECOS would also 

be allowed to prescribe covered Part D 

drugs in the Medicare program as long 

as the state permits this practice. We 

believe that this approach is consistent 

with the policy that we previously 

established in the April 27, 2012 final 

rule (77 FR 25284) entitled, ‘‘Medicare 

and Medicaid Programs: Changes in 

Provider and Supplier Enrollment, 

Ordering and Referring, and 

Documentation Requirements; and 

Changes in Provider Agreements. 

A small number of physicians and 

eligible professionals elect to opt out of 

enrolling in the Medicare program for a 

2-year period by submitting an affidavit 

to the A/B MAC and only bill the 

Medicare program for covered 

emergency or urgent care furnished to a 

Medicare beneficiary. Under section 

1802(b) of the Act and the implementing 

regulations at 42 CFR 405.400 et seq., 

certain physicians and eligible 

professionals can opt out of the 

Medicare program and enter into private 

contracts with Medicare beneficiaries. 

By entering into these types of contracts, 

these individuals do not bill the 

Medicare program for non-emergency 

services that they furnish to Medicare 

beneficiaries. In addition, § 422.220 

states, ‘‘An MA 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 under section 

1802(b) of the Act with the 

beneficiaries. An MA 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.’’ 

Generally, a physician or eligible 

professional makes the decision to opt 

out of the Medicare program because 

they have decided to furnish services on 

a private contracting basis. Therefore, 

we are proposing a similar opt-out 

policy as the Medicare FFS program 

uses for ordering services within Part B 

of the Medicare program and certifying 

services within Part A of the Medicare 

program. We believe that allowing optout physicians and eligible 

professionals to continue to prescribe 

covered Part D drugs to a Medicare 

enrollee would ensure consistency with 

the Part B program in this regard. In 

addition, an A/B MAC verifies medical 

licensure for opt-out physicians and 

eligible professionals on a monthly 

basis. Accordingly, we are soliciting 

comments on whether a prescription of 

opted-out physicians and eligible 

professionals should be considered 

covered under the Part D program as 

long as the opt-out physician or eligible 

professional furnishes their NPI to an 

A/B MAC. 

Under our proposal, the prescriptions 

of physicians or eligible professionals 

who are not enrolled in the Medicare 

FFS program or who are not enrolled in 

Medicare in an approved status would 

not be coverable under the Part D 

program. Specifically, in revised 

§ 423.120(c)(5), we are proposing that 

beginning January 1, 2015, a Part D 

sponsor must deny or must require its 

PBM to deny a claim for a Part D drug 

from a pharmacy, including at the point 

of sale, if the claim does not contain an 

active and valid physician or eligible 

professional NPI. Also, the Part D 

sponsor must deny or must require its 

PBM to deny a pharmacy claim for a 

Part D drug if: (1) The physician or 

eligible professional is not enrolled in 

Medicare in an approved status and (2) 

the physician or eligible professional 

does not have a valid opt-out affidavit 

on file with an A/B MAC. We believe 

that the implementation of this policy 

will promote quality health care and 

prevent fraud by ensuring that 

prescribers of Part D drugs are 

physicians and eligible professionals 

who have a valid state license. We note 

that a prescriber NPI is essential on the 

pharmacy claim for Part D sponsors and 

PBMs to determine whether the 

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prescriber is enrolled in Medicare in an 

approved status or has a valid opt-out 

affidavit on file with the Medicare FFS 

program. 

We also note this provision, if 

adopted, would preclude almost all 

prescribers located outside of the United 

States, Puerto Rico, Guam, the Virgin 

Islands, and the Northern Mariana 

Islands from prescribing covered Part D 

drugs to a Medicare beneficiaries, since 

these physicians and eligible 

professionals may not be eligible to 

enroll in the Medicare program. In the 

April 12, 2012 final rule entitled, 

‘‘Medicare Program; Changes to the 

Medicare Advantage and Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2013 and Other Changes’’ 

(77 FR 22144), we stated that it was our 

understanding that seven states 

(Arizona, Florida, Maine, North Dakota, 

Texas, Vermont and Washington) 

currently permit pharmacies to fill 

prescriptions from foreign prescribers, 

to varying degrees. Under our current 

requirements (see Publication 100–18, 

Chapter 5 (Medicare Prescription Drug 

Benefit Manual), section 90.2.1 (Foreign 

Prescribers) of the Internet-Only 

Manual), Part D sponsors must pay a 

claim with an active and valid NPI of a 

foreign prescriber. If there is not one at 

point of sale, sponsors do not have to 

cover the claim and research the NPI, as 

they do with domestic prescribers under 

current 423.120(c). Our proposed policy 

would change this, as no prescription 

would be covered if the prescriber is not 

enrolled in Medicare and does not have 

a valid opt-out affidavit on file with an 

A/B MAC. 

We are also proposing that beginning 

January 1, 2015, a beneficiary’s request 

for reimbursement from a Part D 

sponsor must be for a Part D drug that 

was dispensed in accordance with a 

prescription written by a physician or 

eligible professional who— 

• Is identified by his or her legal 

name in the request; and 

• Is enrolled in Medicare in an 

approved status; or 

• Has a valid opt-out affidavit on file 

with an A/B MAC. 

Finally, we are also proposing to add 

provisions to 42 CFR 423.120(c)(6) that 

a Part D sponsor would not be able to 

submit a PDE to CMS, unless it pertains 

to a claim for a Part D drug that was 

dispensed pursuant to a prescription 

written by a physician or, when 

permitted by applicable law, an eligible 

professional who: (1) Is enrolled in 

Medicare in an approved status; or (2) 

has a valid opt-out affidavit on file with 

the A/B MAC. Proposed § 423.120(c)(6) 

would also provide that a Part D 

sponsor must submit to CMS only a PDE 

that contains an active and valid 

prescriber NPI. 

Under our proposal, CMS would 

furnish or make available to Part D 

sponsors a list of physicians and eligible 

professionals that have an approved 

enrollment record within the Medicare 

FFS program or who have a valid optout affidavit on file with the A/B MAC. 

Part D sponsors would no longer be 

required to check the NPPES database to 

determine whether a prescriber has an 

active and valid individual prescriber 

NPI. For these reasons, the language of 

423.120(c)(5) would be revised, as Part 

D sponsors would have to determine 

from the list whether the prescriber is 

enrolled in the Medicare FFS program 

in an approved status or has a valid optout affidavit on file with an A/B MAC 

before allowing coverage of a prescribed 

Part D drug. We believe that verifying 

whether a prescriber is enrolled in 

Medicare with an approved enrollment 

record (or valid opt-out affidavit) would 

involve an effort similar to the one 

sponsors use now to determine if a 

prescriber has an active and valid 

individual NPI. If the prescriber were 

not listed as enrolled in Medicare in an 

approved status or on file with the A/ 

B MAC with a valid opt-out affidavit, 

the drug would not be covered under 

the Part D program and a claim, 

including a non-standard claim from a 

Medicare enrollee, would be denied by 

a pharmacy or the sponsor. Our 

proposal to require a prescriber to be 

enrolled in the Medicare FFS program 

or have an opt-out affidavit on file with 

an A/B MAC, would allow a sponsor to 

confirm that a prescriber’s license had 

been previously verified to ensure that 

the prescriber is a physician or eligible 

professional and has an active health 

care license under applicable state law. 

With more than 1 million physicians 

and eligible professionals enrolled in 

the Medicare FFS program and more 

than 9,000 valid opt-out affidavits on 

file with an A/B MAC, we do not 

believe that there are a large number of 

physicians or eligible professionals who 

prescribe covered drugs for Part D 

enrollees who are not enrolled in an 

approved status in Medicare. Our 

proposed revisions to § 423.120 reflect 

the existing usage of the CMS–855I, 

Medicare Enrollment Application— 

Physicians and Non-Physician 

Practitioners (OMB Approval Number 

0938–0685) and the CMS–855O (OMB 

Approval number 0938–1135), and, as 

such, we do not believe that it is 

necessary to change our existing 

paperwork burden estimates associated 

with completing the CMS–855I or the 

CMS–855O. 

We are also soliciting comments on 

whether we should consider requiring 

all pharmacies (for example, network, 

non-preferred, home infusion, non-retail 

or mail order, and out-of-network) to 

enroll or maintain enrollment in the 

Medicare FFS program in order to 

dispense covered Part D drugs. In a May 

2013 OIG report titled, ‘‘Retail 

Pharmacies with Questionable Part D 

Billing, (OEI–02–09–00600),’’ the OIG 

found that 2,637 or approximately 4.4 

percent of pharmacies, had questionable 

billing in 2009. The report also 

highlighted several cities (Miami, 

Florida, Los Angeles, California, and 

Detroit, Michigan) with significantly 

high levels of questionable billing than 

the national average. 

We believe that requiring Medicare 

FFS enrollment for network pharmacies 

would leverage the credentialing, 

identity verification and other 

safeguards that are part of the FFS 

enrollment process, allowing Part D 

sponsors to leverage an important 

program integrity tool for their 

networks. Alternatively, we seek 

comment on whether requiring FFS 

enrollment for network pharmacies is a 

‘‘best practice’’ in pharmacy contracting 

by plan sponsors, and should be an 

integral part of sponsors’ required fraud, 

waste and abuse programs. 

Finally, we are soliciting public 

comments from doctors of dental 

surgery or dental medicine, including 

family dentists, regarding our proposal 

that doctors of dental surgery or dental 

medicine enroll in the Medicare 

program in order to prescribe covered 

Part D drugs. While many dentists have 

enrolled in Medicare program within 

the last 2 years to order bill the 

Medicare program or order services 

within the Medicare program, we will 

continue to conduct outreach to 

professional organizations/associations 

to increase the likelihood that all 

dentists have sufficient notice and 

therefore time to enroll in the Medicare 

program in order to prescribe covered 

Part D drugs. 

31. Improper Prescribing Practices 

(§ 424.535) 

a. Background and Program Integrity 

Concerns 

Notwithstanding our proposal 

discussed in the previous section, we 

believe that additional program 

safeguard enhancements are necessary 

to protect the Medicare Trust Funds 

from fraud, waste and abuse while 

ensuring that Part D enrollees and Part 

B Medicare beneficiaries maintain 

access to quality health care. 

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As alluded to earlier, the OIG has 

conducted several studies addressing 

program integrity issues related to the 

Medicare Part D program. Two such 

reports are of particular relevance to the 

provisions we are proposing in this 

section. 

The first, which we have already 

referenced, is titled, ‘‘Medicare 

Inappropriately Paid for Drugs Ordered 

by Individuals Without Prescribing 

Authority’’ (OEI–02–09–00608), issued 

on June 21, 2013. The report found that 

Medicare paid $26.2 million for drugs 

prescribed by individuals with National 

Plan & Provider Enumeration System 

(NPPES) taxonomy codes indicating that 

they did not have the authority to 

prescribe these drugs. Such persons 

included counselors, chiropractors, 

social workers, physical therapists, 

registered nurses, occupational 

therapists, and speech-language 

pathologists. Some of these 

individuals—specifically, chiropractors, 

physical therapists, occupational 

therapists, and speech language 

pathologists—are eligible to enroll in 

the Medicare program to furnish Part B 

services. 

The second study is titled, 

‘‘Prescribers with Questionable Patterns 

in Medicare Part D’’ (OEI–02–09– 

00603), also issued in June 2013. This 

report highlighted a number of instances 

in which physicians and eligible 

professionals prescribed inordinate 

amounts of drugs to Part D beneficiaries 

in 2009. For example— 

• Medicare paid a total of $9.7 

million—151 times more than the 

average—for one California physician’s 

prescriptions; most of this physician’s 

prescriptions were filled by two 

independent pharmacies, both of which 

the OIG had identified as having 

questionable billing; 

• One hundred and eight general-care 

physicians each ordered an average of 

71 or more prescriptions per 

beneficiary, more than 5 times generalcare physicians’ national average of 13; 

and 

• An Ohio physician ordered more 

than 400 drugs each for 13 of his 665 

beneficiaries. 

• A Texas physician ordered more 

than 400 prescriptions each for 16 

beneficiaries and prescribed 700 or 

more drugs for 3 of these beneficiaries. 

The OIG also noted examples of 

physicians prescribing a high 

percentage of Schedule II and III drugs 

in 2009. In one case, 78 percent of the 

prescriptions a Florida physician 

ordered were for Schedule II drugs even 

though the OIG found that 4 percent of 

the prescriptions ordered by prescribers 

nationwide were for Schedule II drugs. 

For one beneficiary, the physician 

prescribed a 605-day supply of 

morphine sulfate, a 524-day supply of 

oxycodone HCl, a 460-day supply of 

fentanyl, and a 347-day supply of 

hydromophone HCl. 

In both reports, as well as in other 

Part D studies, the OIG recommended 

that CMS exercise greater oversight of 

the Part D program, not only to curb the 

specific practices outlined previously 

but also to stem the overall risk of fraud 

and abuse that the program presents. 

The OIG has expressed particular 

concern over the potential for 

beneficiaries to become addicted to or 

otherwise be seriously harmed by 

certain drugs if they were 

inappropriately prescribed in 

dangerously excessive amounts. We 

share this concern. 

Although we have recently taken 

steps to tighten and strengthen our 

supervision of the Part D program, 

problems remain. We continue to 

receive reports of questionable 

prescribing practices. Some of these 

prescribers have been referred to our 

Medicare Drug Integrity Contractor 

(MEDIC) for investigation. Yet even if 

we find improper practices, such as a 

particular physician’s unreasonably 

high volume or unsafe amounts of 

Schedule III controlled substance 

prescriptions, CMS does not possess the 

legal authority to take administrative 

action against the prescriber. This 

means, in many cases, that the 

prescriber can continue prescribing 

drugs that will be covered under Part D 

and, if he or she is enrolled in Medicare 

FFS, remain so enrolled to furnish 

medical services. We believe this is 

inconsistent with the OIG’s 

recommendations in its various Part D 

reports, and with our goal of protecting 

and promoting the health and safety of 

Medicare beneficiaries and safeguarding 

the Medicare Trust Funds. 

b. Drug Enforcement Administration 

(DEA) Certification of Registration 

The DEA implements and enforces 

Titles II and III of the Comprehensive 

Drug Abuse Prevention and Control Act 

of 1970, and the Controlled Substances 

Import and Export Act, as amended, and 

collectively referred to as the Controlled 

Substances Act (CSA) (21 U.S.C. 801– 

971); the implementing regulations for 

these statutes are in 21 CFR Parts 1300 

through 1321. The CSA makes 

possession of authority under state law 

to dispense controlled substances a 

requirement for both obtaining and 

maintaining a DEA Certificate of 

Registration. Consistent with 21 U.S.C. 

822(e), 21 CFR 1301.12(a) states: ‘‘A 

separate registration is required for each 

principal place of business or 

professional practice at one general 

physical location where controlled 

substances are manufactured, 

distributed, imported, exported, or 

dispensed by a person.’’ The term 

‘‘dispense’’ under 21 U.S C. 802(10) 

means ‘‘to deliver a controlled 

substance to an ultimate user or 

research subject by, or pursuant to the 

lawful order of, a practitioner, including 

the prescribing and administering of a 

controlled substance . . .’’ 

We view a DEA Certificate of 

Registration to prescribe controlled 

substances as similar to a state’s 

requirement that a physician or eligible 

professional be licensed or certified by 

the state to furnish health care services. 

We have required that physicians and 

eligible professionals meet state 

licensure or certification requirements 

in order to enroll in the Medicare FFS 

program to furnish health care services. 

In fact, certain suppliers, such as air 

ambulance suppliers, must also meet 

national certification standards by a 

federal agency (the Federal Aviation 

Administration (FAA)) to enroll or 

remain enrolled in the Medicare 

program. Failure to obtain or maintain 

appropriate licensure or certification 

can result in the denial or revocation of 

the provider or supplier’s Medicare 

under § 424.530 and § 424.535, 

respectively. 

We believe there is a similarity 

between the need to obtain and 

maintain DEA registration to dispense 

controlled substances, and the need for 

an air ambulance supplier to meet FAA 

certification requirements, and for a 

physician or eligible professional to 

meet state licensure or certification 

requirements in order to enroll in and 

maintain enrollment in Medicare FFS. 

The Medicare FFS licensure and 

certification requirements are designed 

to ensure that physicians, eligible 

professionals, and other suppliers are 

qualified to furnish health care services 

within the Medicare program. In a 

similar way, the DEA Certificate of 

Registration is designed to ensure that 

physicians and eligible professionals 

meet the statutory criteria established by 

the CSA to dispense controlled 

substances. 

Physicians, eligible professionals, and 

pharmacies with a valid DEA Certificate 

of Registration are allowed to dispense 

controlled substances. A DEA Certificate 

of Registration is not required to 

dispense non-controlled substances, 

including covered Part D drugs that are 

not considered to be controlled 

substances. Thus, under our current 

regulations, a physician or eligible 

professional may prescribe covered Part 

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D non-controlled drugs to a Part D 

enrollee even though his or her DEA 

Certificate of Registration has been 

suspended or revoked. As the agency 

that administers the Part D drug 

program, we believe it is both 

appropriate and necessary to expand 

our Medicare FFS provider enrollment 

requirements to ensure that only 

physicians and eligible professionals 

who are in good standing with state 

licensing boards and, as applicable the 

DEA, are writing prescriptions for 

covered Part D drugs in the Medicare 

program. 

c. Proposed Provisions 

In light of the foregoing discussion, 

we are proposing several changes to 42 

CFR Part 424, subpart P, in order to 

enhance our Medicare Part D and Part 

B program integrity efforts. 

(1) DEA Certificate and State Authority 

We propose to add a new 

§ 424.530(a)(11) granting CMS the 

authority to deny a physician or eligible 

professional’s Medicare enrollment 

application if: (1) His or her DEA 

Certificate is currently suspended or 

revoked; or (2) the applicable licensing 

or administrative body for any state in 

which the physician or eligible 

professional practices has suspended or 

revoked the physician or eligible 

professional’s ability to prescribe drugs; 

and (3) such suspension or revocation is 

in effect on the date he or she submits 

his or her enrollment application to the 

Medicare contractor. We believe this 

approach is consistent with our policy 

under § 424.530(a)(1) of denying 

enrollment to providers and suppliers 

that do not meet applicable licensure 

and certification requirements. 

Similarly, we propose to add a new 

§ 424.535(a)(13) granting CMS the 

authority to revoke a physician or 

eligible professional ’s Medicare 

enrollment if (1) his or her DEA 

Certificate is suspended or revoked, or 

(2) the applicable licensing or 

administrative body for any state in 

which the physician or eligible 

professional practices suspends or 

revokes the physician or eligible 

professional’s ability to prescribe drugs. 

Again, this approach is consistent with 

our requirement that providers and 

suppliers maintain compliance with all 

applicable licensure and certification 

requirements. 

We believe that the loss of the ability 

to prescribe drugs via a suspension or 

revocation of a DEA Certificate or by 

state action is a clear indicator that a 

physician or eligible professional may 

be misusing or abusing his or her 

authority to prescribe such substances. 

This raises concerns that the physician 

or eligible professional’s improper 

practices may be duplicated in the 

Medicare program. We must therefore 

take steps to ensure that Medicare 

beneficiaries are protected and the 

Medicare Trust Funds. 

(2) Patterns or Practices of Prescribing 

(a) Grounds for Revocation 

We also propose to add a new 

§ 424.535(a)(14) that would permit CMS 

to revoke a physician or eligible 

professional’s Medicare enrollment if 

CMS determines that he or she has a 

pattern or practice of prescribing Part D 

drugs that— 

• Is abusive and represents a threat to 

the health and safety of Medicare 

beneficiaries, or 

• Fails to meet Medicare 

requirements. 

We believe we have several bases for 

the legal authority for this proposal. 

First, sections 1102 and 1871 of the Act 

give the Secretary the authority to 

establish requirements for the efficient 

administration of the Medicare program. 

Second, section 1866(j) of the Act states 

that the Secretary shall establish by 

regulation a process for the enrollment 

of providers of services and suppliers. 

We also note that on April 29, 2013, 

we published in the Federal Register a 

proposed rule entitled, ‘‘Medicare 

Program: Requirements for the Medicare 

Incentive Reward Program and Provider 

Enrollment’’ (78 FR 25013). We 

proposed therein to add a new 

§ 424.535(a)(8)(ii) that would give CMS 

the discretion to revoke a provider or 

supplier’s Medicare enrollment if the 

provider or supplier has a pattern or 

practice of submitting claims for 

services that fail to meet Medicare 

requirements. Our purpose was to place 

providers and suppliers on notice that 

they were under a legal obligation to 

always submit correct and accurate 

claims and that failure to do so may 

result in the revocation of Medicare 

enrollment if such failures establish a 

pattern of incorrect or inaccurate claims. 

We believe that this concept should also 

extend to revoking Medicare enrollment 

for Part D prescribers who engage in 

abusive prescribing practices. In our 

view, if a physician or eligible 

professional repeatedly and consistently 

fails to exercise reasonable judgment in 

his or her prescribing practices, we 

should have the ability to remove such 

individuals from the Medicare program 

to protect beneficiaries’ safety and 

health as well as Medicare Trust Funds. 

(b) Criteria To Be Considered 

Many patterns and practices of 

prescribing, though perhaps 

questionable on their face, do not upon 

investigation involve abusive or 

fraudulent behavior nor involve 

substandard medical care. Therefore, we 

are proposing to base any revocation 

under proposed § 424.535(a)(14) on 

situations that fall outside the norm of 

appropriate prescribing, and only after 

carefully considering the factors 

outlined later in this section. A 

thorough, detailed investigation by CMS 

of the physician or eligible 

professional’s prescribing practices 

would be a prerequisite for the use of 

§ 424.535(a)(14). Honest physicians and 

eligible professionals who engage in 

reasonable prescribing activities would 

not be impacted by our proposal. We 

note further that CMS, rather than the 

Part D plans, would make all 

determinations under our proposed 

provisions, though information 

contained in referrals from Part D Plan 

sponsors may be used as part of CMS’ 

analysis to make revocation decisions. 

We choose not to define ‘‘abusive’’ 

and ‘‘threat to the health and safety of 

Medicare beneficiaries’’ in this 

proposed rule, primarily because the 

myriad of questionable situations that 

warrant the possible application of 

§ 424.535(a)(14) requires that CMS have 

the flexibility to address each case on its 

own merits. We believe that the sounder 

approach would be to propose a list of 

criteria that CMS would use in 

determining whether a prescriber is 

engaging in prescribing practices 

sufficient to warrant a revocation. 

In determining instances of a pattern 

or practice of prescribing that is abusive 

and a threat to the health and safety of 

Medicare beneficiaries, CMS proposes 

to consider several factors, including— 

• Whether there are diagnoses to 

support the indications for which the 

drugs were prescribed; 

• Whether there are instances where 

the necessary evaluation of the patient 

for whom the drug was prescribed could 

not have occurred (for example, the 

patient was deceased or out of state at 

the time of the alleged office visit); 

• Whether the physician or eligible 

professional has prescribed controlled 

substances in excessive dosages that are 

linked to patient overdoses; 

• The number and type(s) of 

disciplinary actions taken against the 

physician or eligible professional by the 

licensing body or medical board for the 

state or states in which he or she 

practices, and the reason(s) for the 

action(s); 

• Whether the physician or eligible 

professional has any history of ‘‘final 

adverse actions’’ (as that term is defined 

under § 424.502); 

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• The number and type(s) of 

malpractice suits that have been filed 

against the physician or eligible 

professional related to prescribing that 

have resulted in a final judgment against 

the physician or eligible professional or 

in which the physician or eligible 

professional has paid a settlement to the 

plaintiff(s) (to the extent this can be 

determined); 

• Whether any State Medicaid 

program or any other public or private 

health insurance program has restricted, 

suspended, revoked, or terminated the 

physician or eligible professional’s 

ability to prescribe medications, and the 

reason(s) for any such restriction, 

suspension, revocation, or termination; 

and 

• Any other relevant information 

provided to CMS. 

In determining whether a physician or 

eligible professional has a pattern or 

practice of prescribing that fails to meet 

Medicare requirements, CMS would 

consider the following factors, including 

whether the physician or eligible 

professional— 

• Has a pattern or practice of 

prescribing without valid prescribing 

authority; 

• Has a pattern or practice of 

prescribing for controlled substances 

outside the scope of the prescriber’s 

DEA Certificate of Registration; 

• Has a pattern or practice of 

prescribing drugs for indications that 

were not medically accepted—that is, 

for indications neither approved by the 

Food and Drug Administration (FDA) 

nor medically accepted under 1860D– 

2(e)(4) of the Act—and whether there is 

evidence that the physician or eligible 

professional acted in reckless disregard 

for the health and safety of the patient. 

To be covered under Part D, Medicare 

requires that a drug be dispensed upon 

a prescription that is valid under state 

law, that the drug meets the definition 

of a Part D drug, and that it be 

prescribed by a valid prescriber for a 

medically accepted indication. 

Therefore, a physician or eligible 

professional evidencing a pattern or 

practice of prescribing without valid 

prescribing authority, or for controlled 

substances outside the scope of the 

prescriber’s DEA Certificate of 

Registration, would face potential 

revocation of Medicare enrollment. In 

addition, a physician or eligible 

professional with a consistent pattern or 

practice of prescribing drugs for 

indications that were not medically 

accepted—that is, for indications 

neither approved by the FDA nor 

medically accepted under 1860D–2(e)(4) 

of the Act—could potentially face 

revocation. In the latter example, we 

would anticipate revoking enrollment 

only in cases where there is evidence of 

reckless disregard for the health and 

safety of the patient, not when the 

prescribing is based on peer reviewed 

literature or community standards of 

medical practice. 

We reiterate our earlier statement that 

all criteria would be carefully examined 

before determining whether a revocation 

under § 424.535(a)(14) is warranted. In 

the vast majority of cases, no single 

factor would or could be dispositive. 

Nonetheless, there are certain criteria 

that, if met, would weigh very heavily 

and perhaps decisively towards a 

finding that a revocation is justified. A 

primary example would be that the 

physician or eligible professional is 

prescribing drugs without legal 

authorization. Even if a review of the 

other criteria did not indicate a pattern 

of improper activity, unauthorized 

prescribing is so serious a matter that 

the practitioner’s continued retention of 

his or her Medicare enrollment would 

be unacceptable. 

We stated in section III.A.30, of this 

proposed rule that prescriptions ordered 

by physicians and eligible professionals 

who are not enrolled in Medicare in an 

approved status would not be coverable 

under the Part D program. 

We welcome and indeed encourage 

comments on our proposed additions of 

§ 424.530(a)(11) and of § 424.535(a)(13) 

and (14). We are especially interested in 

receiving comments on the following 

issues: 

• Whether certain proposed criteria 

should not be used. 

• Whether criteria that we did not 

propose should be used. 

• Whether certain criteria should be 

given more or less weight than others. 

• Whether our proposed additions of 

§ 424.530(a)(11) and of § 424.535(a)(13) 

and (14) should be expanded to include 

pharmacy activities. 

32. Transfer of TrOOP Between PDP 

Sponsors Due to Enrollment Changes 

During the Coverage Year (§ 423.464) 

Sections 1860D–23 and 1860D–24 of 

the Act specify that requirements for 

Part D sponsor coordination of benefits 

with State Pharmaceutical Assistance 

Programs and other plans providing 

prescription drug coverage, including 

treatment of expenses incurred by these 

payers toward a beneficiary’s out-ofpocket (TrOOP) threshold. Part D 

coordination of benefit requirements are 

codified at § 423.464 which define 

‘‘other prescription drug coverage’’ for 

COB purposes to include, among other 

entities, other Part D plans and specify 

Part D plan requirements for 

determining when an enrollee has 

satisfied the out-of-pocket threshold. 

Related regulations at § 423.104(d), 

codifying the requirements in section 

1860D–2(b) of the Act, require sponsors 

to track beneficiary TrOOP and gross 

covered drug costs and correctly apply 

these costs to the benefit limits to 

correctly position the beneficiary in the 

benefit and provide the catastrophic 

level of coverage at the appropriate 

time. When a beneficiary transfers 

enrollment between Part D plans during 

the coverage year, the enrollee’s gross 

covered drug costs and TrOOP must be 

transferred between plans and applied 

by the subsequent plan in its 

administration of the Part D benefit. The 

procedures for a prior plan to report 

these TrOOP-related data and for the 

plan of record to receive, upload, and 

use the data position the beneficiary in 

the correct phase of the benefit was 

expressed in guidance outlining sponsor 

responsibilities related to the 2006 

Enrollment Reconciliation process. CMS 

April 2006 guidance detailing 

instructions for the Enrollment 

Reconciliation-related data transfer 

noted the process would be applicable 

on an on-going basis when a 

beneficiary’s enrollment in a plan 

terminated due to enrollment in another 

plan. 

This initial manual data transfer 

process was replaced in 2009 by an 

automated process for TrOOP-related 

data transfer developed by CMS and the 

industry in collaboration with National 

Council for Prescription Drug Programs 

(NCPDP). Our guidance released in 2008 

describing sponsor implementation of 

the automated TrOOP balance transfer 

process reiterated sponsor requirements 

for data reporting by the prior plan and 

use of the data for proper positioning of 

the beneficiary in the benefit by the 

current plan. We have continued to 

specify these requirements in 

subsequent updated versions of the 

guidance. 

Automated TrOOP balance transfer is 

supported by the NCPDP Financial 

Information Reporting (FIR) transaction 

standard, which is used to electronically 

transfer TrOOP-related data between 

plans. When a beneficiary transfers 

enrollment to another plan during the 

coverage year, transactions are sent 

sequentially by the CMS Part D 

Transaction Facilitator to all Part D 

plans in which the beneficiary was 

enrolled during the coverage year or that 

paid claims on the beneficiary’s behalf. 

Sponsors must receive and respond to 

each transaction, accept the data 

reported by the enrollee’s prior plan, 

and use these data in the administration 

of the Part D benefit. 

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To ensure Part D benefits are correctly 

administered when a beneficiary 

transfers enrollment during the coverage 

year, we propose to codify these 

requirements in federal regulations. 

Specifically, we propose to amend 

§ 423.464(f)(2) by adding a new 

paragraph (C) requiring Part D sponsors 

to— 

• Report benefit accumulator data in 

real-time in accordance with the 

procedures established by CMS; 

• Accept in real-time data reported in 

accordance with CMS-established 

procedures by any prior plans in which 

the beneficiary was enrolled, or that 

paid claims on the beneficiary’s behalf, 

during the coverage year; and 

• Apply these costs promptly. 

In our guidance on automated TrOOP 

balance transfer, we express our 

expectation that sponsors successfully 

transfer accumulator data for 

beneficiaries making enrollment 

changes during the coverage year in a 

timely manner 100 percent of the time. 

Although sponsors may be reporting 

and accepting these data in accordance 

with our expectations, we have been 

informed that some sponsors may not be 

promptly loading the data received into 

their systems so it is available for claims 

processing. As a result, the beneficiary’s 

previously incurred costs and gross 

covered drug costs are not considered in 

the processing of claims received by the 

new plan sponsor soon after the 

enrollment change. With this change we 

seek to clarify that, since the automated 

TrOOP transfer process enables the 

accumulators to available to the new 

plan within a day or 2 of the new 

enrollment effective date or, if later, the 

date CMS processes the enrollment 

change, we expect the new plan sponsor 

to apply the data promptly after receipt 

and use it in benefit administration. 

33. Broadening the Release of Part D 

Data (§ 423.505) 

We are proposing to revise our 

regulations governing the release of Part 

D data to expand the release of 

unencrypted prescriber, pharmacy, and 

plan identifiers contained in 

prescription drug event (PDE) records, 

as well as to make other changes to our 

policies regarding release of Part D PDE 

data. In the May 28, 2008 Federal 

Register (76 FR 30664) we published a 

final rule entitled ‘‘Medicare Program; 

Medicare Part D Claims Data,’’ 

(hereinafter referred to as the Part D data 

final rule) to implement regulations that 

govern the collection of PDE data under 

the authority of section 1860D– 

12(b)(3)(D) of the Act and the disclosure 

of this data in accordance with section 

1106 of the Act. The provisions 

governing the collection and disclosure 

of PDE data are codified at 

§ 423.505(b)(8), (f)(3) and (l). 

PDE data are summary records of 

individual claim transactions at the 

pharmacy containing CMS-defined 

standard fields submitted by Part D 

sponsors that document the final 

adjudication of a Part D dispensing 

event. The Part D data final rule 

governed the collection and disclosure 

of the original 37 elements of PDE data, 

but was updated to apply to any 

additional elements that were added to 

the PDE record. This update was in a 

final rule issued in April 2010 (75 FR 

19678) entitled, ‘‘Medicare Program; 

Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs’’ 

(hereinafter referred to as the April 2010 

final rule). 

In the preamble to the Part D data 

final rule (73 FR 30671), we stated, ‘‘we 

[ ] believe that it is in the interest of 

public health to share the information 

collected under [the authority of 1860D– 

12(b)(3)(D)] with entities outside of 

CMS.’’ We explained that the release of 

PDE data assists CMS in evaluating the 

Medicare Part D program and assessing 

related policies. We further stated such 

release was in the interest of public 

health and would improve the clinical 

care of beneficiaries. 

In addition to setting forth the 

significant public policy reasons for 

disclosure of PDE data, we made clear 

in the preambles of both the Part D data 

final rule and the April 2010 rule that 

our primary concerns in releasing PDE 

data are protecting the confidentiality of 

beneficiary identifiable information and 

commercially sensitive data of Part D 

sponsors. Part D sponsors are private 

organizations that contract with the 

federal government to administer the 

Part D benefit by offering prescription 

drug plans to Medicare beneficiaries 

who may voluntarily enroll in one. 

Therefore, as described in the Part D 

data final rule and the April 2010 rule, 

the release of PDE data is subject to 

certain protections, described here 

generally, such as encryption of 

beneficiary information and aggregation 

of commercially sensitive data of Part D 

sponsors. In addition, whenever PDE 

data is released, we only release the 

minimum data necessary for a given 

purpose, as determined in the sole 

discretion of CMS after review of the 

requestor’s detailed request for data. If 

releasing data to an external entity, in 

the Part D data final rule, CMS indicated 

that the requestor must be a legitimate 

researcher, meaning the requestor has 

the requisite experience and is working 

for, or on behalf of, a reputable 

institution. (In the preamble to the Part 

D data final rule (73 FR 30674 citing 45 

CFR 164.501), we used the definition of 

‘‘research’’ contained in the HIPAA 

Privacy Rule, which defines the term as 

‘‘a systematic investigation, including 

research development, testing, and 

evaluation, designed to develop or 

contribute to generalizable knowledge.’’ 

In the Part D data final rule (73 FR 

30674), we also indicated that, 

consistent with our current policies for 

Part A and B data, identifiable Part D 

data would not be disclosed for 

commercial purposes. 

The following describes the current 

policy for the release of Part D data 

more specifically by PDE element: 

Beneficiary, prescriber, pharmacy, and 

plan identifiers are generally encrypted 

when released. We only release 

unencrypted beneficiary, prescriber, 

pharmacy, or plan identifiers to other 

government agencies or states, if these 

identifiers are necessary for the project, 

and we only release unencrypted 

beneficiary, prescriber, and pharmacy 

identifiers to external entities if needed 

to link to another dataset. We do not 

release unencrypted plan identifiers to 

external entities, except to HHS 

grantees, as permitted under the criteria 

described in the April 2010 rule and 

codified in the regulations at 42 CFR 

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

Under the Part D data final rule, drug 

cost data in PDE records are generally 

aggregated when released. Drug cost 

data are available in disaggregated 

format only to other HHS entities and 

congressional oversight agencies. Drug 

costs data in PDE records consist of the 

drug ingredient cost, applicable 

dispensing fee and any required state 

sales tax. However, upon request we 

would exclude sales tax from the 

aggregation at the individual claim level 

if necessary for a project. 

As this is a time of unprecedented 

change for CMS and the health care 

system in general, we believe the 

current regulations governing the 

release of PDE data need to be reconsidered. The agency has an 

important role to play in supporting 

opportunities to accelerate the transition 

to a data-driven and information-based 

health care delivery system in this 

country. CMS itself is transforming from 

a passive payer of claims towards a 

value-based purchaser of health care, 

while at the same time, other health care 

payer and provider incentives have 

shifted toward broader coverage and 

coordinated care. These trends are all a 

positive and expected outgrowth of the 

passage and implementation of the 

Affordable Care Act. 

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Concurrent with the changes to CMS’ 

role and the health care system in 

general is the fact that we now have 

several years of experience with release 

of PDE data from the Medicare Part D 

program. We believe the current 

limitations on the release of certain data 

elements hinder the use of PDE data in 

this new health care environment, and 

inhibit accompanying insights into 

prescription drug benefit plans that 

could result from broader release of the 

data. Our experience has led us to 

conclude that broader release of PDE 

data to external entities can increase the 

positive contributions researchers make 

to the evaluation and function of the 

Part D program, and improve the 

efficiency of the program and the 

clinical care of its beneficiaries, which 

is in the interest of public health. 

Expanded access to PDE data by 

external entities will allow the 

researchers to study additional aspects 

of the Medicare program and health 

care, and their findings will be released 

publicly. Such contributions are in the 

interest of the Medicare Part D program 

and public health now more than ever 

as the Affordable Care Act transforms 

CMS’s role and the nation’s health care 

system. 

For these reasons, we believe 

increased access to prescriber, 

pharmacy, and plan identifiers by all 

categories of requestors is of utmost 

importance. This new policy would 

facilitate research by entities outside 

CMS that involves identifiable plans, 

prescribers, and pharmacies. 

Furthermore, we believe we can relax 

the current policies on the release of 

this PDE data, while still protecting 

beneficiary confidentiality and 

commercially sensitive data of Part D 

sponsors. 

Accordingly, we are proposing to 

permit the release of unencrypted 

prescriber, pharmacy, and plan 

identifiers contained in PDE records to 

all current categories of requestors 

(including, other HHS entities and the 

Congressional oversight agencies, nonHHS executive branch agencies and 

states, and external entities). We note 

that because the minimum necessary 

policy will still apply to all such 

releases, this proposed policy change 

with respect to HHS entities/

Congressional oversight agencies and 

non-HHS executive branch agencies/

states is more a formality, since this data 

is available in unencrypted format to 

these same entities under the current 

Part D data regulations ‘‘if needed.’’ For 

this reason, we focus on the release of 

unencrypted prescriber, pharmacy, and 

plan identifiers to external entities as 

discussed later in this section. 

We emphasize that we are not 

proposing any changes to our release 

policies with respect to beneficiary 

identifiable data and the drug cost data 

of Part D sponsors. In addition, other 

data that is still viewed by some at this 

time to be commercially-sensitive data 

of Part D sponsors, for example, data on 

bids, rebates and other price 

concessions, are outside the scope of the 

changes to current PDE data release 

policies that we are proposing here. We 

note that bid data is not collected 

through PDE records, and while rebates 

and other price concessions may be 

reflected in PDE records, we are not 

proposing to make any changes to the 

policies governing release of such data. 

We understand that there may be 

concerns about releasing unencrypted 

prescriber, plan, and pharmacy 

identifiers to external entities, as they 

have been raised in the past, and we 

would like to address them upfront. In 

the preamble to the Part D data final 

rule (73 FR 30675), we addressed 

specific concerns about expanding 

access to prescriber information by 

external entities, particularly for 

pharmaceutical companies and others 

who may want to influence physicians’ 

prescribing patterns and interfere with a 

physicians’ professional judgment. We 

stated that an encrypted version of the 

prescriber identifier, which allows for 

the linkage of all of a prescriber’s claims 

without divulging the prescriber’s 

identity, would meet the needs of most 

researchers. 

However, in our view today, the vast 

majority of physicians have prescribed 

and do prescribe what they believe are 

the appropriate medications for their 

patients, and they should have no 

concerns with transparency in their 

prescribing patterns. Moreover, there are 

other measures in place to prevent 

inappropriate influence by external 

entities on prescribers. For example, 

section 6002 of Affordable Care Act 

requires applicable manufacturers of 

drugs covered under the Part D program 

to report annually to the Secretary 

certain payments or other transfers of 

value to physicians. This requirement 

was implemented through a final rule 

that appeared in the February 8, 2013 

Federal Register (78 FR 9458) entitled, 

‘‘Medicare, Medicaid, Children’s Health 

Insurance Programs; Transparency 

Reports and Reporting of Physician 

Ownership of Investment Interests’’. In 

addition, the federal Anti-Kickback Law 

(section 1128B(b) of the Act) provides 

that anyone who knowingly and 

willfully solicits, receives, offers, or 

pays anything of value to influence the 

referral of federal health care program 

business, including Medicare and 

Medicaid, can be held accountable for a 

felony. Finally, we would point out that 

when data are completely transparent, it 

is easier for the attempts of some to use 

the data for purposes of inappropriate 

manipulation to be countered by others 

who have access to the same data. We 

note that it appears that prescriber data 

are already available commercially from 

pharmacy data aggregators. For these 

reasons, we believe that our earlier 

concerns about the release of 

unencrypted prescriber identifiers in 

PDE data to external entities are no 

longer warranted. 

Our proposal to release unencrypted 

prescriber identifiers means that 

legitimate external researchers will be 

able to conduct research that involves 

identifiable prescribers using PDE data. 

In the Part D data final rule (73 FR 

30676), a commenter argued that 

providing access to linked physician 

identifiable claims in order to pool them 

with employer data would allow 

analysis to reduce cost of care delivery 

and improve the quality of care. In 

response, we did not disagree with the 

commenter, but referenced a variety of 

pay for performance and value-based 

health care initiatives being undertaken 

by CMS in an effort to encourage health 

care providers to furnish high quality 

health care and to provide cost and 

quality information to consumers. We 

noted that we intended to use PDE data 

in those activities. We declined, 

however, to adopt a policy that would 

include making unencrypted prescriber 

identifiers available for release to 

external entities (except when needed to 

link to another data set). 

However, in light of the goals of the 

Affordable Care Act to improve the 

quality of health care, including through 

better access to information, we now 

acknowledge our agreement with the 

commenter regarding the importance of 

providing access to prescriberidentifiable claims. As we noted 

previously in this section, now more 

than ever, it is vital that researchers 

have more data to investigate ways to 

reduce the cost of care and improve its 

quality. Studying the prescribing trends 

of identifiable prescribers can assist all 

stakeholders in the health care system, 

from both public and private health care 

payers, to patients, and even to 

physicians themselves, by identifying 

prescribing benchmarks and 

determining the reasons for variations. 

With respect to the release of plan 

identifiers, we recognized that it might 

be asserted that in the Part D data final 

rule and April 2010 rule we included 

this data when discussing commercially 

sensitive data of Part D sponsors that 

would generally be encrypted when 

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released to external entities. However, 

we point out that we focused on the 

separate costs paid by Part D sponsors 

for ingredient costs or dispensing fees as 

being the confidential data on the claim 

(73 FR 30668), and we are not proposing 

any changes to our policies with respect 

to the release of ingredient costs or 

dispensing fees. However, we are 

proposing to release unencrypted plan 

identifiers to all categories of requestors. 

In comments in response to the Part 

D data proposed rule, commenters 

requested clarification that the planspecific information we were proposing 

to disclose related only to Part D claims 

data and would not include 

competitively sensitive financial data 

regarding rebates, discounts, or other 

negotiated price concessions. The 

commenters expressed concerns that 

release of competitively sensitive data 

could undermine the competitive bid 

process, asserting that plans would be 

able to adjust their bids on the basis of 

knowledge of each other’s data, 

resulting in higher drug costs for all. In 

response to these concerns, we replied 

in the preamble to the Part D data final 

rule that we shared the commenters’ 

concerns about the need to protect 

sensitive data under the Part D program. 

We stated that because the Medicare 

drug benefit is based on a competitive 

business model, we believe releasing 

commercially or financially sensitive 

data to the public could negatively 

impact Part D sponsors’ ability to 

negotiate for better prices, and 

ultimately could affect the ability of 

sponsors to hold down prices for 

beneficiaries and taxpayers. Therefore, 

we explained (73 FR 30668) that we 

were adopting a number of protections 

to mitigate these concerns, which 

include our minimum necessary, 

legitimate researcher, and aggregation 

policies described previously. 

These policies would also not change 

under our current proposal, except that 

plan identifiers (including internal 

plan/pharmacy identification numbers 

on the claim that represent reference 

numbers assigned by the plan at the 

time a drug is dispensed), would be 

available for release to all categories of 

requestors without encryption. In other 

words, our current policy on release of 

ingredient cost and dispensing fee data 

would not change under our proposal, 

meaning the minimum necessary data 

regarding ingredient costs and 

dispensing fees would continue to be 

available for release in disaggregated 

form only to other HHS entities and 

congressional oversight agencies. NonHHS executive branch agencies and 

external entities could still only obtain 

the minimum necessary ingredient cost 

and dispensing fee data, only in 

aggregated form, and only if it is 

released to a legitimate researcher. 

We are proposing this change to our 

regulations governing the release of plan 

identifiers, because we no longer believe 

plan identifiers in PDE data are 

commercially sensitive data of Part D 

sponsors that should not be available for 

release (unless encrypted). Indeed in the 

April 2010 rule (75 FR 19675 through 

19676), in which we expanded access to 

unencrypted plan identifiers to include 

HHS grantees under certain conditions 

on the basis that it would allow for the 

study of beneficiary plan choices, which 

would assist CMS in better 

understanding and improving the 

Medicare program, we responded to 

opposing comments that we believed 

allowing broader access by grantees of 

non-HHS entities and external 

researchers could also further assist 

CMS, even though we declined to adopt 

such broader access at the time, because 

we believed that additional time was 

needed to evaluate the issue. 

Moreover, an analysis of Part D plans, 

their network pharmacies, and average 

drug costs, can already be accomplished 

through data posted on CMS’ Web site 

and/or purchased in public use files. 

Additionally, the MPDPF allows users 

to view and compare all available 

prescription drug plan choices, 

including plan and pharmacy specific 

estimates of the costs of individual 

drugs. These data can be manipulated 

by researchers to reveal information 

about specific plans and pharmacies 

that contributes to the evaluation and 

functioning of the Part D program and 

can be used to improve the public 

health. Therefore, in light of the public 

policy rationale for increasing access to 

PDE data by all categories of requestors, 

we believe that plan identifiers should 

be available in unencrypted format. 

We did not respond to any comments 

specifically addressing pharmacy 

identifiers in our Part D data final rule 

and April 2010 rule. However, for the 

same reasons that we are proposing to 

make prescriber and plan identifiers 

available for release in an unencrypted 

format, we no longer see a reason that 

pharmacy identifiers should not be 

available for release in unencrypted 

format. Accordingly, we also propose to 

release unencrypted pharmacy 

identifiers to all categories of requestors, 

which would also be a change in the 

current regulations governing the 

release of PDE data. 

We would like to address one final 

aspect of our policies governing the 

release of Part D data. As discussed 

previously, in the preamble to the Part 

D data final rule, we explained that 

consistent with CMS’s existing policies 

with respect to Parts A and B data, CMS 

would not release PDE data for 

commercial purposes (but external 

researchers may be funded by 

commercial firms if the researchers are 

free to publish their results regardless of 

the findings). However, given reasons 

that we have highlighted previously 

which provide the impetus for the 

changes that we are proposing to make 

to our rules governing the release of PDE 

data, we are also soliciting comment on 

the current restriction on the release of 

PDE data for commercial purposes. We 

are not making a specific proposal in 

this regard, but rather wish to receive 

comments for consideration in light of 

the proposed changes to the 

requirements governing the release of 

Part D data that are included in this 

proposed rule. 

In addition to the proposed changes 

with respect to prescriber, pharmacy, 

and plan identifiers described 

previously, and our request for 

comment on the restriction on the 

release of Part D PDE data for 

commercial purposes, we are proposing 

a few other changes to our regulations 

governing the release of PDE data and 

also wish to clarify our existing policies 

with respect to several issues related to 

the PDE data. First, we are proposing to 

add supporting program integrity 

purposes, including coordination with 

states, as an additional purpose deemed 

necessary and appropriate by the 

Secretary for which a Part D sponsor 

must agree to submit all data elements 

included in all its drug claims under 

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

The regulation at § 423.505(f)(3) 

currently contains a non-exclusive list 

of purposes deemed necessary and 

appropriate. We believe that the use of 

these data for supporting program 

integrity purposes has always been 

included, even though not explicitly 

listed. However, given the importance of 

our ability to release PDE data for 

program integrity purposes, including 

for coordination with states on program 

integrity, we are proposing to add this 

purpose explicitly to the non-exclusive 

list in § 423.505(f)(3). 

Second, we are clarifying that nonfinal action data (for example, 

information on claims subject to 

subsequent adjustment) are available to 

entities outside of CMS. Non-final 

action data are captured through the 

data element, ‘‘Original versus Adjusted 

PDE (Adjustment/Deletion code).’’ This 

is a PDE field which distinguishes 

original from adjusted or deleted PDE 

records, so CMS can adjust claims and 

make accurate payment for revised PDE 

records, and is thus not point-of-sale 

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data. With the increasing focus on 

coordination of care, requests for access 

to non-final action PDE data have also 

increased. Such data are also routinely 

requested for evaluation and research 

projects. The Part D data final rule (73 

FR 30683) included an appendix that 

explained in more specific detail the 

restrictions relative to the available PDE 

elements for the different categories of 

requestors. This appendix stated (73 FR 

30685) that the data element ‘‘Original 

versus Adjusted PDE (Adjustment/

Deletion code)’’ was available to other 

(that is, non-CMS) HHS entities and the 

congressional oversight agencies, while 

for non-HHS executive branch agencies, 

states, and external entities, it stated 

that ‘‘Final Action claims would be 

provided, so this element should not be 

needed.’’ Thus, this appendix did not 

explicitly address the question of 

whether non-final action data would be 

available for release to these entities, 

because such data were not expected to 

be needed. However, since it is clear 

that these entities do need access to 

non-final data, we are clarifying that 

non-final action data are also available 

for release to non-HHS executive branch 

agencies, states, and external entities 

under the Part D data final rule. 

Finally, we believe these proposed 

changes to the Part D regulations 

governing PDE data release do not raise 

any new issues under the Privacy Act 

and that the changes are consistent with 

the System of Records that currently 

applies to the relevant data. Thus, we 

are not proposing any changes to the 

System of Records, ‘‘Medicare Drug Data 

Processing System (DDPS),’’ System No. 

09–70–0553, as we are not proposing 

any changes to the data we are 

collecting, to how the data may be used, 

to the entities that may receive the data, 

or to the manner of transmission of the 

data. Rather we are proposing a change 

in the format in which the data may be 

provided when released to certain 

categories of requesters. 

In light of the proposed changes to 

our policies governing the release of 

PDE data described previously, we are 

proposing changes to the current 

applicable regulatory text as described 

later in this section. We are also 

proposing to eliminate the appendix 

that accompanied the Part D data final 

rule (73 FR 30683) that explained in 

more specific detail which PDE 

elements would be available to different 

categories of requestors, and any 

restrictions that applied. We believe this 

appendix is no longer necessary, as our 

proposals would eliminate most of the 

distinctions with respect to the PDE 

data available for release to the different 

categories of requesters, with the 

exception of Total Drug Costs, which 

will continue to be available in 

disaggregated form only to other (that is, 

non-CMS) HHS entities and the 

congressional oversight agencies, and 

we propose to revise the regulation at 

§ 423.505(m)(1)(iii)(B) to account for 

this distinction. We also clarify that we 

will exclude sales tax from the 

aggregation, if necessary for the project. 

We also propose changes to the 

regulatory text to incorporate notes from 

the current Appendix that are not 

addressed by the existing reference to 

CMS data sharing procedures in 

§ 423.505(m)(1)(ii). 

Therefore, consistent with the 

foregoing, we propose the following 

revisions to the applicable regulatory 

text: 

• Section 423.505(f)(3) would be 

revised to add supporting program 

integrity purposes, including 

coordination with states, as an 

additional purpose. 

• Section 423.505(m)(1)(iii) would be 

revised to remove references to 

encrypting certain identifiers since 

prescriber, plan, and pharmacy 

identifiers would no longer be subject to 

encryption when released. 

• Section 423.505(m)(1)(iii)(A) would 

be revised to clarify that, subject to the 

restrictions contained in paragraph 

(m)(1), all elements on the claim are 

available not only to HHS, but also to 

other executive branch agencies and 

states, since there is no longer any 

distinction between the two categories. 

• Section 423.505(m)(1)(iii)(B) would 

be revised to incorporate a note from the 

appendix, which states: ‘‘Upon request, 

CMS excludes sales tax from the 

aggregation at the individual level, if 

necessary for the project’’ at the end of 

the provision. 

• Section 423.505(m)(1)(iii)(C) would 

be deleted as no longer necessary since 

unencrypted plan identifiers, including 

the internal plan/pharmacy 

identification numbers, would be 

available for release. 

• Section 423.505(m)(1)(iii)(D) would 

be re-lettered as (C) and references to 

encryption of pharmacy and prescriber 

identifiers would be deleted, since these 

identifiers would be available for release 

in unencrypted format. Additional 

language regarding beneficiary 

identifiers would be added to the 

existing provision to reflect the current 

policy on release of this identifier as 

reflected in the appendix that would be 

eliminated. 

• Section 423.505(m)(3) would be 

revised to incorporate a note from the 

appendix that would be eliminated 

about the status of the Congressional 

Research Service as an external entity 

when it is not acting on behalf of a 

Congressional committee in accordance 

with 2 U.S.C. 166(d)(1). 

34. Establish Authority To Directly 

Request Information From First Tier, 

Downstream, and Related Entities 

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

Pursuant to section 1857(d)(2) and 

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

regulations at 42 CFR 422.504(i) and 42 

CFR 423.505(i) establish various 

conditions that entities contracting as a 

first tier, downstream, or related entity 

(FDR) to an MA organization or Part D 

sponsor must agree to in order to 

participate in the MA or Part D program. 

One such condition at § 422.504(i)(2)(i) 

and § 423.505(i)(2)(i) is that HHS, the 

Comptroller General, or their designees 

have the right to audit, evaluate, and 

inspect any books, contracts, computer 

or other electronic systems, including 

medical records and documentation of 

the first tier, downstream, and related 

(FDR) entities related to CMS’ contract 

with the Part C and D sponsor. 

CMS (or its designee(s)) conduct 

routine audits of Part D sponsors and 

MA organizations, as well as conduct 

audits to investigate allegations of 

noncompliance with Part C and/or Part 

D rules and requirements. While 

§ 422.504(d) and § 423.505(d) address 

Part D and MA organizations’ own 

maintenance of records and the rights of 

CMS to inspect those records, 

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

also require plan sponsors require that 

their FDRs agree to this CMS right to 

inspection. Plan sponsors regularly 

contract with FDRs to perform critical 

Part C and D operating functions. For 

example, many (if not most) Part D 

sponsors delegate critical Part D 

functions to their PBMs. As a result, 

many of the records that we or our 

designees would need to review and 

evaluate when we audit a Part D 

sponsor or MA organization reside with 

its FDRs. 

Our existing regulation at § 423.505 

(i)(3)(iv) states that the contracts 

between the Part D sponsor and its FDRs 

must indicate whether records held by 

the FDR pertaining to the Part D 

contract will be provided to the sponsor 

to provide to CMS (upon request), or 

will be provided directly to CMS or its 

designees by the FDR (the Part C 

regulation is silent on this matter). As 

such, we have not previously required 

Part C or Part D FDRs to provide 

information directly to CMS. 

Two separate reports by the OIG 

(OEI–03–08–00420, dated October 2009 

and OEI 03–11–00310, dated January 

2013), have highlighted barriers 

experienced by the Medicare Drug 

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Integrity Contractor (MEDIC), the entity 

contracted by CMS to be responsible for 

detecting and preventing fraud, waste, 

and abuse in the Medicare Parts C and 

D programs nationwide, in obtaining 

requested information in an expeditious 

manner. The 2009 OIG report discussed 

that CMS’ and its designees’ (in this 

case, the MEDIC) lack of authority to 

directly obtain information from 

pharmacies, PBMs, and physicians has 

hindered the MEDIC’s ability to 

investigate potential fraud and abuse 

and the OIG recommended that CMS 

change its regulations to establish its 

authority to obtain necessary 

information directly from FDRs. The 

OIG’s 2013 report reiterated the 

recommendation that CMS have a more 

direct route to obtain records held by 

FDRs so that CMS would be able to 

obtain necessary records in a timely 

fashion. While the 2013 report pointed 

out that sponsors and their FDRs 

generally cooperate in providing the 

information requested by the MEDIC, it 

often takes months for it to reach the 

MEDIC because the MA organization or 

Part D sponsor acts as a gatekeeper. 

In the past, we chose not to be 

prescriptive regarding whether a first 

tier, downstream, or related entity must 

make its books and records available to 

us directly or through the Part C or D 

sponsor. As a consequence of what we 

have learned through the OIG 

investigations and the seriousness with 

which we approach our fraud, waste, 

and abuse oversight obligations, we are 

now proposing to specify at 

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

that HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records by obtaining them directly from 

any first tier, downstream, or related 

entity. This proposed regulatory change 

would not grant CMS any investigative 

or audit authority that we do not already 

possess. It would merely guarantee us a 

direct and expeditious route to the 

information we need to obtain for 

purposes of program oversight. This 

regulatory change would also reduce the 

burden on the plan sponsor. The plan 

sponsor would no longer need to act as 

the gatekeeper between CMS and its 

first tier, downstream, or related entity. 

Upon making contact with the first tier, 

downstream, or related entity, we would 

simultaneously notify the plan sponsor 

concerning the nature of the request. 

This will ensure that the plan sponsor 

will have notice that we are contacting 

one of its subcontractors. 

We are proposing to revise the 

regulation at § 422.504(i)(2)(i) and 

§ 423.505(i)(2)(i) to make clear that CMS 

and its designees may ‘‘collect’’ records, 

in addition to our existing authority to 

‘‘audit, evaluate, and inspect’’ 

information. The addition of ‘‘collect’’ 

removes any doubt that, in addition to 

our other options for obtaining records, 

we have the authority to request 

information to be reviewed in some 

location other than onsite at a sponsor’s 

or FDR’s facility. Furthermore, the 

proposed provision is intended to 

clarify only that CMS may contact FDRs 

directly and request that they provide 

Part C or D-related information directly 

to CMS. The question as to whether 

CMS has the authority to enter the 

premises of FDRs, is to be determined 

by interpreting other applicable 

statutory and regulatory authority. 

We also propose to delete the existing 

provision at § 423.505(i)(3)(iv) which 

gives Part D sponsors the choice as to 

how information sought from their FDRs 

will be provided to CMS. Section 

423.505 would be renumbered so that 

paragraphs (v)–(viii) would become 

paragraphs (iv)–(vii). 

35. Eligibility of Enrollment for 

Incarcerated Individuals (§ 417.1, 

§ 417.460, § 422.74, and § 423.44) 

Entitlement and enrollment in the 

Medicare program (Part A and Part B) is 

contingent on entitlement to Social 

Security retirement and disability 

benefits as outlined in sections 226 and 

226A of the Act, and enrollment in the 

Medicare program for individuals not 

receiving retirement or disability 

benefits is outlined in sections 1818 and 

1818A of the Act. These sections do not 

preclude entitlement to or enrollment in 

the Medicare program for individuals 

who are incarcerated in prisons or other 

penal facilities. However, section 

1862(a)(3) of the Act excludes Medicare 

payment for services which are paid 

directly or indirectly by another 

government entity, including federal, 

state and local prisons, and penal 

facilities. Given that Medicare 

entitlement flows from entitlement to 

Social Security retirement and disability 

benefits, we established regulations at 

§ 411.4(b) and implemented section 

1862(a)(3) of the Act through a payment 

exclusion process in the FFS program, 

outlined in section 50 of Chapter 16 of 

the Medicare Benefit Policy Manual and 

section 10.4 of the Medicare Claims 

Payment Manual. 

The Medicare payment exclusion 

process includes the receipt of 

incarceration status for individuals via 

regular data exchanges from the SSA to 

CMS. Once we receive the data, the 

incarceration status is noted on the 

individual’s record and is retained in 

the FFS claims processing systems. 

Upon receipt of submitted FFS claims, 

CMS denies payment of both Part A and 

Part B claims for individuals with 

records on which incarceration is 

denoted. The denial of claims continues 

until the individual is no longer 

considered incarcerated and that 

information is reported by SSA to CMS. 

Individuals who are entitled to 

premium-free Part A will maintain their 

entitlement and will remain enrolled in 

Part B as long as premiums are paid. 

Similarly, individuals who are enrolled 

in premium Part A and/or Part B 

maintain their enrollment as long as 

premiums are paid. Sections 

1851(a)(3)(B), 1860D–1(a)(3)(A), and 

1876(a)(1)(A) of the Act outline the 

eligibility requirements to enroll in MA, 

Part D, and Medicare Health 

Maintenance Organization/Competitive 

Medical Plans (cost plans). In all 

options, individuals must have active 

Medicare coverage. Specifically, to 

enroll in MA, an individual must be 

entitled to Part A and enrolled in Part 

B; to enroll in a PDP, an individual must 

be eligible for Part D by either being 

entitled to Part A and/or enrolled in Part 

B; to enroll in a Medicare cost plan, an 

individual must be enrolled in Part B 

but Part A is not required. 

In addition, sections 1851(b)(1)(A), 

1860D–1(b)(1)(B)(i), and 1876(d) of the 

Act provide that Medicare beneficiaries 

are eligible to enroll in an MA plan, 

PDP, or cost plan only if they reside in 

the geographic area served by the plan, 

known as the plan’s ‘‘service area.’’ As 

noted earlier, an individual who is 

incarcerated still meets the eligibility 

requirements for Part A and Part B and 

is eligible generally to enroll in an MA 

plan, PDP, or cost plan. However, 

residence in a plan’s service area is also 

a condition for eligibility to enroll in an 

MA plan, PDP or cost plan. See 

§ 422.50(a)(3)(i) for MA plans, 

§ 423.30(a)(1)(ii) for PDPs, and 

§ 417.422(b) for cost plans. If a member 

no longer resides in the service area, 

plans must disenroll that individual per 

rules at § 422.74(a)(2)(i) and § 422.74 

(d)(4) for MA plans, § 423.44(b)(2)(i) for 

PDPs, and § 417.460(b)(2)(i) for cost 

plans. 

a. Changes in Definition of Service Area 

for Cost Plans (§ 417.1) 

In order to implement the exclusion 

from Medicare coverage for incarcerated 

individuals under section 1862(a)(3) of 

the Act in the case of MA plans and 

PDPs, we explicitly excluded facilities 

in which individuals are incarcerated 

from an MA plan’s service area by 

including this exclusion in the 

definition of ‘‘service area’’ (54 FR 

41734 and 72 FR 47410). Specifically, 

‘‘service area’’ is defined in § 422.2 for 

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MA plans and § 423.4 for PDPs and both 

definitions indicate that facilities in 

which individuals are incarcerated are 

considered outside of the service area. 

We did not include a similar service 

area exclusion in the case of cost plans. 

To the extent that cost plans do not 

incur costs for incarcerated enrollees 

because their health care costs are 

covered by the facility, there would be 

no costs claimed on the cost report, and 

no Medicare payment. Nonetheless, to 

ensure that no cost payments are made, 

we propose to revise the definition of 

service area in § 417.1 to specifically 

note that facilities in which individuals 

are incarcerated are not a part of the 

service area. This adjustment will 

ensure parity among the various 

Medicare plan coverage options and be 

the basis for ensuring that services are 

not paid for by the Medicare Trust 

Funds for those who are not eligible for 

them. 

b. Involuntary Disenrollment for 

Incarcerated Individuals Enrolled in 

MA, PDP and Cost Plans (§ 417.460, 

§ 422.74, and § 423.44) 

Sections 1860D–1(b)(1)(B)(i), 

1851(b)(1)(A), and 1876(a)(1)(A) of the 

Act provide that individuals whose 

permanent residence is outside the 

plan’s service area are ineligible to 

enroll in or to remain enrolled in the 

MA, Part D, or cost plan. Based on the 

definition of service area established in 

§ 422.2 and § 423.4, this applied to 

individuals who were incarcerated as 

well. As such, individuals who became 

incarcerated while enrolled were 

ineligible to remain enrolled because 

they did not meet the eligibility 

criterion of residing in the MA plan or 

PDP’s service area. As noted previously, 

the regulations for cost plans currently 

do not exclude incarcerated individuals 

from enrolling or remaining enrolled in 

these plans. 

At the time of the implementation of 

Part D, the data regarding incarceration 

were not as robust as they are at the 

present time. To compensate, we 

provided instructions in sub-regulatory 

guidance that required MA plans and 

PDPs to investigate a notification from 

CMS of an individual’s incarcerated 

status. If a plan could not confirm the 

status, the plan would then apply the 

policy for investigation of a possible 

out-of-area status which would allow an 

incarcerated individual to remain 

enrolled in the plan for up to 6 or 12 

months for MA plans or PDPs, 

respectively. Cost plans, on the other 

hand, are not currently subject to 

similar instructions and therefore 

individuals are not disenrolled solely 

because they are determined to be 

incarcerated. 

Today we believe that the data that 

CMS receives from SSA regarding the 

incarceration status of Medicare 

beneficiaries are reliable enough for the 

purpose of involuntary disenrollment 

from MA, Part D, and cost plans. Thus, 

we propose to amend § 417.460(b)(2)(i), 

§ 417.460(f)(1)(i), § 422.74(d)(4)(i), 

§ 422.74(d)(4)(v) and add 

§ 423.44(d)(5)(iii) and § 423.44(d)(5)(iv) 

to establish that MA organizations, 

PDPs, and cost plan organizations must 

disenroll individuals incarcerated for 30 

days or more upon notification of such 

status from CMS. As a part of this 

change, CMS will review the 

incarceration data provided by SSA. 

Where possible, CMS will involuntarily 

disenroll individuals who are 

incarcerated based on the data provided 

by SSA, and will notify the plan in 

which the individual is enrolled of this 

action. For all such disenrollments, the 

effective date of disenrollment will be 

the first of the month after the start of 

incarceration date as reported by SSA. 

We believe these proposed changes will 

prevent months of improper payments 

to MA, Part D, and cost plans and 

significantly lessen the burden for MA 

plans and PDPs by not requiring 

investigation to verify residence as 

outlined in section 50.2.1 in Chapter 2 

of the Medicare Managed care Manual 

and Chapter 3 of the Medicare 

Prescription Drug Benefit Manual. 

In connection with this change, we 

would also propose to deny enrollment 

requests for individuals if CMS data 

indicates an active incarceration status 

of at least 30 days. Based on the data 

received from SSA, if incarceration is 

denoted, we will deny that enrollment 

based on the data provided by SSA and 

will notify the plan of the denial. This 

would replace the current process 

requiring plans to accept the enrollment 

and immediately begin the process to 

verify that the individual was out of the 

plan’s service area. We will provide 

operational instructions in 

subregulatory guidance. 

In addition, we will clarify that in 

instances where a plan receives 

information about an individual’s 

possible incarceration from a source 

other than CMS or learns of some other 

permanent residence change, the 

existing requirements to research a 

possible change in address would still 

apply. Finally, we note that the 

exceptions to involuntary disenrollment 

for not residing in the plan’s service 

area (§ 417.460(f)(2) and 

§ 422.74(d)(4)(iii)) would not apply to 

members who are determined to be 

incarcerated. However, individuals 

involuntarily disenrolled will be able to 

enroll in a plan following their release 

from incarceration using an existing 

special enrollment period outlined in 

section 30.4.1 in Chapter 2 of the 

Medicare Managed Care Manual and 

section 30.3.1 in Chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual (Special Enrollment Periods 

(SEP) for Changes in Residence). 

Individuals wanting to enroll in an open 

cost plan may do so as long as the cost 

plan is accepting applications for 

enrollment, following section 30.1 of 

Chapter 17–D of the Medicare Managed 

Care Manual. 

36. Rewards and Incentives Program 

Regulations for Part C Enrollees 

(§ 422.134) 

CMS has provided subregulatory 

guidance regarding the types of rewards 

and incentives that may be offered to 

current Medicare Advantage (MA) plan 

enrollees. (See Section 70.2, Chapter 3 

of the Medicare Managed Care Manual). 

Generally, such activities are limited to 

a set monetary cap, and cannot be 

offered in the form of cash or other 

monetary rebates or considered a health 

benefit. This guidance generally flows 

from our authority to regulate marketing 

by MA organizations and our 

recognition that certain marketing 

efforts may be targeted to current 

enrollees to encourage continued 

enrollment and reenrollment in a 

particular plan. 

Every year, CMS receives inquiries 

from MA organizations that wish to 

expand the scope of the rewards and 

incentives that currently may be offered 

to beneficiaries enrolled in their MA 

plans. In some cases, MA organizations 

wish to extend rewards and incentives 

already offered to their commercial 

members to their Medicare enrollees 

and there is some evidence to suggest 

that health-driven reward and incentive 

programs for currently enrolled 

members of health plans may lead to 

meaningful and sustained improvement 

to their health behaviors and health 

outcomes. 

CMS would like to enable MA 

organizations to offer health-driven 

rewards and incentives programs that 

may be applied to more health-related 

services and activities than are allowed 

under current guidance. We are 

concerned about the possibility that 

such programs would be targeted only 

to healthier enrollees, and discourage 

sicker enrollees from participating in 

such incentives and in remaining 

enrolled in the plan. Furthermore, we 

would like to strengthen our existing 

subregulatory guidance and offer the 

opportunity for public review and 

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comment on our requirements for 

rewards and incentives programs. We 

propose to amend our regulations to 

establish parameters for rewards and 

incentives programs offered to enrollees 

of MA plans. We also propose to 

include specific requirements regarding 

rewards and incentives so as to ensure 

that such programs do not discriminate 

against beneficiaries, including those 

who are sick or disabled. 

Section 1856(b)(1) of the Act provides 

authority for the establishment of MA 

standards by regulation, and section 

1857(e)(1) of the Act provides authority 

to impose contract requirements that 

CMS finds ‘‘necessary and appropriate.’’ 

Section 1852(b)(1)(a) of the Act states 

that MA organizations may not 

discriminate against beneficiaries on the 

basis of health status and that CMS may 

not approve an MA plan if that offering 

is susceptible to discrimination based 

on an individual’s health status. 

Further, section 1857(g)(1)(D) of the Act 

provides authority for taking 

intermediate sanction action against an 

MA organization which ‘‘engages in any 

practice that would reasonably be 

expected to have the effect of denying 

or discouraging enrollment by eligible 

individuals’’ as a result of their health 

status or history. We propose to rely 

upon the aformentioned rulemaking and 

substantive authority to establish 

requirements for rewards and incentives 

programs offered by MA organizations 

to Medicare beneficiaries enrolled in 

their MA plans. 

Specifically, we propose adding a 

new provision at § 422.134 that would 

allow MA organizations to offer reward 

and incentive programs to their current 

Medicare enrollees to encourage their 

participation in activities that focus on 

promoting improved health, preventing 

injuries and illness, and promoting 

efficient use of health care resources. 

We would require that reward-eligible 

activities be designed so that all 

enrollees are able to earn rewards 

without discrimination based on race, 

gender, chronic disease, 

institutionalization, frailty, health 

status, and other impairments. Any 

rewards and incentives program 

implemented by an MA organization 

under our proposal must accommodate 

enrolled beneficiaries who are 

institutionalized or who need a 

modified approach to enable effective 

participation. 

To meet the proposed CMS 

requirements, a reward or incentive 

would have to be earned by completing 

the entire health-related service or 

activity and may not be offered for 

completion of less than all required 

components of the eligible service or 

activity. Under this proposal, rewards 

and incentives would be subject to a 

monetary cap in an amount CMS 

determines could reasonably be 

expected to affect enrollee behavior 

while not exceeding the value of the 

health-related service or activity itself. 

We intend to provide guidance on this 

qualitative standard on a regular basis. 

In addition, our proposal would 

require MA organizations that offer 

rewards and incentives programs to 

provide information about the 

effectiveness of such programs to CMS 

upon request. If we determine that the 

rewards and incentives programs are not 

compliant with our regulatory standard, 

we may require that the MA 

organization modify the basic 

parameters of the program. 

37. Expand Quality Improvement 

Program Regulations (§ 422.152) 

Section 1852(e) of the Act requires 

MA organizations to have an ongoing 

quality improvement program for the 

purpose of improving the quality of care 

provided to enrollees. Our current 

regulations at § 422.152 require an MA 

organization to have a quality 

improvement program that measures, 

records, and reports on the quality of 

care it is providing to enrollees and to 

develop criteria for a chronic care 

improvement program. We have 

recently expanded our quality 

improvement program to include more 

specific and structured chronic care 

improvement program requirements that 

are outcomes based and health driven as 

well as require each MA organization to 

have a written quality improvement 

program plan (approved form CMS– 

10209). Currently, chronic care 

improvement programs must be 

measurable, reported on annually, and 

has a clinical focus (as determined by 

CMS). 

We propose revising paragraph (a) of 

§ 422.152 in order to codify our recent 

expansion of the quality improvement 

program policies and revising paragraph 

(c) of § 422.152 to codify our recently 

expanded chronic care improvement 

program policies. These revised 

paragraphs will more accurately reflect 

current quality care improvement 

program policies and requirements. 

Additionally, paragraph (g) of 

§ 422.152 lists quality improvement 

program requirements that are specific 

to special needs plans (SNPs). We 

propose revising paragraph (g) to clarify 

that the requirements listed there are in 

addition to program requirements listed 

in paragraphs (a) and (f) of § 422.152 

and are not instead of the regular quality 

improvement program requirements. 

Finally, we propose to delete 

paragraph (h)(2) of § 422.152 as it 

pertains to plan year 2010 and is no 

longer relevant. 

38. Authorization of Expansion of 

Automatic or Passive Enrollment NonRenewing Dual Eligible SNPs (D–SNPs) 

to Another D–SNP To Support 

Alignment Procedures (§ 422.60) 

At this time, SNPs are only authorized 

through 2014. This proposed provision, 

which would take effect in 2015, is 

contingent upon, and would only apply, 

if SNPs continue to be authorized after 

2014. 

Since D–SNPs were implemented in 

2006, expectations for them to serve as 

a vehicle for aligning Medicare and 

Medicaid benefits for dually eligible 

individuals have been articulated. In 

2007, the Congress passed the Medicare 

Improvements for Patients and 

Providers Act (MIPPA), which set 2013 

as the deadline for all D–SNPs to have 

contracts with states to coordinate their 

enrollees’ Medicaid coverage. In 2010, 

the Congress passed the Affordable Care 

Act, section 2602 of which established 

a new CMS office charged with 

implementing goals to improve the 

coordination between the federal 

government and states for individuals 

eligible for benefits under both 

Medicare and Medicaid programs in 

order to ensure that such individuals get 

full access to the items and services to 

which they are entitled. Specifically 

listed in sections 2602(c)(2) and (6) of 

the Affordable Care Act, we are tasked 

with simplifying the processes for 

Medicare-Medicaid enrollee to access 

the items and services they are entitled 

to under the Medicare and Medicaid 

programs, and improving care 

continuity and ensuring safe and 

effective care transitions for MedicareMedicaid enrollees. 

Our current authority does not allow 

us to limit involvement in the D–SNP 

program to fully integrated D–SNPs; 

thus, the majority of Medicare-Medicaid 

enrollees enrolled in D–SNPs continue 

to receive their Medicare and Medicaid 

benefits and services from two different 

organizations. At the same time, some 

states are approaching this problem 

from a slightly different angle, and are 

attempting to align care for MedicareMedicaid enrollees under the same 

organization by requiring that the same 

organization that provides Medicaid 

benefits also provide Medicare benefits. 

However, states’ efforts stall when the 

Medicare-Medicaid enrollee is enrolled 

with one organization for his/her 

Medicaid coverage, but in a D–SNP 

offered by another MA organization. 

The statute generally requires that 

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Medicare beneficiaries make an active 

choice of their health plan, so neither 

plans nor states can choose where the 

beneficiary enrolls. 

The resulting fragmentation of care 

can generally be addressed through 

existing mechanisms. For example, 

State Medicaid Agencies may pursue 

waiver authority from CMS to require 

Medicare-Medicaid enrollees to enroll 

in Medicaid Managed Care 

Organizations (MCO) that also offer a D– 

SNP. Likewise, anMA organization 

offering a D–SNP could novate its 

contract with CMS to the organization 

offering the Medicaid MCO, so that the 

entire contract, including the D–SNP, 

and its enrollees, is now held by the 

same organization that offers the 

enrollees’ Medicaid managed care plan. 

However, while we can approve 

novations, we cannot mandate that the 

parties enter into such arrangements. 

Moreover, when an MA organization 

elects to non-renew its Medicare 

contract, rather than novate the contract, 

we do not have the authority to move 

enrollees under that contract to another 

MA organization offering a D–SNP. 

Another possible solution to the 

problem of fragmented care lies in 

section 1851(c)(1) of the Act, which we 

have interpreted to provide flexibility in 

developing mechanisms by which 

beneficiaries may complete voluntary 

MA enrollment elections (per section 

1851(a)(1) of the Act). These flexibilities 

include a process described as ‘‘passive 

enrollment,’’ whereby beneficiaries are 

notified of the enrollment opportunity 

and provided sufficient advance 

information to determine if they will 

accept this option. A beneficiary who is 

offered a passive enrollment completes 

the request to enroll by not declining 

the offer. However, we have limited 

passive enrollment to situations in 

which enrollees in MA plans that are 

terminating immediately have little or 

no time to choose another MA plan 

option or stand-alone PDP, and are at 

risk for losing their prescription drug 

coverage (see 42 CFR 422.60(g)). 

Generally, we have declined to afford 

ourselves such discretion to provide 

passive enrollment in more situations, 

in part, because of concerns raised by 

beneficiary advocates about the 

challenges beneficiaries face in 

navigating a new provider network and 

understanding information about new 

benefits. In addition, we have also been 

concerned that, were we to widen the 

scope of our authority to allow passive 

enrollment in other situations not 

involving an immediate termination, we 

would be faced with the seemingly 

impossible task of sorting through 

requests by MA organizations to 

passively enroll members to other plans 

within their organization, or across 

organizations, and granting or denying 

such requests without appearing to act 

in an arbitrary and capricious manner, 

or unintentionally interfering with the 

voluntary nature of the MA program. 

Thus, we have limited our use of our 

passive enrollment authority by 

regulation to those situations in which 

beneficiaries faced an immediate plan 

termination or potential harm, and 

where we could, through passive 

enrollment, ensure that beneficiaries 

maintained access to affordable 

coverage, including prescription drug 

coverage. 

To date, we have not considered D– 

SNP non-renewals to fall under either 

category, because, by definition, nonrenewals occur with appropriate, 90 

days’ notice to affected enrollees, just 

prior to the start of the annual 

enrollment period, when enrollees have 

access to the Medicare & You handbook 

and other materials, as well as ample 

time to consider their health care 

choices. 

However, it is worth noting that 

returning to Original Medicare, whether 

due to an immediate contract 

termination or non-renewal, poses 

potential disadvantages for the 

beneficiary as well, that is, the loss of 

supplemental benefits such as dental or 

vision benefits, and beneficiary 

confusion as he or she attempts to 

navigate the health care system (and two 

sets of benefits) without case 

management or other support that may 

have been provided by the MA plan. We 

have the authority to widen the scope of 

the regulation slightly to allow for 

passive enrollment when a MedicareMedicaid enrollee is enrolled in a D– 

SNP that is non-renewing its contract 

with Medicare, and is enrolled in a 

Medicaid MCO (Managed Care 

Organization) that also offers a D–SNP, 

and the networks and benefits of the 

non-renewing D–SNP and the future D– 

SNP are substantially similar. By 

exercising passive enrollment in this 

additional limited circumstance, we 

could better ensure better continuity of 

care, particularly prescription drug 

coverage, but also possibly 

supplemental benefits, and ensure 

beneficiaries enjoy use of the same 

providers, with little or no change in the 

benefits offered. Our use of passive 

enrollment in this case would also 

further promote alignment of Medicare 

and Medicaid benefits offered by the 

same organization. Through subregulatory guidance, we would interpret 

the ‘‘substantially similar’’ standard as it 

relates to the networks, benefit 

packages, formularies, and out of pocket 

costs of the non-renewing and gaining 

D–SNP. As already required by 

§ 422.60(g)(2), we would ensure 

beneficiaries are notified of the costs 

and benefits of the plan, and of their 

ability to decline enrollment or choose 

another plan. As part of our proposal to 

add this additional basis for passive 

enrollment, we propose to restructure 

paragraph (g). 

B. Improving Payment Accuracy 

1. Implementing Overpayment 

Provisions of Section 1128J(d) of the 

Social Security Act (§ 422.326 and 

§ 423.360) 

This section of the proposed rule 

would implement section 6402 of the 

Affordable Care Act, which established 

new section 1128J(d) of the Act entitled 

Reporting and Returning of 

Overpayments. Section 1128J(d)(4)(B) of 

the Act defines the term overpayment as 

any funds that a person receives or 

retains under title XVIII or XIX to which 

the person, after applicable 

reconciliation, is not entitled under 

such title. The definition of person at 

section 1128J(d)(4)(C) of the Act 

includes a Medicare Advantage 

organization (as defined in section 

1859(a)(1) of the Act) and a Part D 

sponsor (as defined in section 1860D– 

41(a)(13) of the Act). The definition 

does not include a beneficiary. 

Section 1128J(d)(1) of the Act requires 

a person who has received an 

overpayment to report and return the 

overpayment to the Secretary, the state, 

an intermediary, a carrier, or a 

contractor, as appropriate, at the correct 

address, and to notify the Secretary, 

state, intermediary, carrier or contractor 

to whom the overpayment was returned 

in writing of the reason for the 

overpayment. Section 1128J(d)(2) of the 

Act requires that an overpayment be 

reported and returned by the later of: (1) 

The date which is 60 days after the date 

on which the overpayment was 

identified; or (2) the date any 

corresponding cost report is due, if 

applicable. Section 1128J(d)(3) of the 

Act specifies that any overpayment 

retained by a person after the deadline 

for reporting and returning an 

overpayment is an obligation (as defined 

in 31 U.S.C. 3729(b)(3)) for purposes of 

31 U.S.C. 3729. 

Finally, section 1128J(d)(4)(A) of the 

Act defines ‘‘knowing’’ and 

‘‘knowingly’’ as those terms are defined 

in 31 U.S.C. 3729(b). Specifically, the 

terms ‘‘knowing’’ and ‘‘knowingly’’ 

mean that ‘‘a person with respect to 

information: (1) Has actual knowledge 

of the information; (2) acts in deliberate 

ignorance of the truth or falsity of the 

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information; or (3) acts in reckless 

disregard of the truth or falsity of the 

information.’’ There need not be ‘‘proof 

of specific intent to defraud.’’ 

To implement section 1128J(d) of the 

Act for the Part C Medicare Advantage 

program and the Part D Prescription 

Drug program, we are proposing two 

new sections, § 422.326 and § 423.360, 

respectively, both titled, ‘‘Reporting and 

Returning of Overpayments.’’ These 

sections propose rules for MA 

organizations and Part D sponsors to 

report and return an identified 

overpayment to the Medicare program. 

We are using the term Part D sponsor, 

as defined at § 423.4, to refer to the 

entities that offer prescription drug 

plans (PDPs) under part 423 and thus 

are subject to section 1128J(d) of the 

Act. 

We propose conforming amendments 

to § 422.1, § 422.300, and § 423.1 that 

add a reference to section 1128J(d) of 

the Act to the existing list of statutory 

authorities for the regulations governing 

the MA organizations and Part D 

sponsors. We also propose to amend 

§ 422.504(l) and § 423.505(k) to 

incorporate a reference to the proposed 

§ 422.326 and § 423.360, respectively, in 

order to extend the existing data 

certification requirement to data that 

MA organizations and Part D sponsors 

submit to CMS as part of fulfilling their 

obligation to return an overpayment 

under section 1128J(d) of the Act. 

Section 422.504(l) refers to certification 

of data ‘‘as a condition for receiving a 

monthly payment’’ and § 423.505(k) 

refers to certification of data for 

enrollees ‘‘for whom the organization is 

requesting payment.’’ Our proposal to 

implement section 1128J of the Act 

contains requirements that apply after 

CMS has completed prospective 

monthly payments for a year, and 

organizations are no longer ‘‘requesting 

payment’’ because applicable 

reconciliation has occurred. Applicable 

reconciliation is the point when 

organizations submit their final data for 

the previous payment year. 

Accordingly, if an MA organization or 

Part D sponsor has identified an 

overpayment, there clearly is a different 

state of ‘‘best knowledge, information, 

and belief’’ than the state of knowledge, 

information, and belief that existed 

prior to applicable reconciliation. Thus, 

we propose to require that the CEO, 

CFO, or COO must certify (based on best 

knowledge, information, and belief) that 

information the MA organization or Part 

D sponsor submits to CMS for purposes 

of reporting and returning of 

overpayments under § 422.326 and 

§ 423.360 is accurate, complete, and 

truthful. 

We remind all stakeholders that even 

in the absence of a final regulation on 

these statutory provisions, MA 

organizations and Part D sponsors are 

subject to the statutory requirements 

found in section 1128J (d) of the Act and 

could face potential False Claims Act 

liability, Civil Monetary Penalties (CMP) 

Law liability, and exclusion from 

Federal health care programs for failure 

to report and return an overpayment. 

Additionally, MA organizations and 

Part D sponsors continue to be obliged 

to comply with our current procedures 

for handling inaccurate payments. 

a. Terminology (§ 422.326(a) and 

§ 423.360(a)) 

We propose to adopt the statutory 

definition of overpayment, where an 

overpayment exists when—after 

‘‘applicable reconciliation’’—an MA 

organization or Part D sponsor is not 

entitled to funds it has received and/or 

retained. In order to clarify the statutory 

definition of overpayment, we propose 

definitions of two key terms at 

§ 422.326(a) and § 423.360(a): ‘‘funds’’ 

and ‘‘applicable reconciliation.’’ 

We propose to define ‘‘funds’’ as 

payments an MA organization or Part D 

sponsor has received that are based on 

data that these organizations submitted 

to CMS for payment purposes and for 

which they have responsibility for the 

accuracy, completeness, and 

truthfulness of such data under existing 

§ 422.504(l) and § 423.505(k). For Part C, 

the data submitted by the MA 

organization to CMS includes 

§ 422.308(f) (enrollment data) and 

§ 422.310 (risk adjustment data). For 

Part D, data submitted by the Part D 

sponsor to CMS includes data submitted 

under § 423.329(b)(3), § 423.336(c)(1), 

§ 423.343, and data provided for 

purposes of supporting allowable costs 

as defined in § 423.308 of this part 

which includes data submitted to CMS 

regarding direct or indirect 

remuneration (DIR). 

There are additional payment-related 

data CMS uses to calculate Part C and 

Part D payments that are submitted 

directly to CMS by other entities, such 

as the Social Security Administration 

(SSA), which is the authoritative source 

for data they submit to CMS. We believe 

that MA organizations and Part D 

sponsors cannot be held accountable for 

the accuracy of data controlled and 

submitted to us by other entities. 

For example, the SSA is the 

authoritative source for date of death. 

An MA organization or Part D sponsor 

generally do not submit a date of death 

directly to CMS’ systems; it comes from 

the SSA data feed. When the SSA 

submits to CMS corrected data regarding 

a beneficiary’s date of death, CMS’ 

systems recalculate the payments made 

to the plan for that beneficiary and 

recoup the incorrect payment in a 

routine retroactive payment adjustment 

process. 

When CMS recoups an incorrect 

payment from an MA organization or 

Part D sponsor based on data corrections 

submitted by authoritative sources such 

as the SSA, CMS would not consider 

this recoupment to be the return of an 

overpayment by an MA organization or 

Part D sponsor under proposed 

§ 422.326 and § 423.360. Therefore, the 

proposed meaning of ‘‘funds’’ refers to 

a payment amount that an MA 

organization or Part D sponsor received 

from CMS that is based on data that the 

MA organization or Part D sponsor 

controls and submits to CMS. 

The term ‘‘applicable reconciliation’’ 

refers to an event or events after which 

an overpayment can exist under section 

1128J(d) of the Act. We propose 

definitions of the term applicable 

reconciliation that are specific to the 

Part C and Part D. 

For Part C, we propose that applicable 

reconciliation occurs on the date that 

CMS announces as the final deadline for 

risk adjustment data submission. (See 

section II.B.6 of this proposed rule for 

a discussion of the final deadline for 

risk adjustment data submission 

established at § 422.310(g).) For each 

payment year, we apply three sets of 

risk scores to adjust payments: Initial 

and midyear risk scores during the 

payment year (both sets are based on 

incomplete diagnosis data from the data 

collection year); and final risk scores 

after the payment year using data MA 

organizations submit on or before the 

final deadline for risk adjustment data 

(which reflects complete data for the 

data collection year). Currently, the final 

deadline for risk adjustment data 

submission is a month after the end of 

the payment year. In future years, we 

expect to announce a date that will be 

about 6 to 8 weeks after the end of the 

payment year to accommodate the 

current subregulatory requirement that 

MA organizations review the monthly 

enrollment and payment reports they 

receive from CMS within 45 days of the 

availability of the reports. Moving this 

deadline means that the risk adjustment 

data submission deadline would also 

function as the Part C applicable 

reconciliation date. We would announce 

a final risk adjustment data submission 

deadline that falls on or just after the 

conclusion of this 45-day period for the 

January payment. 

For Part D sponsors, we propose that 

applicable reconciliation is the later of 

either: The annual deadline for 

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submitting prescription drug event 

(PDE) data for the annual Part D 

payment reconciliations referred to in 

§ 423.343 (c) and (d) or the annual 

deadline for submitting DIR data. The 

annual deadline for submitting PDE data 

is the last federal business day prior to 

June 30th of the year following the 

benefit year being reconciled. The 

annual deadline for submitting DIR data 

is announced annually through 

subregulatory guidance and generally 

occurs around the last business day in 

June the year following the benefit year 

being reconciled. We select these events 

to define the Part D applicable 

reconciliation because these data are 

used for the purposes of determining 

final Part D payment reconciliation. 

Note that MA organizations would still 

have to submit all final risk adjustment 

diagnoses for Part D on the final 

deadline for risk adjustment data 

submission. 

The proposed approach to defining 

applicable reconciliation establishes 

dates that differ for Part C and Part D. 

One effect of this approach is that risk 

adjustment and enrollment data for Part 

D are subject to the § 423.360 

overpayment requirements at a later 

date than risk adjustment and 

enrollment data for Part C. The final risk 

adjustment data submission deadline for 

Parts C and D data would continue to be 

earlier than the deadline for final 

submission of PDE and DIR data. For 

this reason, we considered an 

alternative approach to defining 

applicable reconciliation, where there is 

one date for applicable reconciliation 

for both Parts C and D risk adjustment 

data and enrollment data (which would 

be about 6 to 8 weeks after the end of 

the payment year, going forward), and 

then the Part D program would be 

subject to a second applicable 

reconciliation date the date for final 

submission of PDE data or DIR data, 

whichever is later. We are proposing a 

single date for each program, and we 

seek comment on these two approaches. 

Note that payment errors identified as 

a result of any corrections to risk 

adjustment data submitted by MA 

organizations (and other organizations 

required to submit risk adjustment data 

to CMS) on or before the annual final 

risk adjustment data submission 

deadline are handled as part of the 

current annual process of risk 

adjustment payment reconciliation. 

Because these payment errors are prior 

to the date defined in this proposed rule 

as ‘‘applicable reconciliation,’’ we do 

not consider these errors to be 

overpayments for the purpose of 

§ 422.326 and § 423.360. That is, any 

deletions of risk adjustment data in the 

file submitted on or before the final risk 

adjustment data submission deadline for 

a payment year, would result in 

payment errors that are addressed with 

processes that have been in place prior 

to our codification of section 1128J(d) of 

the Act in proposed § 422.326 and 

§ 423.360. 

Likewise, for Part D, any payment 

errors identified as a result of any 

corrections to PDE or DIR data 

submitted on or before the later of the 

annual deadline for submitted PDE and 

DIR data are handled as part of the 

current Part D reconciliation process. 

It is our expectation that MA 

organizations and Part D sponsors must 

be continuously diligent regarding the 

accuracy and completeness of paymentrelated data they submit to CMS for a 

payment year, whether during or after 

that payment year, and whether before 

or after applicable reconciliation dates. 

This expectation is based on existing 

requirements at § 422.310, § 422.504(l), 

§ 423.329(b)(3)(ii), and § 423.505(k), and 

our proposed amendments that clarify 

and strengthen these requirements. 

b. General Rules for Overpayments 

(§ 422.326(a) Through (c); § 423.360(a) 

Through (c)) 

We propose at § 422.326(b) and 

§ 423.360(b) that if an MA organization 

or Part D sponsor has identified that it 

has received an overpayment, the MA 

organization or Part D sponsor must 

report and return that overpayment in 

the form and manner set forth in the 

section. In paragraphs § 422.326(c) and 

§ 423.360(c), we propose that the MA 

organization or Part D sponsor has 

identified an overpayment if it has 

actual knowledge of the existence of the 

overpayment or acts in reckless 

disregard or deliberate ignorance of the 

existence of the overpayment. The terms 

‘‘reckless disregard’’ and ‘‘deliberate 

ignorance’’ are part of the definitions of 

the ‘‘knowing’’ and ‘‘knowingly’’ in 

section 1128J of the Act, which provides 

that the terms ‘‘knowing’’ and 

‘‘knowingly’’ have the meaning given 

those terms in the False Claims Act (31 

U.S.C. 3729(b)(3)). Without such a 

proposal to include ‘‘reckless disregard’’ 

and ‘‘deliberate ignorance’’, some MA 

organizations and Part D sponsors might 

avoid performing activities to determine 

whether an overpayment exists. We also 

provide that if an MA organization or 

Part D sponsor has received information 

that an overpayment may exist, the 

organization must exercise reasonable 

diligence to determine the accuracy of 

this information, that is, to determine if 

there is an identified overpayment. 

Finally, in paragraphs § 422.326(d) 

and § 423.360(d), we propose the 

requirements for reporting and returning 

an identified overpayment. An MA 

organization or Part D sponsor must 

report and return any overpayment it 

received no later than 60 days after the 

date on which it identified it received 

an overpayment. The statute provides 

an alternative deadline: the date any 

corresponding cost report is due, if 

applicable. We propose that this 

alternative deadline is not applicable to 

the Parts C or D programs because, in 

general, MA organizations and Part D 

sponsors are paid based on their bids, 

and not based on their actual incurred 

costs. 

The MA organization or Part D 

sponsor must notify CMS, using a 

notification process determined by 

CMS, of the amount and reason for the 

overpayment. Also within this 60-day 

time period, the organization must 

return identified overpayments to CMS 

in a manner specified by CMS, 

including the amount and reason for the 

overpayment. We codify at paragraph 

(3) the statutory requirement that any 

overpayment retained by an MA 

organization or Part D sponsor after the 

60-day deadline for reporting and 

returning is an obligation under 31 

U.S.C. 3729(b)(3). 

It also is important to note that the 

MA organization and Part D sponsor are 

deemed to have returned the 

overpayment when they have taken the 

actions that we will specify, in 

forthcoming operational guidance, to 

submit the corrected data that is the 

source of the overpayment. We will 

recover the returned overpayment 

through routine processing according to 

the systems schedule established in the 

annual operations budget. That is, 

payments are recovered through the 

established payment adjustment 

process, not on the 60-day schedule that 

applies to each MA organization or Part 

D sponsor that has identified an 

overpayment. Rerunning reconciliation 

each time an entity identifies an 

overpayment that triggers its 60-day 

clock is simply not feasible for CMS. 

Further, there will be circumstances 

when we may ask the MA organization 

or Part D sponsor to provide an 

auditable estimate of the overpayment 

amount, reason for overpayment, and 

make a payment to CMS. This may 

occur, for example, when the Part D 

reopening occurs prior to the end of the 

look-back period or if an MA 

organization or Part D sponsor had a 

thoroughly-documented catastrophic 

loss of stored data. Information about 

the nature of such a request would be 

detailed in forthcoming operational 

guidance. 

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c. Look-Back Period for Reporting and 

Returning Overpayments 

We propose at § 422.326(e) and 

§ 423.360(e) to codify a look-back period 

for MA organizations and Part D 

sponsors. MA organizations and Part D 

sponsors would be required to report 

and return any overpayment that they 

identify within the 6 most recent 

completed payment years. The statute of 

limitations related to the False Claims 

Act is 6 years from the date of the 

violation or 3 years from the date the 

relevant government official learns of 

the situation, but in no case more than 

10 years from the date of the violation. 

CMS proposes 6 years as the look-back 

period because we believe this best 

balances government’s interest in 

having overpayments returned with 

entities’ interest in finality. Six years 

also is consistent with the CMP 

provisions, and maintenance of records 

requirements under the contracts. Note 

that overpayments resulting from fraud 

would not be subject to this limitation 

of a look-back period. 

2. Determination of Payments 

(§ 423.329) 

Section 423.329 (d) describes the lowincome cost-sharing subsidy payment 

amount. Currently, that amount is 

defined as the amount described in 

§ 423.782. However, § 423.782 refers to 

the cost-sharing paid by the beneficiary, 

not the cost-sharing subsidy paid on 

behalf of the low-income subsidy 

eligible individual. As such, we propose 

a technical change to § 423.329(d) to 

correctly describe the low-income costsharing subsidy payment amount as it is 

intended by statute and has been 

implemented and described in 

interpretive guidance by CMS. 

The low-income cost-sharing subsidy 

amount is correctly described in 

Chapter 13 of our Medicare Prescription 

Drug Benefit Manual, Premium and 

Cost-Sharing Subsidies for Low-Income 

Individuals (Rev. 13, July 29, 2011). 

Under the basic benefit defined at 

§ 423.100, the low-income cost-sharing 

subsidy payment amount is the 

difference between the cost sharing for 

a non-LIS beneficiary under the Part D 

plan and the statutory cost-sharing for 

the LIS eligible beneficiary. Under an 

enhanced alternative plan described at 

§ 423.104(f), the cost-sharing subsidy 

applies to the beneficiary liability after 

the plan’s supplemental benefit is 

applied. We propose to amend 

§ 423.329(d) consistent with this 

guidance. 

Pursuant to § 423.2305, any coverage 

or financial assistance other than basic 

prescription drug coverage, as defined 

in § 423.100, offered by an employer 

group health or waiver plans is 

considered ‘‘other health or prescription 

drug coverage.’’ This definition applied 

to all of Medicare Part D. (See 77 FR 

22071 and 22082; April 12, 2012). 

Therefore, the subsidy amount received 

by an employer group health or waiver 

plan is the subsidy amount received by 

a Part D plan offering defined standard 

coverage, as defined in § 423.100. 

Based on the preceding, we propose 

to amend § 423.329(d) by deleting the 

reference to § 423.782 and amending 

§ 423.329(d) to define the low-income 

cost-sharing subsidy payment amount 

on behalf of a low-income subsidy 

eligible individual enrolled in a Part D 

plan for a coverage year as the 

difference between the Part D costsharing for a non-low-income subsidy 

eligible beneficiary under the Part D 

plan and the statutory cost-sharing for a 

low-income subsidy eligible beneficiary. 

3. Reopening (§ 423.346) 

a. Part D Plan Payments Reopening 

As stated in our final rule entitled, 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit’’ published on 

January 28, 2005 (70 FR 4194, 4316), the 

Secretary’s right to inspect and audit 

any books and records of a Part D 

sponsor or MA organization regarding 

costs provided to the Secretary would 

not be meaningful, if upon finding 

mistakes pursuant to such audits, the 

Secretary were not able to reopen final 

determinations made on payment. 

Therefore, we established reopening 

provisions that would allow us to 

ensure that the discovery of any 

overpayment or underpayment could be 

rectified. In the rule, we established that 

a reopening was at our discretion and 

could occur for any reason within 1 year 

of the final determination of payment, 

within 4 years for good cause, or at any 

time when there is fraud or similar fault. 

We now propose to amend the 

reopening provisions such that we may 

perform one reopening within 5 years 

after the date of the notice of the initial 

determination to the Part D sponsors. 

We also propose to amend the provision 

to accommodate reopening the Coverage 

Gap Discount Reconciliation described 

at § 423.2320(b). 

At the time the proposed regulations 

for reopening were published in our 

proposed rule entitled, ‘‘Medicare 

Program; Medicare Prescription Drug 

Benefit’’ in the Federal Register on 

August 3, 2004 (69 FR 46694), we had 

no experience in Medicare Part D to be 

able to gauge the need for a reopening 

of an initial payment determination. We 

patterned the provisions after the 

Medicare claims reopening regulations 

found in part 405. The proposed 

reopening provisions were subsequently 

adopted in our final rule published on 

January 28, 2005 (70 FR 4316) entitled, 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit. 

Under the current regulation at 

§ 423.346 (a), CMS may reopen for any 

reason within 1 year of the final 

determination of payment, within 4 

years for good cause, or any time for 

fraud or similar fault. ‘‘Good cause’’ is 

defined in the regulation at § 423.346 (b) 

as: new and material evidence that was 

not readily available at the time the final 

determination was made; a clerical error 

in the computation of payments; or 

when evidence that was considered in 

making the determination clearly shows 

on its face that an error was made. We 

now better understand the need for 

reopening a payment determination and 

modify our regulation at § 423.346 to 

align with our experience. 

We have generally performed global 

reopenings as a result of plan sponsor 

requests, and substantial revisions of 

PDE and DIR data due to plan 

corrections, CMS corrections of systems 

error, post reconciliation claims activity, 

and audit and other post reconciliation 

oversight activity. To date, contract 

years 2006, 2007, and 2008 have been 

reopened, and we have already released 

guidance stating that we intended to 

eventually perform a global reopening of 

2011 once there is stability in the data 

for that year. This experience indicates 

to us that we will likely have to perform 

a reopening of the initial payment 

determination for every contract year. 

Therefore, we propose to remove the 

current timeframes for a reopening 

described in § 423.346 (a)(1) through 

(a)(3), remove paragraphs (b) describing 

good cause referred to in paragraph 

(a)(2), modify paragraph (c) to eliminate 

the reference to ‘‘good cause,’’ and 

amend paragraph (a) such that CMS may 

reopen one time within 5 years of notice 

of the initial payment determination. 

Based upon our experience, we 

believe that 5 years is adequate time to 

allow for data stability. By 5 years after 

the initial payment determination, 

additional PDEs or PDE adjustments 

associated with coordination of benefits 

will be submitted by Part D sponsors 

consistent with the timeframe described 

at § 423.466(b). We know that audits 

and other post reconciliation oversight 

activity often take place more than 5 

years from notice of the initial payment 

determination. However, in light of the 

overpayment provision at section 

6402(a) of the Affordable Care Act, 

which established section 1128J(d) of 

the Act and that we propose to codify 

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at § 423.360, we do not believe that it is 

necessary to reopen a payment 

reconciliation after that 5-year period, 

nor do we believe it is necessary to 

reopen a reconsidered payment 

determination. Therefore, we propose to 

amend § 423.346 (a) such that CMS will 

only reopen the initial payment 

determination and will not reopen a 

reconsidered payment determination. 

As stated in our final rule entitled, 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit’’ published in 

the Federal Register on January 28, 

2005 (70 FR 4194), CMS can initiate a 

reopening on its own or an organization 

could request a reopening, but such 

reopenings are at CMS’ discretion. In 

determining whether to reopen, we will 

consider a number of issues, including, 

but not limited to, whether the contract 

has terminated and received a final 

settlement. We will not approve a 

request to reopen for a contract that has 

terminated and received a final 

settlement. In addition, when we 

perform a reopening on its own 

initiative, contracts that have been 

terminated and settled will not be 

included in the reopening. 

b. Coverage Gap Discount 

Reconciliation Reopening 

Under § 423.2320(b), CMS performs a 

Coverage Gap Discount Reconciliation 

in which CMS reconciles interim 

payments with invoiced manufacturer 

discount amounts made available to 

each Part D plan’s enrollee under the 

Discount Program. Since the interim 

coverage gap payments are estimates (76 

FR 63017, 63027 (October 11, 2011)), a 

cost-based reconciliation is performed 

to ensure that Part D sponsors are paid 

dollar for dollar for all manufacturer 

discount amounts as reported on 

invoiced PDE data submitted for Part D 

payment reconciliation. Manufacturer 

discount amounts reported on PDE 

records submitted after the PDE 

submission deadline for reconciliation 

continue to be invoiced to 

manufacturers within a maximum of 3 

years of the date of dispensing, and 

manufacturers remit payments for 

invoiced coverage gap discount amounts 

to Part D sponsors. 

We propose to establish a reopening 

provision for the Coverage Gap Discount 

Reconciliation for the same reasons and 

under the same authority that we 

established a reopening provision for 

the Part D payment reconciliation 

process described in our final rule, 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit’’ published on 

January 28, 2005 (70 FR 4194, 4316). In 

a Health Plan Management System 

(HPMS) memorandum dated April 30, 

2010, we stated that the final reconciled 

discount program payments are subject 

to the reopening provision in § 423.346. 

We anticipate rarely needing to reopen 

the Coverage Gap Discount 

Reconciliation as a result of the 

invoicing process that continues to 

occur after the reconciliation process. 

However, we want to leave open the 

option to reopen if unforeseen events 

result in underpayments or 

overpayments to Part D sponsors. 

Therefore, we propose to amend 

§ 423.346 to accommodate reopening a 

Coverage Gap Discount Reconciliation. 

Based on the preceding, we propose 

to revise § 423.346 by removing the 

phrase ‘‘or reconsidered’’ from 

paragraph (a), amending paragraph (a) to 

account for the proposed timing of the 

Part D reopening, removing paragraphs 

(a)(1) through (3) and (b)(1) through (3); 

adding a new paragraph (b) to 

accommodate a Coverage Gap Discount 

Reconciliation reopening; and revising 

paragraph (c) to eliminate the reference 

to ‘‘good cause.’’ 

4. Payment Appeals (§ 423.350) 

Pursuant to § 423.2320 (b), we 

perform a Coverage Gap Discount 

Reconciliation in which we reconcile 

interim payments with invoiced 

manufacturer discount amounts made 

available to each Part D plan’s enrollee 

under the Discount Program. Current 

regulations do not describe the appeals 

process for a Coverage Gap Discount 

Reconciliation. We propose to establish 

an appeals provision for the Coverage 

Gap Discount Reconciliation for the 

same reasons and under the same 

authority that was used to establish the 

Part D payment reconciliation appeals 

process described in our final rule, 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit’’ published on 

January 28, 2005 (70 FR 4194, 4317). In 

an HPMS memorandum dated April 30, 

2010, CMS stated that the final 

reconciled discount program payments 

are subject the appeals provisions in 

§ 423.350, and we now propose to revise 

§ 423.350 to accommodate a Coverage 

Gap Discount Reconciliation appeals 

process. 

Consistent with the Part D payment 

appeals process currently described at 

§ 423.350, the proposed changes 

establish an appeals process whereby 

the final reconciliation of the interim 

Coverage Gap Discount Program 

payments may be subject to appeal. As 

stated in our final rule describing the 

Part D payment appeals process (70 FR 

4317 (January 28, 2005)), the Part D 

payment appeals process only applies to 

perceived errors in the application of 

the payment methodology and the 

payment information submitted by the 

Part D sponsor cannot be appealed 

through this process. In the January 28, 

2005 final rule (70 FR 4317), Part D 

plans are expected to submit payment 

information correctly and within the 

established timelines. We codified at 

§ 423.350(a)(2) that payment 

information submitted to CMS under 

§ 423.322 and reconciled under 

§ 423.343 is final and may not be 

appealed nor may the appeals process 

be used to submit new information after 

the submission of information necessary 

to determine retroactive adjustments 

and reconciliations. We propose to 

amend § 423.350(a)(2) to include 

information that is submitted and 

reconciled under § 423.2320(b) is final 

and may not be appealed nor may the 

appeals process be used to submit new 

information after the submission of 

information necessary to determine 

retroactive adjustments and 

reconciliations. 

Also consistent with the Part D 

payment appeals process, we propose 

that the request for a reconsideration of 

the Coverage Gap Discount 

Reconciliation must be filed within 15 

days from the date of the final payment, 

which is the date of the final reconciled 

payment made under § 423.2320 (b). 

Therefore, we propose to amend 

§ 423.350(b)(1) by adding a new 

paragraph (iv) to define the timeframe 

for filing a reconsideration of the 

Coverage Gap Discount Reconciliation. 

Based on the preceding, we propose 

to revise § 423.350 by adding a new 

paragraph (a)(1)(v) to allow for an 

appeal of a reconciled coverage gap 

payment under § 423.2320 (b), by 

revising paragraph (a)(2) to indicate that 

the payment information submitted to 

CMS and reconciled under 

§ 423.2320(b) is final and may not be 

appealed, and by adding a new 

paragraph (b)(1)(iv) to define the 

timeframe for appealing the final 

reconciled payment under 

§ 423.2320(b). 

5. Payment Processes for Part D 

Sponsors (§ 423.2320) 

In our final rule entitled, ‘‘Medicare 

Program; Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2013 and Other Changes’’ 

(77 FR 22071, 22086; April 12, 2012), 

CMS described the payment process for 

Part D sponsors under the Coverage Gap 

Discount Program. Under § 423.2320(a), 

CMS provides monthly interim 

Coverage Gap Discount Program 

payments as necessary for Part D 

sponsors to advance coverage gap 

discounts to beneficiaries. Part D 

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sponsors report the gap discount 

amounts to CMS, and through a 

contractor, CMS invoices the 

manufacturers on a quarterly basis for 

the applicable discount amounts. The 

manufacturers repay each Part D 

sponsor directly for the invoiced 

amounts under the Medicare Coverage 

Gap Discount Program Agreement 

(Agreement) described at § 423.2315. 

Under § 423.2320(b), CMS reconciles 

the interim payments with amounts 

invoiced to manufacturers. 

In the event that a manufacturer fails 

to the provide the applicable discounts 

in accordance with the Agreement, we 

must impose civil money penalties 

(CMPs) equal to the sum of the 

applicable discount the manufacturer 

would have paid under the Agreement 

and 25 percent of that amount. The CMP 

that is equal to the sum of the applicable 

discount the manufacturer would have 

paid under the agreement is used to pay 

the applicable discount that the 

manufacturer had failed to provide. 

In our final rule describing the 

payment process for Part D sponsors 

under the Coverage Gap Discount 

Program, we did not contemplate a 

payment process in the event that a 

manufacturer becomes bankrupt and 

does not pay the Part D sponsors for 

quarterly invoiced amounts under the 

Agreement. Even though we will impose 

a CMP on a bankrupt manufacturer in 

an effort to collect the unpaid invoiced 

amounts, the bankruptcy settlements 

will likely result in the CMP being 

modified or reduced. In order to ensure 

that the Part D sponsors have the funds 

available to advance the gap discounts 

at the point-of-sale, as required under 

section 1860D–14A(c)(1)(A)(ii) of the 

Act, we now propose to amend 

§ 423.2320 such that we will assume 

financial liability for the applicable 

discount by covering the costs of the 

quarterly invoices that go unpaid by a 

bankrupt manufacturer at the time of the 

Coverage Gap Discount Reconciliation 

described at § 423.2320(b). We would 

then file a proof of claim with the 

bankruptcy court to recover those costs 

from the bankrupt manufacturer. 

The proposed policy that CMS 

assume financial liability for the 

applicable discounts in the event of a 

manufacturer bankruptcy is consistent 

with CMS’ payment processes for Part D 

sponsors under the Medicare Coverage 

Gap Discount Program. Under 

§ 423.2320 (a), CMS provides interim 

payments to ensure that Part D sponsors 

have the funds available to advance the 

coverage gap discount to beneficiaries at 

point of sale. Under § 423.2320 (b), CMS 

reconciles the interim payments with 

the invoiced manufacturer discount 

amounts in order make the PDP sponsor 

whole for the gap discount amount 

provided to the beneficiaries at point of 

sale. (For more information on these 

provisions, see October 11, 2011 final 

rule (76 FR 63017, 63027).) In order to 

remain consistent with the intent of the 

Coverage Gap Discount Reconciliation 

to make the Part D sponsor whole for 

the gap discounts amounts advanced at 

point of sale, CMS must provide 

payments to the Part D sponsor to cover 

the cost of the applicable discount in 

the event that the manufacturer cannot 

pay the quarterly invoices due to a 

bankruptcy. We propose to cover the 

costs of unpaid quarterly invoices only 

in the event that a manufacturer 

becomes bankrupt. We would not cover 

the cost of unpaid quarterly invoices for 

any other reasons because, in the event 

that a manufacturer fails to pay the 

quarterly invoices, we will impose 

CMPs that will cover the cost of the 

unpaid invoices. In the event that a 

manufacturer becomes bankrupt, we are 

concerned that the court will either 

modify or reduce the amount of the 

CMP, making the CMP process 

ineffective for covering the cost of the 

invoices and leaving the Part D sponsor 

in the position of having to cover the 

costs of the gap discount. 

We propose to implement this policy 

by adjusting the Coverage Gap Discount 

Reconciliation to account for quarterly 

invoices that go unpaid as a result of a 

manufacturer becoming bankrupt. This 

adjustment will only occur for 

manufacturer discount amounts as they 

are reported on PDEs submitted by the 

submission deadline for the Part D 

reconciliation. 

Based on the preceding, we propose 

to add a new paragraph (c) to § 423.2320 

to describe a process for accounting for 

quarterly invoiced amounts that go 

unpaid by a bankrupt manufacturer. 

6. Risk Adjustment Data Requirements 

(§ 422.310) 

We propose to strengthen existing 

regulations related to the accuracy of 

risk adjustment data by amending 

§ 422.310 on risk adjustment data 

validation. First, we propose to 

renumber existing paragraph 

§ 422.310(e) as paragraph (e)(2) and add 

new paragraph (e)(1), which would 

require that any medical record reviews 

conducted by an MA organization must 

be designed to determine the accuracy 

of diagnoses submitted under 

§ 422.308(c)(1) and § 422.310(g)(2). 

(Paragraph § 422.308(c)(1) addresses 

adjustments to payments for health 

status, and paragraph § 422.310(g)(2) 

addresses deadlines for risk adjustment 

data submission, including the final risk 

adjustment data submission deadline 

prior to CMS’ calculation of the final 

risk factors for a payment year.) Under 

our proposal, medical record reviews 

conducted by an MA organization 

cannot be designed only to identify 

diagnoses that would trigger additional 

payments by CMS to the MA 

organization; and medical record review 

methodologies must be designed to 

identify errors in diagnoses submitted to 

CMS as risk adjustment data, regardless 

of whether the data errors would result 

in positive or negative payment 

adjustments. This proposed amendment 

furthers our goals of improving payment 

accuracy and reducing payment errors. 

We also propose to amend 

§ 422.310(g) regarding deadlines for 

submission of risk adjustment data. Our 

current procedures generally permit 

submission of risk adjustment data after 

the final risk adjustment submission 

deadline only to correct overpayments. 

We propose to revise the regulation to 

explicitly permit late submissions only 

to correct overpayments but not to 

submit diagnoses for additional 

payment. 

Finally, we propose to align this 

regulation with proposed § 422.326 by 

making two additional changes in 

paragraph (g). First, we propose the 

deletion of the January 31 deadline in 

subparagraph (2) and replacing it with 

the statement that CMS will announce 

the deadline by which final risk 

adjustment data must be submitted to 

CMS or its contractor. This means that 

the risk adjustment data submission 

deadline would also function as the Part 

C applicable reconciliation date for 

purposes of proposed § 422.326 on 

overpayment rules, as discussed in 

section II.B.1.b. of this proposed rule. 

Second, we propose to add 

subparagraph (3) to § 422.310(g). 

Proposed paragraph (3) cites § 422.326 

as the source of rules for submission of 

corrected risk adjustment data after the 

final risk adjustment data submission 

deadline, that is, after applicable 

reconciliation as defined at § 422.326(a). 

7. RADV Appeals 

a. Background 

We published Risk Adjustment Data 

Validation (RADV) appeals regulations 

in the April 15, 2010 Federal Register. 

These rules were proposed and finalized 

under CMS’s authority to establish 

Medicare Advantage (MA) program 

standards by regulation at section 

1856(b)(1) of the Act and are found at 

§ 422.311 et seq. 

As explained in the preamble of that 

final rule, Subpart G of the MA 

regulations at part 422 describes how 

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payment is made to MA organizations. 

These payment principles are based on 

sections 1853, 1854, and 1858 of the 

Act. Subpart G also sets forth the 

requirements for making payments to 

MA organizations offering local and 

regional MA plans, including 

calculation of MA capitation rates. 

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

that we risk adjust our payments to MA 

organizations. Risk adjustment 

strengthens the Medicare program by 

ensuring that accurate payments are 

made to MA organizations based on the 

health status plus demographic 

characteristics of their enrolled 

beneficiaries and ensures that MA 

organizations are paid appropriately for 

their plan enrollees (that is, less for 

healthier enrollees expected to incur 

lower health care costs and more for less 

healthy enrollees expected to incur 

higher health care costs). Accurate 

payments to MA organizations also help 

ensure that providers are paid 

appropriately for the services they 

provide to MA beneficiaries. In general, 

the current risk adjustment 

methodology relies on enrollee 

diagnoses, as specified by the 

International Classification of Disease, 

currently the Ninth Revision Clinical 

Modification guidelines (ICD–9–CM) to 

prospectively adjust capitation 

payments for a given enrollee based on 

the health status of the enrollee. 

Diagnosis codes determine the risk 

scores, which in turn determine the risk 

adjusted reimbursement. As a result, 

physicians and providers must focus 

attention on complete and accurate 

diagnosis reporting according to the 

official ICD–9–CM coding guidelines 

(that is, coding diagnoses accurately and 

to the highest level of specificity). 

MA enrollee Hierarchical Condition 

Categories (HCCs) are assigned based on 

risk adjustment diagnoses from FFS 

claims and from risk adjustment data 

submitted to us by MA organizations via 

the Risk Adjustment Payment System 

(RAPS). The CMS–HCCs contribute to 

an enrollee’s risk score, which is used 

to adjust a base payment rate. 

Essentially, the higher the risk score for 

an enrollee, the higher the expected 

health care cost for the enrollee. The 

HCC data that MA organizations submit 

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

does not go through a validation review 

before being incorporated into a given 

beneficiary’s risk-profile. Since there is 

an incentive for MA organizations to 

potentially over-report diagnoses so that 

they can increase their payment, the 

Agency audits plan-submitted diagnosis 

data a few years later to ensure they are 

supported by medical record 

documentation. 

Verifiable medical record 

documentation is the key to accurate 

payment and successful data validation. 

We annually select contracts for RADV 

audits. RADV audits are intended to 

confirm the presence of risk adjustment 

conditions (that is, diagnoses that map 

to HCCs) as reported by MA 

organizations for their enrollees and 

confirmed via medical record 

documentation. RADV audits occur after 

the final risk adjustment data 

submission deadline for the MA 

contract year. We validate the HCC data 

submitted by MA organizations by 

reviewing hospital inpatient, hospital 

outpatient, and physician/practitioner 

provider medical records. The focus of 

this medical record review activity is on 

diagnoses related to the enrollee’s HCC 

profile. Risk adjustment discrepancies 

are identified when the enrollee’s HCCs 

used for payment (based upon MA 

organization-submitted data) differ from 

the HCCs assigned based on the medical 

record, under the RADV audit process. 

Risk adjustment discrepancies can be 

aggregated to determine an overall level 

payment error. In turn, payment error 

for a sample of contract enrollees can be 

extrapolated to calculate a contract-level 

payment error estimate. 

Since finalizing these rules in 2010, 

we have conducted additional RADV 

audits and believe that some of the 

appeals provisions finalized in the 2010 

RADV Appeals final rule should now be 

modified to prevent confusion, and to 

strengthen the RADV appeals process. 

We therefore, propose revisions to the 

RADV appeals regulations finalized in 

the April 15, 2010 Federal Register. 

These proposed revisions clarify 

program requirements and simplify the 

RADV appeals process. These proposed 

RADV provisions will apply to any 

RADV determinations issued on or after 

the effective date of this regulation. 

b. RADV Definitions 

We propose to amend the RADV 

definitions at § 422.2 as follows: 

• Removing the following definitions: 

++ ‘‘Initial Validation Contractor 

(IVC)’’ means the first level of 

medical record review under the 

RADV audit process. 

++ ‘‘RADV payment error calculation 

appeal process’’ means an 

administrative process that enables 

MA organizations that have 

undergone RADV audit to appeal 

the CMS calculation of an MA 

organization’s RADV payment error. 

++ ‘‘The one best medical record for 

the purposes of Medicare 

Advantage Risk Adjustment 

Validation (RADV)’’ means the 

clinical documentation for a single 

encounter for care (that is, a 

physician office visit, an inpatient 

hospital stay, or an outpatient 

hospital visit) that occurred for one 

patient during the data collection 

period. The single encounter for 

care must be based on a face-to-face 

encounter with a provider deemed 

acceptable for risk adjustment and 

documentation of this encounter 

must be reflected in the medical 

record. 

• Adding the following definition: 

++ ‘‘RADV appeal process’’ means an 

administrative process that enables 

MA organizations that have 

undergone RADV audit to appeal 

the Secretary’s medical record 

review determinations and the 

Secretary’s calculation of an MA 

organization’s RADV payment error. 

• Revising the following definitions: 

++ Risk adjustment data validation 

(RADV) audit means a payment 

audit of a Medicare Advantage 

(MA) organization administered by 

CMS or the Secretary that ensures 

the integrity and accuracy of risk 

adjustment payment data. 

++ ‘‘Attestation process’’ means a 

CMS-developed RADV process that 

enables MA organizations 

undergoing RADV audit to submit 

CMS-generated attestations for 

eligible medical records with 

missing or illegible signatures or 

credentials. The purpose of the 

CMS-generated attestations is to 

cure signature and credential issues 

for eligible medical records. CMSgenerated attestations do not 

provide an opportunity for a 

provider or supplier to replace a 

medical record or for a provider or 

supplier to attest that a beneficiary 

has the medical condition. 

c. Publication of RADV Methodology 

In the October 22, 2009 Notice of 

Proposed Rule Making (NPRM), and as 

reinforced in the April 15, 2010 Final 

Regulation, CMS indicated that we 

would, ‘‘publish its RADV methodology 

in some type of public document—most 

likely, a Medicare Manual, so that the 

public can review and provide comment 

as it deems necessary’’. We also 

indicated that we would provide an 

annual notice of RADV audit 

methodology. Our last RADV-related 

notice of methodology was published in 

February, 2012. We will continue to 

publish a notice of the methodology 

employed, but will do so only if there 

is a change in the RADV methodology 

that would require publication. We note 

that these notices of RADV audit 

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methodology updated information 

provided on RADV audit methodology 

provided in the October 22, 2009 

proposed rule and April 15, 2010 final 

rule. 

In addition, we provided in the 

October 22, 2009 proposed rule 

preamble that we would provide an 

expanded explanation of methodology 

and payment error calculation factors as 

a part of each audit report of findings 

that we send to MA organizations that 

undergo RADV audit. Such explanation 

and factors have been and will continue 

to be part of the RADV audit report(s) 

that CMS provides health plans that 

have undergone RADV audits. 

d. Proposal To Update RADV Appeals 

Terminology (§ 422.311) 

Current RADV regulations utilize the 

following terms for the CMS-issued 

RADV audit report: Audit report post 

medical record review; RADV audit 

report; IVC-level RADV audit report; 

and RADV audit report of finding. This 

use of multiple terms to refer to what is 

the same audit report (the RADV audit 

report that CMS issues following 

conclusion of the medical record review 

portion of the audit) is potentially 

confusing. Therefore, we propose 

amending the RADV regulations 

throughout to adopt one common term 

to refer to RADV audit reports: ‘‘RADV 

Audit Report’’. By standardizing 

terminology throughout the RADV 

regulations, the proposed amendment 

provides clarity which may lead to 

increased efficiency. We welcome 

comment on this proposal. 

As mentioned earlier in the 

description of RADV-related definitions 

that have changed, we have revised 

certain RADV-related definitions to 

accommodate changes to both the RADV 

audit process and the RADV appeals 

process. One definition that we have 

removed from the RADV regulations is 

Initial Validation Contractor, or IVC. 

The RADV medical record review 

process no longer utilizes ‘‘initial’’ and 

‘‘secondary’’ validation contractors to 

conduct medical record review under 

RADV. Instead we now utilize medical 

record reviewers to code medical 

records undergoing RADV review. 

These reviewers may be employed by 

the same or different medical record 

review contractors. Therefore, the term 

‘‘IVC’’ is no longer relevant to the RADV 

audit process. We therefore propose to 

remove this term from the RADV 

regulations at the following citations: 

§ 422.311(c)(2)(i)(B) through (D); 

§ 422.311(c)(2)(ii)(B), 

§ 422.311(c)(2)(iii)(A), § 422.111(c)(2)(v), 

(vi), § 422.311(c)(3)(ii)(A), and 

§ 422.311(c)(3)(iii)(A) and (B). We invite 

comment on this proposal. 

e. Proposal To Simplify the RADV 

Appeals Process 

Currently, there are two types of 

RADV-related appeals processes 

described in Federal regulations at 

§ 422.311 et seq.: Medical record 

review-determination appeals and 

RADV payment error calculation 

appeals. RADV medical record reviewdetermination appeal requirements and 

procedures are discussed at 

§ 422.311(b)(3) and § 422.311(c)(2). 

Medical record review determination 

appeal is a two-stage administrative 

appeal process: The first step is a 

hearing by a hearing officer, followed by 

a CMS Administrator-level review. This 

appeal procedure provides MA 

organizations with an opportunity to 

appeal RADV medical record review 

determinations that are made by coders 

reviewing the medical record 

documentation submitted by MA 

organizations undergoing RADV audit. 

The second type of RADV appeal, 

payment error calculation appeal, is 

discussed at § 422.311(c)(3). Payment 

error calculation appeal is a threepronged appeal process: 

Reconsideration, followed by a hearing 

officer review, followed by CMS 

Administrator-level review. This appeal 

process was specifically designed to 

afford MA organizations the opportunity 

to appeal CMS’s contract-level RADV 

payment error calculation. 

We propose that the administrative 

appeals language described at 

§ 422.311(b)(3) and § 422.311(c)(2) for 

RADV medical record review 

determination appeals and 

§ 422.311(c)(3) for RADV payment error 

calculation appeals be replaced with 

new regulatory language proposed 

§ 422.311(c)(1) et seq., that combines the 

two existing RADV appeal policies and 

procedures into one set of requirements 

and one process. We propose to 

combine the two RADV appeals 

processes into one combined RADV 

appeals process that is comprised of 

three administrative steps: 

Reconsideration, hearing officer review, 

and CMS Administrator-level review. A 

three-step administrative appeals 

process comprising reconsideration, 

hearing officer review, and 

Administrator-levels of review is a 

common administrative appeals model 

used elsewhere within the Medicare 

managed care program, such as in 

appealing contract award 

determinations and intermediate 

sanctions. The combined RADV appeal 

process that we are proposing at new 

§ 422.311(c)(1) et seq., also has the 

benefit of simplifying what is today a 

complex two-track appeal process into 

one process. While both CMS and the 

MA industry will benefit from 

simplifying this process, MA 

organizations also obtain an additional 

level of review under the combined 

approach since MA organizations will 

be afforded a reconsideration appeal 

step for medical record review 

determinations that is today—not part of 

the existing RADV appeal process. 

Shortening the existing two-track appeal 

process should also reduce the 

resources and level of effort needed 

from both MA organizations and CMS in 

participating in a RADV appeal 

proceeding. Under this proposal, MA 

organizations can simply request to 

appeal their RADV audit findings one 

time and specify whether they want to 

appeal either their medical record 

review determination(s), payment error 

calculation, or both. The specific details 

regarding this proposed process follow. 

We propose these changes based upon 

our experience with RADV appeals and 

because we hope to reduce the burden 

associated with undertaking RADV 

appeals on both MA organizations and 

CMS. The details of this proposed 

policy and procedure follows. 

(1) Issues Eligible for RADV Appeal 

Current regulations at § 422.311(c)(2) 

et seq., and § 422.311(c)(3) et seq., 

specify RADV-related medical record 

review and payment error calculation 

documents and issues eligible for the 

medical record review determination 

and payment error calculation appeal 

processes. We propose to amend the 

policies and procedures around issues 

eligible for RADV appeals at 

§ 422.311(c)(2) and § 422.311(c)(3) by 

combining proposed policies and 

procedures for the existing two-pronged 

appeal approach into one set of policies 

and procedures for RADV appeals at the 

new § part 422.311(c)(2)(iv). At 

§ 422.311(c)(2)(i), we propose that as a 

general rule, MA organizations may 

appeal RADV medical record review 

determinations and RADV payment 

error calculation, though in order to be 

eligible to pursue these appeals, we 

specify at proposed § 422.311(c)(2)(i)(A) 

and (B) that MA organizations must 

adhere to established RADV audit 

procedures and requirements and 

adhere to RADV appeals procedures and 

requirements. At § 422.311(c)(2)(ii) we 

propose that failure to follow RADV 

audit procedures and requirements and 

RADV appeals procedures and 

requirements will render the MA 

organization’s request for RADV appeal 

invalid. Furthermore, at proposed 

§ 422.311(c)(2)(iii) we stipulate that the 

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MA organization’s written request for 

medical record review determination 

appeal must specify the audited HCC(s) 

that have been identified pursuant to 

RADV audit as being in error, and 

further specify that MA organizations 

must provide a justification in support 

of the audited HCC(s) that the MA 

organization elects to appeal. At 

§ 422.311(c)(2)(i) (iv) we propose that 

for each audited HCC, MA organizations 

may appeal one medical record that has 

undergone RADV medical record review 

and that if an attestation was submitted 

to cure a signature or credential issue, 

that attestation may likewise be 

included in the HCC appeal. For 

example, if an MA organization 

submitted a medical record that did not 

contain a signature and/or credential— 

and the MA organization submitted an 

attestation to cure the error that CMS 

subsequently failed to accept—the MA 

organization could choose to appeal 

CMS’s determination to not accept the 

submitted attestation. We reiterate that 

the purpose of CMS-generated 

attestations is to cure signature and 

credential errors associated with an 

eligible submitted medical record and 

not to provide an opportunity for a 

provider or supplier to attest that a 

beneficiary has a certain medical 

condition. Evidence for the existence of 

the medical condition is found in a 

medical record. 

We are proposing to modify our 

language at § 422.311(c)(2)(i)(v) to 

clarify existing RADV appeals 

provisions which stipulate that MA 

organizations must adhere to the ‘‘one 

best medical record’’ policy. Under 

changes to the RADV audit methodology 

announced by CMS in February 2012, 

we now allow MA organizations to 

submit more than one medical record 

(that is, more than the ‘‘one best medical 

record’’) during the RADV audit process 

to validate an audited CMS–HCC. 

However, for purposes of appealing a 

CMS medical record review 

determination, we will not permit 

organizations to appeal multiple 

medical records but will instead— 

require that MA organizations identify a 

record from amongst those records 

submitted, and to submit that record for 

appeal. For each audited HCC, MA 

organizations may appeal only one 

medical record that has undergone 

RADV review. This policy was 

published in the February 2012 White 

Paper and is not included in this 

proposed rule. 

At § 422.311(c)(2)(vi) we propose that 

a written request for RADV payment 

error calculation appeal must clearly 

specify the MA organization’s own 

RADV payment error calculation and 

must also specify where the payment 

error calculation was erroneous. 

(2) Issues Not Eligible for RADV 

Appeals 

At § 422.311(c)(3) we propose 

documents and issues that are ineligible 

for RADV appeals. Consistent with the 

overall approach of combining into one 

RADV appeals process what was 

heretofore two separate RADV appeals 

processes—by way of this new proposed 

section, we propose to amend existing 

regulations at § 422.311(c)(3). At new 

§ 422.311(c)(3), we propose that MA 

organizations’ request for appeal may 

not include HCCs, medical records or 

other documents beyond the audited 

HCC, selected medical record and any 

accompanying attestation that the MA 

organization chooses to appeal. We 

specify at § 422.311(c)(3)(ii) that the MA 

organizations may not appeal CMS’s 

medical record review determination 

methodology or CMS’s payment error 

calculation methodology. This is a 

clarification to existing RADV 

regulations at § 422.311(c)(3)(D) which 

specifies that MA organizations may not 

appeal CMS’s payment error calculation 

methodology. At § 422.311(c)(3)(iii) we 

specify that MA organizations may not 

appeal RADV medical record reviewrelated errors when appealing RADV 

error-calculation issues since medical 

record review determination issues 

must be resolved before we can 

calculate RADV payment errors. And at 

§ 422.311(c)(3)(iv) we specify that RADV 

errors that result from an MA 

organization’s failure to submit a 

medical record are not eligible for 

appeal. 

(3) Manner and Timing of a Request for 

RADV Appeal 

We propose to replace existing RADV 

regulations at § 422.311(c)(2)(iii) et seq., 

and § 422.311(c)(3)(iii) et seq., regarding 

the manner and timing of a request for 

RADV appeals. Again, at § 422.311(c)(5), 

we propose to combine the formerly two 

separate sets of requirements and 

procedures into one RADV appeals 

process addressing the request for 

RADV appeal. At § 422.311(c)(5)(i) we 

propose that at the time the Secretary 

issues her RADV audit report, the 

Secretary notifies audited MA 

organizations that they may appeal 

RADV HCC errors that are eligible for 

medical record review determination 

appeal and may appeal the Secretary’s 

RADV payment error calculation. At 

§ 422.311(c)(5)(ii) we specify that MA 

organizations have 30 days from the 

date of CMS’s issuance of the RADV 

audit report to file a written request 

with CMS for RADV appeal. This 

request for RADV appeal must specify 

whether the MA organization requests 

medical record review determination 

appeal, whether the MA organization 

requests RADV payment error 

calculation appeal, or whether the MA 

organization requests both medical 

record review determination appeal and 

RADV payment error calculation 

appeal— and in each instance— the 

issues with which the MA organization 

disagrees, and the reasons for the 

disagreements. See proposed regulations 

at § 422.311(c)(6) et seq. 

At new § 422.311(c)(5)(ii) we specify 

that while MA organizations may now 

elect to appeal either medical record 

review determination, payment error 

calculation, or both—they must notify 

CMS which issues they will appeal at 

the same time. This new provision 

replaces existing RADV appeals 

requirements regarding notification at 

§ 422.311(c)(2)(iii) and 

§ 422.311(c)(3)(iii)(C). 

For MA organizations that elect both 

medical record review determination 

appeal and RADV payment error 

calculation appeal, we specify at 

§ 422.311(c)(5)(iii)(A) and (B) that the 

Secretary will adjudicate the request for 

RADV payment error calculation 

following conclusion of reconsideration 

of the MA organization’s request for 

medical record review determination 

appeal. This is necessary because RADV 

payment error calculations are based 

upon the outcomes of medical record 

review determinations. For example, for 

an MA organization that appeals both 

medical record review determinations 

and payment error calculations, the 

reconsideration official would first 

adjudicate and rule on the medical 

record review determinations and then 

proceed to recalculate the RADV 

payment error. 

(4) Reconsideration Stage 

Under current RADV appeals 

procedures, only the RADV payment 

error calculation appeal process 

contains a reconsideration step. We 

propose to amend existing regulations at 

§ 422.311(c)(3)(iii)(C) and 

§ 422.311(c)(3)(v), (vi), and (vii) by 

proposing a new reconsideration stage 

for RADV appeals at § 422.311(c)(6) et 

seq. Reconsideration is the first stage of 

the new RADV appeals process and will 

apply to both medical record review 

determinations and error calculation 

issues being appealed. Therefore, MA 

organizations that elect to appeal RADV 

audit findings de facto begin the appeal 

process with the reconsideration step. 

At proposed § 422.311(c)(6)(i) we 

specify that a MA organization’s written 

request for medical record review 

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determination reconsideration must 

specify the audited HCC identified as 

being in error that the MA organization 

wishes to appeal; and to provide a 

justification in support of the audited 

HCC chosen for appeal. At proposed 

§ 422.311(c)(6)(ii) we specify that the 

MA organizations’ written request for 

payment error calculation 

reconsideration must include the MA 

organization’s own RADV payment error 

calculation that clearly indicates where 

the RADV payment error calculation 

was erroneous. The request for payment 

error calculation reconsideration may 

also include additional documentary 

evidence pertaining to the calculation of 

the error that the MA organization 

wishes the reconsideration official to 

consider. 

At proposed § 422.311(c)(6)(iii) we 

describe the conduct of the 

reconsideration process that is being 

proposed. We specify that for medical 

record review determination 

reconsideration, a medical record 

review professional who was not 

involved in the initial medical record 

review determination of the disputed 

HCC reviews the medical record and 

accompanying dispute justification; and 

reconsiders the initial audited HCC 

medical record review determination. 

For payment error calculation 

reconsideration, CMS ensures that a 

third party not involved in the initial 

RADV payment error calculation 

reviews the RADV payment error 

calculation, reviews the MA 

organization’s own RADV payment error 

calculation, and recalculates the 

payment error in accordance with 

CMS’s RADV payment error calculation 

procedures. 

At proposed § 422.311(c)(6)(iv), we 

specify that the reconsideration official 

issues a written reconsideration 

decision to the MA organization, and 

that the reconsideration official’s 

decision is final unless the MA 

organization disagrees with the 

reconsideration official’s decision. If the 

MA organization disagrees with the 

reconsideration official’s decision, it 

may request a hearing. 

(5) Hearing Stage 

Existing regulations at 

§ 422.311(c)(2)(iv) through (ix) and 

§ 422.311(C)(4) et seq., specify the 

procedures under which CMS conducts 

hearings under the RADV appeals 

process for medical record review and 

payment error calculation. We propose 

to replace these provisions with new 

hearing requirements and procedures at 

§ 422.311(c)(7)(iv). 

At § 422.311(c)(7)(i), we propose that 

at the time the RADV appeals 

reconsideration official issues his/her 

reconsideration determination to the 

MA organization, the reconsideration 

official notifies the MA organization of 

any RADV audited HCC errors and or 

payment error calculations that are 

eligible for RADV hearing. At 

§ 422.311(c)(7)(ii), we specify that a MA 

organization that requests a hearing 

officer review must do so in writing in 

accordance with procedures established 

by CMS. At § 422.311(c)(7)(iii), we 

specify that a written request for a 

hearing must be filed with the Hearing 

Officer within 30 days of the date the 

MA organization receives the 

reconsideration officer’s written 

reconsideration decision. If the MA 

organization appeals the medical record 

review reconsideration determination, 

the written request for RADV hearing 

must include a copy of the written 

decision of the reconsideration official; 

must specify the audited HCCs that the 

reconsideration official confirmed as 

being in error; and must specify a 

justification as to why the MA 

organization disputes the 

reconsideration official’s determination. 

If the MA organization appeals the 

RADV payment error calculation, the 

written request for RADV hearing must 

include a copy of the written decision 

of the reconsideration official and must 

include the MA organization’s own 

RADV payment error calculation that 

clearly specifies where the CMS’s 

payment error calculation was 

erroneous. 

At § 422.311(c)(7)(iv), we propose that 

a CMS hearing officer conduct the 

RADV hearing. At § 422.311(c)(7)(v), we 

specify terms and conditions under 

which a hearing officer may be 

disqualified. A hearing officer may not 

conduct a hearing in a case in which he 

or she is prejudiced or partial to any 

party or has any interest in the matter 

pending for decision. A party to the 

hearing who objects to the assigned 

hearing officer must notify that officer 

in writing at the earliest opportunity. 

The hearing officer must consider the 

objections, and may, at his or her 

discretion, either proceed with the 

hearing or withdraw. If the hearing 

officer withdraws, another hearing 

officer will conduct the hearing. If the 

hearing officer does not withdraw, the 

objecting party may, after the hearing, 

present objections and request that the 

officer’s decision be revised or a new 

hearing be held before another hearing 

officer. The objections must be 

submitted in writing to CMS. 

At § 422.311(c)(7)(vi) we propose that 

the hearing officer reviews the medical 

record and any accompanying 

attestation that the MA organization 

selected for review, the reconsideration 

official’s payment error calculation (if 

appealed), the reconsideration official’s 

written determination, and the written 

justification submitted by the MA 

organization and CMS in response to the 

reconsideration official’s determination. 

At § 422.311(c)(7)(vii) we propose 

RADV appeal hearing procedures. We 

propose that the hearing officer has full 

power to make rules and establish 

procedures, consistent with the law, 

regulations, and rulings. These powers 

include the authority to dismiss the 

appeal with prejudice and take any 

other action which the hearing officer 

considers appropriate, including for 

failure to comply with RADV audit and 

appeals rules and procedures. We 

propose that the hearing be altogether 

on the record unless the hearing officer, 

at his or her full discretion, approves a 

parties request for a live or telephonic 

hearing regarding some or all of the 

medical records in dispute, or if the 

hearing office schedules a live or 

telephonic hearing on its own motion. 

The hearing officer’s review will be 

solely limited to the record. The record 

is comprised of the RADV reviewed 

medical record and any accompanying 

attestation that the MA organization 

selected for review, the reconsideration 

official’s payment error calculation (if 

appealed), the reconsideration official’s 

written determination, the written 

justification submitted by the MA 

organization in response to the 

reconsideration official’s determination, 

and written briefs from the MA 

organization explaining why they 

believe the reconsideration official’s 

determination was incorrect. In 

addition, the record will be comprised 

of a brief from CMS that responds to the 

MA organization’s brief. 

In terms of specifying the conduct of 

the hearing, we propose at 

§ 422.311(c)(7)(vii)(B) that the hearing 

officer neither receives testimony nor 

accepts any new evidence that is not 

part of the record. At § 422.311(c)(7)(vii) 

we propose that the hearing officer be 

given the authority to decide whether to 

uphold or overturn the reconsideration 

official’s decision, and pursuant to this 

decision—to send a written 

determination to CMS and the MA 

organization, explaining the basis for 

the decision. 

At § 422.311(c)(7)(ix), we propose that 

in accordance with the hearing officer’s 

decision, a third party not involved in 

the initial RADV payment error 

calculation recalculate the MA 

organization’s RADV payment error and 

issue a new RADV audit report to the 

appellant MA organization and CMS. 

For MA organizations appealing the 

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RADV payment error calculation only, 

we propose that a third party not 

involved in the initial RADV payment 

error calculation recalculate the MA 

organization’s RADV payment error and 

issue a new RADV audit report to the 

appellant MA organization and CMS. At 

§ 422.311(c)(7)(x) we propose that the 

hearing officer’s decision be final unless 

the decision is reversed or modified by 

the CMS Administrator. 

(6) CMS Administrator Review Stage 

Existing regulations at 

§ 422.311(c)(2)(x) et seq., and 

§ 422.311(C)(4)(vi) et seq., specify the 

CMS Administrator-level review 

procedures that CMS adheres to under 

the current RADV appeals process for 

medical record review determinations 

and payment error calculation. We 

propose to replace these regulations 

with new RADV appeal-related CMS 

Administrator review requirements and 

procedures at § 422.311(c)(8). 

At § 422.311(c)(8)(i) and (ii), we 

propose that a request for CMS 

Administrator review must be made in 

writing within 30 days of receipt of the 

hearing officer’s decision; and must be 

filed with the CMS Administrator by 

CMS or an MA organization. At 

§ 422.311(c)(8)(iii), we propose that after 

receiving a request for review, the CMS 

Administrator has the discretion to elect 

to review the hearing officer’s decision 

or to decline to review the hearing 

officer’s decision. At § 422.311(c)(8)(iv) 

we propose that if the CMS 

Administrator elects to review the 

hearing decision—the Administrator 

acknowledges the decision to review the 

hearing decision in writing and notifies 

CMS and the MA organization of their 

right to submit comments within 15 

days of the date of the notification. At 

§ 422.311(c)(8)(iv)(B), we propose that 

the CMS Administrator be limited to the 

review of the record and that the record 

be comprised of the hearing record, and 

written arguments from the MA 

organization and/or CMS explaining 

why either or both parties believe the 

hearing officer’s determination was 

correct or incorrect. 

Regarding Administrator-level review 

procedures at § 422.311(c)(8)(vi), we 

propose that the Administrator reviews 

the record and determines whether the 

hearing officer’s determination should 

be upheld, reversed, or modified. At 

§ 422.311(c)(8)(v), we propose that the 

Administrator render his or her final 

decision in writing to the parties within 

60 days of acknowledging his or her 

decision to review the hearing officer’s 

decision. At § 422.311(c)(8)(vi), we 

propose that the decision of the hearing 

officer become final if the Administrator 

declines to review the hearing officer’s 

decision or does not make a decision 

within 60 days. 

Combining these existing RADV 

medical record review determination 

and payment error calculation appeals 

policies and processes improves the 

overall appeals process by strengthening 

the depth and integrity of these 

procedures. We also believe that doing 

so improves overall RADV appeals 

procedures by providing clarity that 

leads to greater efficiencies in 

adjudicating RADV appeals. We 

welcome comments on these proposals. 

f. Proposal To Expand Scope of RADV 

Audits 

Federal regulations at § 422.311(a) 

specify that RADV audits are conducted 

by CMS. We propose to amend this 

regulation at § 422.311(a) by specifying 

that the Secretary of the Department of 

Health and Human Services, along with 

CMS, may conduct RADV audits 

beginning with the effective date of this 

regulation. We also propose to amend 

RADV definitions at § 422.2 to specify 

that The Secretary of the Department of 

Health and Human Services, along with 

CMS, may conduct RADV audits. We 

welcome comment on this proposal. 

g. Proposal To Clarify the RADV 

Medical Record Review Determination 

Appeal Burden of Proof Standard 

Our regulations at § 422.311(c)(3)(iv) 

specify that for RADV payment error 

calculation appeals, MA organizations 

bear the burden to prove that CMS 

failed to follow its stated RADV 

payment error calculation methodology. 

However, RADV regulations do not 

specify a burden of proof standard for 

the RADV medical record review 

determination appeal process. The 

absence of a clearly-defined burden of 

proof standard for RADV medical record 

review determination appeals creates an 

appeal environment where MA 

organizations, CMS and RADV appellate 

officials are free to interpret and apply 

different burden of proof standards 

when arguing or reviewing appeals 

cases. We propose to amend the rule 

with new § 422.311(c)(4) which 

specifies that the burden of proof for all 

RADV determinations—be they 

payment error calculation or RADV 

medical record review determinations— 

is on MA organizations to prove, based 

on a preponderance of the evidence, 

that CMS’s determination was 

erroneous. 

This approach would stand in 

contrast to a burden of proof standard in 

which the MA organization were to 

prove that a valid diagnoses exists on 

the record, and that therefore, the 

audited HCC has been validated. This 

proposed amendment to the rule 

provides the medical record review 

determination process a clear burden of 

proof standard which more aligns with 

the existing RADV payment error 

calculation appeals burden of proof 

standard. Doing so also improves the 

overall RADV appeals procedures by 

providing clarity that leads to greater 

efficiencies in adjudicating RADV 

appeals. We invite comment on this 

proposal. 

h. Proposal To Change RADV Audit 

Compliance Date 

Currently, the compliance date for 

RADV audits is the due date when MA 

organizations selected for RADV audit 

must submit medical records to CMS or 

its contractors. We are proposing to 

change the compliance date for meeting 

RADV audit requirements for the 

validation of risk adjustment data to the 

due date when MA organizations 

selected for RADV audit must submit 

medical records to the Secretary—and 

not only CMS. See proposed regulation 

language at § 422.311(b)(2). 

B. Improving Payment Accuracy 

8. Recovery Audit Contractor (RAC) 

Determination Appeals (Proposed Part 

422 Subpart Z and Part 423 Subpart Z) 

a. Background 

Section 306 of the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (MMA) 

required the Secretary to conduct a 

demonstration to determine whether 

recovery auditors could be used 

effectively to identify improper 

payments paid under Medicare Part A 

and Part B claims. We conducted the 

demonstration from March 2005 to 

March 2008 in six states. The Recovery 

Audit demonstration established 

recovery auditors as a successful tool in 

the identification and prevention of 

improper Medicare payments. 

In December 2006, the Tax Relief and 

Health Care Act of 2006 (TRHCA) (Pub. 

L. 109–432) was enacted. Section 302(a) 

of the TRHCA created a permanent 

Medicare Recovery Audit Contractor 

(RAC) program and added a new 

paragraph (h) to section 1893 of the 

Social Security Act (the Act) that 

required us to establish a national 

recovery audit program for Medicare 

Part A and Part B. The national 

Medicare Fee-For-Service (FFS) 

Recovery Audit program was 

established on January 1, 2010. 

Section 6411(b) of the Affordable Care 

Act amended section 1893(h)(1) of the 

Act by requiring the establishment of 

recovery audit programs for Medicare 

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Parts C and D, in addition to the RAC 

program already in place for Medicare A 

and B. 

On December 27, 2010, we published 

a notice in the Federal Register (75 FR 

81278) requesting comments on how to 

best implement the RAC program for 

Parts C and D. Analysis of the comments 

received assisted us with 

implementation of the Part C and D 

RACs. 

In January 2011, we entered into a 

recovery audit contract for Part D. The 

Part D RAC began recouping identified 

overpayments in 2012. On December 7, 

2012, we published a Request for 

Quotation (RFQ) via the General 

Services Administration’s (GSA) eBuy 

seeking quotations on the 

implementation of a Medicare Part C 

RAC. We anticipate the award of a Part 

C RAC contract in FY 2014. 

Given that we began recouping 

overpayments determined by the Part D 

RAC in 2012, and we anticipate 

recouping overpayments in Part C after 

awarding a Part C RAC contract in FY 

2014, it is appropriate to provide a 

codified administrative appeals process 

to allow for plans to challenge the 

overpayment findings generated by the 

RACs just as we provide for challenges 

to overpayment determinations 

elsewhere in the Medicare program. In 

crafting our proposed appeals process 

for Parts C and D RAC determinations, 

we reviewed existing appeals processes 

in other areas, including Parts A and B 

RAC determinations, Part C RADV 

Audits, Part D payments, etc. 

b. Proposed RAC Appeals Process 

After reviewing the agency’s existing 

appeal processes, we determined that 

the general mechanisms set forth in 

§ 422.311 and § 423.350 offered the most 

appropriate models for the Part C and D 

RAC appeals process. 

The Part D RAC currently reviews 

PDE data to identify overpayments and 

underpayments that are paid back to the 

plans. When overpayments are 

identified, Part D plans are notified and 

funds are recovered. If plans disagree 

with the calculated overpayment 

amounts or whether the overpayments 

are proper, they may appeal the Part D 

RAC’s determination directly to the 

CMS Center for Program Integrity. 

A multilevel independent appeals 

process is an important component of 

the Part C and Part D RAC program as 

it allows plans to appeal determinations 

they contend are made in error. The 

administrative appeals mechanisms in 

this proposed rule would apply to all 

Part C and Part D RAC determinations. 

As CMS implements the Part C RAC, we 

would determine if additional changes 

to the proposed appeals process are 

necessary. 

Based on the foregoing, we propose to 

add a new subpart Z in Parts 422 and 

423, respectively that would include the 

proposed provisions discussed in this 

section. In accordance with CMS 

direction and criteria, the Part C or Part 

D RAC would conduct an issue specific 

audit of CMS’ payment(s) to plans. An 

independent validation of all Part C and 

Part D RAC-identified improper 

payments would be conducted. If both 

the Part C or Part D RAC and the 

independent validation determine that 

an improper payment was made, the 

Part C or Part D RAC would send a 

notice of improper payment to the plan. 

If the Part C or Part D RAC determines 

an overpayment was made to the plan, 

it would send a demand letter 

requesting repayment. The demand 

letter would: (1) Explain the reason for 

the overpayment determination; (2) 

explain our recoupment process; and (3) 

contain instructions on how the plan 

may appeal the Part C or Part D RAC’s 

finding. There would be no minimum 

monetary threshold for an appeal at any 

level. 

The following three level process sets 

forth our proposed administrative 

appeals process for overpayment 

determinations by the Part C and Part D 

RACs. Please note that the appeals 

process set forth applies to both 

§ 422.2600 and § 423.2600. Because the 

sections largely mirror one another, 

discussions in this preamble would 

apply to both programs, unless 

otherwise noted. 

(1) Reconsiderations (§ 422.2605 and 

§ 423.2605) 

At § 422.2605 and § 423.2605, we 

propose that if the plan believes the part 

C or Part D RAC did not apply CMS’ 

stated payment methodology correctly, a 

plan may appeal the determination to an 

independent reviewer. CMS’ payment 

methodology itself, however, is not 

subject to appeal. That is, while 

miscalculations and factual or data 

errors may be appealed, the plan may 

not appeal the substantive basis for the 

overpayment determination. This is 

consistent with the approach to Part D 

reconciliation appeals at § 423.350(a)(1), 

which states that the Part D plan may 

appeal ‘‘if CMS did not apply its stated 

payment methodology correctly.’’ The 

Part D reconciliation appeals process 

does not permit the underlying payment 

methodology to be appealed. 

Examples of appealable issues would 

include, but are not be limited to: (1) A 

Part C or Part D RAC determination that 

a plan provider/pharmacy was excluded 

from Medicare when the service was 

furnished; (2) a Part C or Part D RAC 

determination that a payment was a 

duplicate payment; or (3) whether the 

Part C or Part D RAC miscalculated an 

overpayment. 

In paragraph (a), we propose that the 

plan’s request for reconsideration must 

be filed with the independent reviewer 

within 60 calendar days from the date 

of the demand letter. In paragraph (b)(1), 

we propose that the request for 

reconsideration must be in writing and 

must provide evidence or reasons or 

both to substantiate the request. In 

paragraph (b)(2), we propose that the 

plan must include with its request all 

supporting documentation, evidence, 

and substantiation it wants the 

independent reviewer to consider. This 

material must be submitted in the 

format requested by CMS. 

Documentation, evidence, or 

substantiation submitted after the filing 

of the reconsideration request would not 

be considered. 

In paragraph (c), we propose that CMS 

may file a rebuttal to the plan’s 

reconsideration request. The rebuttal 

must be submitted to the independent 

reviewer within 30 calendar days of the 

independent reviewer’s notification to 

CMS that it has received the plan’s 

reconsideration request. CMS would 

notify and send its rebuttal to the plan 

at the same time it is submitted to the 

independent reviewer. In paragraph (d), 

we propose that the independent 

reviewer would conduct the 

reconsideration. Specifically, the 

independent reviewer would review the 

notification of improper payment, the 

evidence, and findings upon which it 

was based, and any evidence that the 

plan or CMS submitted in accordance 

with regulations. In paragraph (e), we 

propose that the independent reviewer 

would inform CMS and the plan of its 

decision in writing. In paragraph (f), we 

propose that a reconsideration decision 

would be final and binding unless the 

plan requests a hearing in accordance 

with § 422.2605 and § 423.2605. Finally, 

in paragraph (g), we propose that a plan 

that is dissatisfied with the independent 

reviewer’s reconsideration decision 

would be entitled to a review by a 

hearing official as provided in 

§ 422.2610 and § 423.2610. 

(2) Hearing Official Determinations 

(§ 422.2610 and § 423.2610) 

In proposed § 422.2610 and 

§ 423.2610, we outline the process for 

requesting review of the record by a 

CMS hearing official. In paragraph (a), 

we propose that a request for review 

must be filed with CMS within 15 days 

from the date of the independent 

reviewer’s issuance of a determination. 

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The request must be in writing and must 

provide a basis for the request. In 

paragraph (b), we propose that the plan 

must submit with its request all 

supporting documentation, evidence, 

and substantiation that it wants to be 

considered. Documentation, evidence, 

or substantiation submitted after the 

filing of the request would not be 

considered. 

In paragraph (c), we propose that a 

CMS-designated hearing official would 

conduct the review. A hearing would 

not be conducted, either live or via 

telephone, unless the hearing official, in 

his or her sole discretion, chooses such 

a mechanism. In all cases, the hearing 

official’s review would be limited to 

information that: (1) The Part C or Part 

D RAC used in making its 

determinations; (2) the independent 

reviewer used in making its 

determinations; (3) the plan submits 

with its hearing request; and (4) CMS 

submits per paragraph (d). Neither the 

plan nor CMS would be allowed to 

submit new evidence. 

In paragraph (d), we propose that 

CMS may file a rebuttal to the plan’s 

hearing request. The rebuttal must be 

submitted within 30 calendar days of 

the plan’s submission of its hearing 

request. CMS would send its rebuttal to 

the plan at the same time it is submitted 

to the hearing official. In paragraph (e), 

we propose that the CMS hearing 

official would decide the case within 60 

days and send a written decision to the 

plan and CMS, explaining the basis for 

the decision. In paragraph (f), we 

propose that the hearing official’s 

decision would be final and binding, 

unless the decision was reversed or 

modified by the CMS Administrator in 

accordance with § 422.2615 and 

§ 423.2615. 

(3) Administrator Review (§ 422.2615 

and § 423.2615) 

In proposed § 422.2615 and 

§ 423.2615, we discuss the 

Administrator review process. In 

paragraph (a), we propose that if a plan 

is dissatisfied with the hearing official’s 

decision, the plan may request that the 

CMS Administrator review the decision. 

The request must be filed with the CMS 

Administrator within 15 calendar days 

of the date of the hearing official’s 

decision. The request must provide 

evidence or reasons or both to 

substantiate the request. In paragraph 

(b), we propose that the plan must 

submit with its request all supporting 

documentation, evidence, and 

substantiation that it wants to be 

considered. Neither the plan nor CMS 

would be allowed to submit new 

evidence. Documentation, evidence or 

substantiation submitted after the filing 

of the request would not be considered. 

In paragraph (c), we propose that after 

receiving a request for review, the 

Administrator would have the 

discretion to review the hearing 

official’s decision in accordance with 

paragraph (e) or to decline to review 

said decision. 

In paragraph (d), we propose that the 

Administrator would notify the plan of 

whether he or she intends to review the 

hearing official’s decision. If the 

Administrator declines to review the 

hearing official’s decision, the hearing 

official’s decision is final and binding. 

If the Administrator agrees to review the 

hearing official’s decision, CMS may file 

a rebuttal statement within 30 days of 

the Administrator’s notice to the plan 

that the request for review has been 

accepted. CMS would send its rebuttal 

statement to the plan at the same time 

it is submitted to the Administrator. In 

paragraph (e), we propose that if the 

Administrator agrees to review the 

hearing official’s decision, the 

Administrator would determine, based 

upon this decision, the hearing official 

record, and any arguments submitted by 

the plan or CMS in accordance with this 

section, whether the determination 

should be upheld, reversed, or 

modified. The Administrator would 

furnish a written decision to the plan 

and to CMS. The Administrator’s 

decision would be final and binding. 

C. Strengthening Beneficiary Protections 

1. Providing Good Quality Health Care 

(§ 422.504(a)(3) and § 423.505(b)(27)) 

Section 1857(e)(1) of the Act, together 

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

which incorporates its terms for Part D, 

authorizes CMS to include terms and 

conditions in our contracts with MA 

organizations and PDP sponsors that are 

consistent with Part C and Part D 

requirements, respectively, and that the 

Secretary finds are ‘‘necessary and 

appropriate.’’ Furthermore, the 

requirements set forth in section 1860D– 

4(b), (c), and (d) of the Act include 

specifications for a Part D sponsor to 

administer a benefit that not only 

accurately and efficiently process claims 

but also meets beneficiary healthcare 

needs, and to take affirmative action to 

improve outcomes and achieve patient 

satisfaction. Under this authority, we 

propose to add a requirement to CMS 

contracts with MA organizations and 

Part D sponsors that explicitly requires 

that Part C and Part D plans demonstrate 

that they are providing good quality 

health care by achieving good or 

improving scores on CMS performance 

standards for outcomes, intermediate 

outcomes, process, patient experience, 

and patient access to care. We believe 

that adding this requirement would help 

ensure our beneficiaries receive the 

right care at the right time. 

While we believe that we have 

conveyed this expectation in other 

ways, such as through our performance 

and quality measurement and rating 

methodologies, we have never explicitly 

articulated this requirement in 

regulation. In short, we are proposing 

here that it is not enough to simply 

administer a benefit plan, but that Part 

C and Part D sponsors should constantly 

seek out ways to actively promote and 

advance the health of its enrollees. 

In order to create a requirement that 

helps ensure that Medicare beneficiaries 

are receiving consistently good quality 

care, and to have the ability to enforce 

such a requirement, we sought existing 

guidance to shape the meaning of ‘‘good 

quality health care.’’ The Affordable 

Care Act required HHS to develop the 

National Strategy for Quality 

Improvement in Health Care (the 

National Quality Strategy), which, like 

our Three-Part Aim, combines the three 

broad objectives of better health for the 

population, better care for individuals, 

and affordable care. In addition, our Star 

Ratings program was developed to 

include quality and performance 

measures to increase the level of 

accountability for MA organizations and 

PDP sponsors to administer a good 

quality benefit to Medicare 

beneficiaries. By linking a concept as 

subjective in nature as good quality 

health care to objective metrics and 

measures in the Star Ratings program, 

we believe plans and sponsors can 

reasonably employ tangible strategies 

that improve the quality of services and 

benefits provided to Medicare 

beneficiaries. 

To give concrete and verifiable 

meaning to this requirement, we 

propose to specify that good quality 

health care refers to MA organizations 

and Part D sponsor performance in the 

five categories identified in CMS’s Star 

Ratings program—patient outcomes, 

intermediate outcomes, patient 

experience, patient access to care, and 

process. Achievement of this type of 

performance is based on organizational 

capability and implementation by the 

MA organizations and Part D sponsor. 

Articulating and codifying this 

requirement underscores for the public 

and our plans and sponsors the critical 

importance we place on aligning the 

administration of Part C and Part D 

benefits with the achievement of good 

quality health care as illustrated by, but 

not limited to, these specific 

performance standards. Leveraging what 

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plans have already put into practice 

with regard to these five categories 

means that plans should not encounter 

any additional burden in complying 

with this proposed regulation. Instead, 

the proposed change gives plans an 

opportunity to demonstrate the value 

they offer their enrollees, while 

providing a means for us to enforce or 

take corrective action when a Part C or 

Part D plan fails to provide good quality 

health care. 

There are several reasons we propose 

including in regulation a contract 

requirement that plans administer a 

benefit promoting good quality health 

care. We reward MA organizations with 

quality bonus payments when they 

achieve high scores within the Star 

Ratings. At the same time, we believe 

that it is appropriate that we react 

correspondingly if an MA organization 

does not provide good quality care. In 

addition, our existing requirements that 

MA organizations have a quality 

improvement (QI) program (§ 422.152) 

and Part D sponsors have a Medication 

Therapy Management Program 

(§ 423.153(d)) further reinforce our 

belief that MA organizations and Part D 

sponsors are already striving to 

administer a good quality benefit. 

Moreover, we examined our authority at 

§ 422.502(b) and § 423.503(b), which 

allows us to ensure that plan 

performance is routinely evaluated. 

Based on the methodology we use to 

calculate plan performance for both MA 

organizations and Part D sponsors, we 

are able to determine which plans are 

outliers—that is, those organizations 

whose performance is consistently poor. 

With regard to the particular proposed 

contractual requirement to administer a 

good quality benefit, we can evaluate a 

plan’s scores in Performance Metrics 

category within the plan performance 

review. Plans are held accountable for 

achieving good scores on the review, 

and this evaluation allows us to 

appropriately deny an organization’s 

application to operate if it is determined 

that they are an outlier. 

Therefore, we propose adding 

paragraph (b)(27) to § 423.505, 

Requirements for contracts, to state, ‘‘A 

PDP sponsor is required to administer a 

PDP benefit that provides good quality 

health care demonstrated by scores of 3 

or higher on CMS performance 

standards for patient outcomes, 

intermediate outcomes, process, patient 

experience, and patient access to care.’’ 

Similarly, we propose adding 

paragraph (a)(3)(iv) to § 422.504, 

Contract Provisions, to state that MA 

organizations agree to provide benefits, 

‘‘in a manner that provides good quality 

health care demonstrated by scores of 3 

or higher on CMS performance 

standards for patient outcomes, 

intermediate outcomes, process, patient 

experience, and patient access to care.’’ 

2. MA–PD Coordination Requirements 

for Drugs Covered Under Parts A, B, and 

D (§ 422.112) 

Under § 422.112(b) of the MA 

program regulations, coordinated care 

plans must ensure continuity of care 

and integration of services through 

arrangements with contracted providers. 

We believe that an important aspect of 

this coordination is ensuring that all 

needed services, including drug 

therapies, are provided in a timely 

manner. We have become aware of 

situations in which enrollees’ access to 

needed Medicare-covered drugs has 

been delayed or denied due to the MA 

organization’s failure to effectively 

coordinate Part B and Part D benefits for 

certain drugs, both at the point-of-sale 

(POS) and during the coverage 

determination process. 

As defined in § 423.100, ‘‘Part D’’ 

drugs do not include drugs for which 

payment as so prescribed and dispensed 

or administered to an enrollee is 

available for that enrollee under Part A 

or Part B. In other circumstances, these 

drugs are covered under the Part D 

benefit, but coverage generally cannot 

be determined based solely on the drug 

itself. These drugs include certain 

infusion agents, oral anti-cancer 

therapies, oral anti-emetics, 

immunosuppressants, and injectables. 

We do not believe MA–PD plans are 

adopting or administering uniform 

policies that allow them to 

expeditiously determine whether a drug 

is covered under Part A/Part B or Part 

D at the POS. The resulting POS 

rejection of coverage under the Part D 

benefit does not uniformly include 

messaging that a Part B prior 

authorization determination is required, 

nor consistently result in a 

corresponding authorization under Part 

B. This can result in lengthy drug 

treatment delays while the enrollee or 

his or her provider attempts to 

determine why the drug was not 

covered and then pursues a coverage 

determination from the MA–PD plan. 

For example, an MA–PD enrollee may 

present a prescription for a covered 

chemotherapy drug at his or her 

pharmacy only to be told that the claim 

has been rejected under the Medicare 

Part D benefit, resulting in the enrollee 

leaving the pharmacy counter without 

his/her drug. The enrollee may not 

know that the drug is covered under 

Part B. In some cases, the enrollee must 

take steps on his or her own to find out 

why coverage for a prescription was 

rejected at the POS and then contact the 

plan to obtain the Part B-covered 

medication. Unless the MA–PD plan has 

a robust process in place to make a 

timely and appropriate payment 

determination at the POS, there may be 

unnecessary delays, during which the 

enrollee is denied access to the needed 

medication. 

We have issued guidance in section 

20.2.2. Chapter 6 of the Medicare 

Prescription Drug Benefit Manual 

related to how Part D plan sponsors 

should make determinations whether a 

drugs is covered under Part B or Part D. 

We have also outlined in Appendix C of 

Chapter 6 considerations for Part D plan 

sponsors—and by extension, MA 

organizations that offer MA–PD plans— 

to take into account when making 

determinations as to whether a drug is 

covered under Part B or Part D. We 

expect plans to work with network 

pharmacies and providers to determine 

coverage and payment for these drugs 

with the goal of limiting disruptions to 

beneficiaries and pharmacies and 

ensuring access to medically necessary 

prescription drugs. For example, we 

have stated in subregulatory guidance 

that, when adjudicating claims for these 

drugs, Part D plan sponsors are 

permitted to rely on information 

submitted on the prescription (for 

example, to determine whether the 

prescription is related to a Medicare 

covered organ transplant) and may 

require their network pharmacies to 

obtain documentation to determine 

whether payment should be made under 

Part B or Part D. 

During recent MA–PD plan audits, we 

also have seen that some plans are not 

adequately coordinating the respective 

Part D and Part B drug benefits when an 

enrollee or his or her provider requests 

a drug coverage determination from the 

plan. For example, in response to a POS 

claim rejection for an 

immunosuppressant drug that cannot be 

resolved at the POS, an enrollee’s 

provider may submit a coverage 

determination request to the MA 

organization offering an MA–PD, which 

is generally processed under the Part D 

benefit. In some cases, MA–PD plans 

deny coverage and issue a denial notice 

under the Part D benefit on the basis 

that the drug is, or may be, covered by 

Part B, but the plan either fails to make 

a determination regarding Part B 

coverage or does not authorize payment 

under the Part B benefit. 

Occurrences like these cause 

inappropriate and avoidable delays, or, 

even worse, result in situations in 

which the enrollee fails to receive 

needed medication altogether. In the 

case of chemotherapy or 

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immunosuppressive drugs, such delays 

could have rapid and serious medical 

consequences for the beneficiary. 

Part D drug benefits and drug benefits 

under Parts A and B should be 

coordinated by MA organizations 

offering MA–PDs so that enrollees 

receive needed medications on a timely 

basis. We are proposing to add a new 

paragraph (b)(7) to § 422.112 to require 

MA–PDs to establish adequate 

messaging and processing requirements 

with network pharmacies (that is, Part D 

contracted providers) to ensure that 

appropriate payment is assigned at the 

POS, and to ensure that, when coverage 

is denied under Part D due to available 

coverage under Part A or Part B, such 

Part A or Part B coverage is authorized 

or provided to the enrollee as 

expeditiously as the enrollee’s health 

condition requires. Our proposed 

regulation would require that MA PDs 

have systems in place to accurately and 

timely adjudicate claims at the POS. 

In addition, we would like to ensure 

that MA–PD plans are coordinating their 

drug benefits appropriately during the 

coverage determination process. If an 

MA organization offering Part D denies 

Part D coverage due to the availability 

of Part A or Part B coverage, we expect 

the MA organization to ensure the 

decision results in authorization or 

provision of the drug under Part A or 

Part B pursuant to the requirements in 

parts 422 and 423, subpart M under our 

proposed regulation. We do not expect 

MA–PD enrollees to have to request an 

initial coverage determination more 

than once. 

To avoid unnecessary delays and 

inappropriate denials of critical 

medications, we have considered 

requiring MA–PD plans to authorize 

coverage of all Part A, Part B and D 

medications at the POS so that the 

enrollee can receive covered medication 

without delay. The determination as to 

whether the drug is covered under Part 

A, Part B or Part D and the amount of 

the appropriate cost sharing would 

occur later if necessary. However, we 

recognize that such a requirement may 

interfere with medically appropriate 

pre-authorization requirements, and 

may trigger retrospective enrollee 

liability depending on the difference in 

enrollee cost sharing for coverage under 

Part A, Part B and Part D and 

retrospective TROOP adjustments and 

Part D reconciliation. 

We solicit comments on our proposal, 

as well as other possible approaches to 

minimizing delays in beneficiary access 

to needed medications caused by 

inadequate coordination of the Part A, 

Part B and Part D drug benefits at the 

POS and during the coverage 

determination process. In particular, we 

would appreciate organizations sharing 

their expertise regarding best practices 

for this benefit coordination at the POS 

and plan processes that enhance those 

coverage determinations. We also are 

soliciting comments on challenges MA 

organizations offering Part D currently 

encounter in their efforts to integrate 

these benefits. 

3. Good Cause Processes (§ 417.460, 

§ 422.74 and § 423.44) 

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

provides that MA organizations may 

terminate the enrollment of individuals 

who fail to pay basic and supplemental 

premiums after a grace period 

established by the plan. Section 1860D– 

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

to use rules related to enrollment, 

disenrollment, and termination for Part 

D plan sponsors that are similar to those 

established for MA organizations under 

section 1851 of the Act. In addition, 

section 1860D–13(a)(7) of the Act 

mandates that the premiums paid by 

individuals with higher incomes be 

increased by the applicable Part D 

Income Related Monthly Adjustment 

Amount (Part D IRMAA), for the months 

in which they are enrolled in Part D 

coverage. 

Consistent with these sections of the 

Act, subpart B in both the Part C and 

Part D regulations sets forth our 

requirements with respect to 

involuntary disenrollment procedures at 

§ 422.74 and § 423.44, respectively. An 

MA or Part D plan that chooses to 

disenroll beneficiaries for failure to pay 

premiums must be able to demonstrate 

to us that it made a reasonable effort to 

collect the unpaid amounts by notifying 

the beneficiary of the delinquency, 

providing the beneficiary a period of no 

less than 2 months in which to resolve 

the delinquency, and advising the 

beneficiary of the termination of 

coverage if the amounts owed are not 

paid by the end of the grace period. 

In addition, current regulations at 

§ 417.460(c) specify that a Health 

Maintenance Organization (HMO) or 

competitive medical plan (cost plan) 

may disenroll a member who fails to 

pay premiums or other charges imposed 

by the plan for deductible and 

coinsurance amounts. While there is not 

a grace period parallel to MA and Part 

D, the other procedural requirements for 

cost plans to disenroll a member on this 

basis are similar to those for MA and 

Part D plans. The cost plan must 

demonstrate that it made reasonable 

efforts to collect the unpaid amount and 

send the enrollee written notice of the 

pending disenrollment at least 20 days 

before the disenrollment effective date. 

In the April 2011 final rule (76 FR 

21432) we amended both the Parts C 

and D regulations at § 422.74(d)(1)(v), 

§ 423.44(d)(1), and § 423.44(e)(3) 

regarding involuntary disenrollment for 

non-payment of premiums or Part D– 

IRMAA to allow for reinstatement of the 

beneficiary’s enrollment into the plan 

for good cause. In the April 2012 final 

rule (77 FR 22071), we extended the 

policy of reinstatement for good cause to 

include beneficiaries enrolled in cost 

plans in § 417.460(c)(3); thus aligning 

the cost plan reinstatement provision 

with the MA and PDP plan provisions. 

These good cause provisions 

authorize CMS to reinstate a disenrolled 

individual’s enrollment without an 

interruption in coverage in certain 

circumstances where the non-payment 

was due to circumstances that the 

individual could not reasonably foresee 

and could not control, such as 

unexpected hospitalization. Since the 

inception of these provisions, we have 

received feedback from plans on ways to 

improve the good cause process and 

make it more efficient for both the plans 

and us. Over the past year, we have 

already used this feedback to improve 

the operational aspects of the policy by 

updating Chapter 2 of the Medicare 

Managed Care Manual and Chapter 3 of 

the Medicare Prescription Drug Benefit 

Manual to clarify notice language and 

the process and timing of receiving 

payments during the extended grace 

period, as outlined in § 417.460(c)(3), 

§ 422.74(d)(1)(v), and § 423.44(d)(1)(vi). 

In addition, we updated the Complaints 

Tracking Module (CTM) Standard 

Operating Procedures (SOP) to permit 

plans to transfer requests for 

reinstatement for good cause to CMS. 

We are now proposing to make 

additional revisions to § 417.460, 

§ 422.74, and § 423.44 to make changes 

to the good cause review process. 

The ability for individuals to be 

reinstated during the extended grace 

period for good cause is outlined in 

§ 417.460, § 422.74 and § 423.44. Since 

its inception, the process of accepting, 

reviewing, and processing beneficiary 

requests for reinstatement for good 

cause has been carried out exclusively 

by CMS. In multiple cases, individual 

MA organizations and Part D plans have 

indicated that they wanted to be the 

point of contact for their current and 

past members. In addition, several plans 

have raised concerns regarding 

complaints by their members who are 

seeking reinstatement and who have to 

contact CMS instead of the plan to make 

this request. 

In light of this feedback, the 

experience we have gained since the 

initial implementation of the good cause 

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process, and in the interest of making 

the process more efficient, we solicited 

public input on improving the process 

in the draft 2014 Call Letter issued on 

February 15, 2013. In the Call Letter, we 

indicated that we were considering 

making changes to the good cause 

process. Specifically, we stated that we 

were exploring expanding the plans’ 

role in the process to include accepting 

the initial requests for reinstatement by 

former plan members and gathering 

information prior to submitting the 

requests to us. We requested comments 

from MA organizations and Part D plan 

sponsors on our proposal to expand the 

plans’ role and any other ways we might 

improve the process to receive and 

review good cause requests for 

reinstatement. 

The vast majority of the comments we 

received from stakeholders in response 

to the Call Letter were in favor of 

expanding the plans’ role, given the fact 

that plans can readily access a former 

enrollee’s premium billing and payment 

history and, as such, are in a position to 

identify and efficiently resolve other 

disenrollment disputes that are 

erroneously being received as good 

cause requests. A number of plans 

indicated a preference to independently 

implement the good cause process 

through enhanced subregulatory 

guidance. A few commenters indicated 

that CMS should retain responsibility 

over all aspects of the good cause 

process to ensure objectivity. 

In response to this feedback we are 

proposing to amend § 417.460(c)(3), 

§ 422.74(d)(1)(v), and § 423.44(d)(1)(vi) 

to permit an entity acting on behalf of 

CMS to effectuate reinstatements when 

good cause criteria are met. This 

regulatory change would allow us to 

designate another entity, including the 

plans or an independent contractor, to 

complete portions or all of the good 

cause process. It is our intent to expand 

the role of plans to include accepting 

incoming requests for reinstatement 

directly from former enrollees and 

making the good cause determinations 

using the existing regulatory standard. 

This proposed change would enable 

plans to be more responsive to their 

current and former members, and lessen 

the burden the plans have in 

coordinating with us regarding the good 

cause and reinstatement process. It 

further aims to lessen the number of 

complaints generated due to 

miscategorization of the reinstatement 

requests as an allegation of plan error, 

which the plans must then resolve and 

refer back to us for a good cause 

determination. 

Ensuring objectivity in the review of 

these cases and equity among 

beneficiaries regarding the 

determination of good cause for cases is 

critically important. Thus, we would 

establish operational policy and 

processes in subregulatory guidance to 

set parameters for the application of the 

good cause standard, including the 

submission to CMS of certain cases for 

review to ensure that plans remain 

impartial and equitable in their 

assessment and treatment of former 

members who have been disenrolled for 

nonpayment of premiums. These 

changes would be accompanied by the 

development of an oversight protocol 

for any activities currently carried out 

by us for which we name the plans or 

an independent contractor our designee 

to carry out. 

In addition to our proposal here to 

permit a CMS designee to determine 

reinstatements for good cause, we are 

taking this opportunity to propose a 

technical change to the language in 

§ 417.460 to clarify that good cause 

protections for enrollees in cost plans 

apply to instances where there was a 

failure to pay either plan premiums or 

cost sharing. In extending the good 

cause provision to cost plans in the 

April 2012 final rule, we correctly 

referenced failure to pay premiums as a 

basis for disenrollment from a cost plan, 

but in two instances we neglected to 

include a reference to ‘‘other charges’’ as 

a basis for disenrollment. We propose to 

make a technical change to 

§ 417.460(c)(3) and (c)(4) to clarify that 

the good cause provisions are applicable 

to individuals who have been 

disenrolled for non-payment of other 

charges (for example, deductible or 

coinsurance amounts), in addition to 

non-payment of premiums. 

4. Definition of Organization 

Determination (§ 422.566) 

Based on our updated guidance, 

program experience, and information 

collected during audits of MA 

organizations, we are proposing to 

revise the current regulatory definition 

of ‘‘organization determination’’ set 

forth at § 422.566(b) to create a single, 

uniform definition. As described later in 

this proposed rule, the definition of 

organization determination referenced 

in our manual guidance (Chapter 13 of 

the Medicare Managed Care Manual, 

section 30), required plan marketing 

documents (such as the EOC), and Part 

C data requirements (Medicare Part C 

Plan Reporting Requirements, Technical 

Specifications Document—Measure 6) is 

more inclusive than the definition 

currently reflected in this regulation. 

Section 1852(g) of the Act requires 

MA organizations to have a procedure 

for making determinations regarding 

whether an enrollee is entitled to 

receive a health service and the amount 

(if any) that the individual is required 

to pay for such service. Our regulations 

at 42 CFR part 422, subpart M codify the 

procedures MA organizations must 

follow when processing organization 

determinations. Section 422.566(b) 

defines which actions are considered 

organization determinations, but does 

not currently include all types of 

coverage decisions made by a provider 

under contract with an MA 

organization. 

Our current manual guidance, 

required model EOC documents, and 

Part C plan reporting requirements 

clarify that organization determinations 

include fully favorable, partially 

favorable, and unfavorable decisions 

made by an MA organization concerning 

payment or provision of an item or a 

service. Additionally, requirements 

elsewhere in Part 422 provide certain 

beneficiary protections in the MA 

program, including a requirement that 

MA organizations provide or make 

payment for all services covered by 

Medicare Parts A and B (see 

§ 422.101(a)), and contract requirements 

that limit beneficiary financial liability 

for fees that the MA organization is 

legally obligated to pay for services 

provided by contract and non-contract 

providers (see § 422.504(g)). Our 

proposed changes would clarify what 

actions are included and therefore 

ensure that enrollees receive required 

Medicare notices (for example, notice of 

termination in certain healthcare 

settings) and due process rights. 

We are proposing to make minor 

modifications to regulatory language at 

§ 422.566(b)(1) through (b)(3) to improve 

the uniformity of our guidance on what 

actions are considered organization 

determinations. We are restating these 

provisions for consistency within this 

section and to further underscore an 

‘‘organization determination’’ includes 

any coverage decision—fully favorable, 

partially favorable, and unfavorable— 

made by an MA organization concerning 

payment or provision of an item or a 

service. At § 422.566(b)(1) and (b)(2), we 

refer to an organization determination as 

‘‘any determination’’ by an MA 

organization (that is, fully favorable, 

partially favorable, and unfavorable). At 

422.566(b)(3), we are proposing to 

replace the reference to the MA 

organization’s ‘‘refusal to provide or 

pay’’ with reference to ‘‘any 

determination not to provide or pay for’’ 

items or services made by the MA 

organization to improve consistency of 

the regulatory language. 

Chapter 13, section 30 of the Medicare 

Managed Care Manual states that 

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approval for an item or service by the 

plan or its delegated entity (that is, 

provision of an item or service by a 

contract provider, such as inpatient 

admission to a contract hospital) is an 

organization determination. We are also 

proposing to add new language to the 

regulation text at § 422.566(b)(6) that 

clarifies that a provider under contract 

with an MA organization that furnishes 

an item or service to an enrollee has 

made a favorable organization 

determination on behalf of the MA 

organization. We believe this 

clarification to the regulatory definition 

is necessary to clearly distinguish when 

a contract provider is making an 

organization determination on behalf of 

the MA organization from instances 

where a contract provider is not making 

an organization determination on behalf 

of the MA organization. We have 

repeatedly stated that a contract 

provider’s refusal to furnish an item or 

service is a treatment decision, not an 

adverse organization determination 

made on behalf of the MA organization. 

In a case where a contract provider 

refuses to furnish an item or service, the 

enrollee has the right to request an 

organization determination from the MA 

organization. In addition, the provider 

may request the organization 

determination on the enrollee’s behalf. 

The proposed revision to the 

regulation text at § 422.566(b)(6) would 

also clarify that a service or item 

provided by a noncontract provider due 

to a referral from a contract provider 

constitutes a favorable organization 

determination, and therefore ensures 

that enrollees would be protected by 

limitations on their financial liability. 

(For more information, see § 422.504(g) 

of the regulations and Chapter 4, section 

170 of the Medicare Managed Care 

Manual). We stated in the January 28, 

2005 final rule (70 FR 4618) that if a 

network physician performs a service or 

directs an MA beneficiary to another 

provider to receive a plan covered 

service (regardless of whether the 

provider is following the plan’s internal 

procedures, such as obtaining the 

appropriate plan pre-authorization), the 

enrollee cannot be held liable for more 

than applicable plan cost sharing for 

those services. When a contract provider 

refers an enrollee out of the network, the 

enrollee has a reasonable expectation 

that the items or services provided by 

the non-contract provider will be 

covered by the plan. Enrollees cannot be 

held to a higher standard than plan 

contracting providers to adhere to plan 

rules. 

Proposed new paragraph 

§ 422.566(b)(6) would also clarify that a 

favorable organization determination 

has been made if: (1) The MA 

organization decides to provide or pay 

for an item or service, including a 

decision to continue providing or 

paying for an item or service; or (2) a 

contract provider or facility, acting on 

behalf of the MA organization, furnishes 

(or continues to furnish) an item or 

service. 

Together, our proposed revisions to 

§ 422.566(b) are intended to codify our 

current guidance, creating a single, 

uniform definition of organization 

determination. 

5. MA Organization Extension of 

Adjudication Timeframes for 

Organization Determinations and 

Reconsiderations (§ 422.568, § 422.572, 

§ 422.590, § 422.618, and § 422.619) 

Section 1852(g)(2) of the Act requires 

MA organizations to provide for 

reconsideration, or review, of 

organization determinations within a 

timeframe specified by the Secretary, 

but generally no later than 60 days from 

the date of receipt of the request for 

reconsideration. Section 1852(g)(3)(B) of 

the Act requires MA organizations to 

maintain procedures for expediting 

organization determinations and 

reconsiderations when a physician’s 

request indicates that applying the 

standard timeframe could seriously 

jeopardize the life or health of the 

enrollee or the enrollee’s ability to 

regain maximum function or when, in 

the case of an enrollee’s request, the MA 

organization makes such a 

determination on its own. In expedited 

cases, the MA organization generally 

must issue its decision no later than 

within 72 hours of receipt of the 

request. Section 1852(g)(3)(B)(iii) of the 

Act permits the Secretary to extend this 

72-hour decision making timeframe in 

certain cases. 

Our regulations at 42 CFR part 422, 

subpart M codify the procedures MA 

organizations must follow in issuing 

standard and expedited organization 

determinations and reconsiderations. 

Specifically, the current regulations at 

§ 422.568(b), § 422.572(b), and 

§ 422.590(a)(1) and (d)(1) set forth the 

standard and expedited timeframes 

within which plans are required to 

process such decisions and describe the 

circumstances under which plans are 

permitted to extend decision making 

timeframes by up to 14 calendar days. 

Based on information ascertained 

during recent MA program audits, we 

have found that some MA organizations 

are routinely and inappropriately 

invoking extensions of the adjudication 

timeframes for organization 

determinations and reconsiderations. 

We have identified circumstances in 

which MA organizations are routinely 

invoking the 14 day extension: (1) In 

cases where the plan lacks adequate 

internal controls to ensure coverage 

requests are reviewed and adjudicated 

within the required regulatory 

timeframe; and (2) in cases where the 

plan is awaiting receipt of supporting 

clinical documentation from one of its 

contract providers. We believe the 

current language that permits extension 

of the adjudication timeframes set forth 

in § 422.568(b), § 422.572(b), 

§ 422.590(a)(1) and § 422.590(d)(2) is 

being interpreted more broadly than our 

intent in adopting these rules. 

Therefore, we propose to revise these 

regulatory provisions to more clearly 

define our intended standard for when 

it is appropriate for an MA organization 

to extend an adjudication timeframe. 

Routinely invoking an extension of 

the applicable adjudication timeframe is 

counter to the intent of the statutory and 

regulatory requirements for timely 

determinations that emphasize the 

health needs of the beneficiary in 

determining the appropriate 

adjudication timeframe. Extensions 

should be permitted only in limited 

circumstances, and only if the extension 

is in the enrollee’s interest. MA 

organizations are required by regulation 

to render all coverage decisions as 

expeditiously as the enrollee’s health 

condition requires. When plans choose 

to subject an item or service to a prior 

authorization requirement, we expect 

them to have the resources to process 

those requests in a timely manner. 

We believe MA organizations have 

interpreted existing regulations to mean 

that there is a broader set of 

circumstances in which it would be 

appropriate to invoke an extension than 

we intended, such as the need for 

medical evidence from a contract 

provider. We are proposing to amend 

the regulation text to clarify our original 

intent that an extension should not be 

routinely invoked for any category of 

coverage request, but in particular not 

for purposes of obtaining additional 

medical evidence from contract 

providers. Thus, we propose to revise 

the extension language in § 422.568(b), 

§ 422.572(b), and § 422.590(a)(1), and to 

add new § 422.590(e), which would 

incorporate and clarify existing text at 

§ 422.590(a)(1) and (d)(2) in order to 

more clearly identify when it is 

appropriate for an MA organization to 

invoke an extension of the adjudication 

timeframe. We also propose revisions to 

§ 422.590(d) and redesignation of 

existing subparagraphs § 422.590(e) 

through (g) as part these changes. 

First, we propose to retain the current 

provisions in these various regulations 

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that permit an extension at the request 

of the enrollee. Additionally, we 

propose to modify the current regulatory 

provisions that permit an extension ‘‘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 MA 

organization’s decision to deny).’’ Our 

proposed revised language would result 

in two more specific provisions 

permitting an extension, which we 

believe clarifies the intent of our 

existing requirements. 

Additionally, we propose language to 

clarify at § 422.568(b)(1)(ii), 

§ 422.572(b)(1)(ii), and 

§ 422.590(e)(1)(ii) that an extension may 

be justified and in the enrollee’s interest 

due to the need to obtain additional 

medical information that may result in 

changing the MA organization’s denial 

of coverage of an item or service only 

from a non-contract provider. We 

believe the arrangement between an MA 

organization and its contract providers 

is such that clinical documentation 

should generally be readily available 

and that there are mechanisms for an 

MA organizations to ensure that 

contract providers produce necessary 

documentation in a timely manner (for 

example, via their contract). We believe 

that any delay in decision-making 

caused by an extension to obtain 

additional medical evidence from a 

contract provider would be in the plan’s 

interest but not generally in the interest 

of the enrollee. Therefore, we are 

proposing to specify at 

§ 422.568(b)(1)(ii), § 422.572(b)(1)(ii), 

and § 422.590(e)(1)(ii) that one 

circumstance in which it may be 

appropriate for an MA organization to 

invoke an extension is when the 

extension is in the enrollee’s interest 

due to the need for additional medical 

evidence from a non-contract provider 

only. 

When the MA organization needs 

additional information that may change 

a decision to deny coverage, it is our 

expectation that the MA organization 

promptly solicit necessary clinical 

documentation in all cases and that 

extension of the timeframe not be 

routinely invoked. It is also our 

expectation that the full 14 days not be 

routinely taken, even if an extension is 

warranted, and that all coverage 

requests be reviewed, and decisions 

issued, as expeditiously as the enrollee’s 

health condition requires within that 

period, as required by regulation. 

In addition, we propose to include a 

provision (new language to be codified 

at § 422.568(b)(1)(iii), 

§ 422.572(b)(1)(iii), and 

§ 422.590(e)(1)(iii)) to clarify that an 

extension of the adjudication timeframe 

may be permitted when the extension is 

justified due to extraordinary, exigent or 

other non-routine circumstances, and it 

is in the enrollee’s interest. We 

recognize that there may be limited, 

non-routine circumstances in which the 

adjudication timeframe may need to be 

extended even if the enrollee does not 

request the extension and no additional 

documentation must be obtained from a 

non-contract provider. We emphasize 

that the extension must be both: (1) Due 

to extraordinary, exigent or other nonroutine circumstances; and (2) in the 

enrollee’s interest. For example, a 

natural or man-made disaster may 

impede a contract provider’s ability to 

provide the MA organization with 

timely clinical information, and 

invoking an extension may be in the 

enrollee’s interest if that information is 

necessary to approve coverage. It is our 

expectation that these exceptions would 

be rare. MA organizations that overuse 

or misuse the authority to invoke an 

extension may be subject to corrective 

action. 

In all cases where an extension is 

invoked, the MA organization is 

responsible for documenting the 

justification for the extension in the case 

file, complying with the requirement to 

notify the enrollee in writing of the 

reasons for the delay, and informing the 

enrollee of the right to file an expedited 

grievance if he or she disagrees with the 

MA organization’s decision to grant an 

extension. 

In an effort to improve clarity in our 

guidance related to extensions and to 

remove duplicative language, we have 

made corresponding, technical edits to 

subpart M. Specifically, we are 

proposing in § 422.590 to remove 

paragraph (d)(2) and add a new 

paragraph (e). To correspond with this 

proposed change, we propose to update 

related cross-references and language 

accordingly. Specifically, at 

§ 422.618(a)(1), we propose to replace 

the reference to § 422.590(a)(1) with a 

reference to § 422.590(e). In 

§ 422.619(a), we propose to replace the 

reference to § 422.590(d)(2) with a 

reference to § 422.590(e). Also, we 

propose to make corresponding changes 

within § 422.568(b), § 422.572(b), and 

§ 422.590(d) to ensure consistency in 

the structure and language of these 

provisions. 

D. Strengthening Our Ability To 

Distinguish Stronger Applicants for Part 

C and D Program Participation and To 

Remove Consistently Poor Performers 

1. Two-Year Prohibition When 

Organizations Terminate Their 

Contracts (§ 422.502, § 422.503, 

§ 422.506, § 422.508, and § 422.512) 

Section 1857(c)(4)(A) of the Act 

prohibits organizations from re-entering 

the MA program in the event that a 

previous contract with the organization 

was terminated at the request of the 

organization within the preceding 2- 

year period, except in circumstances 

that warrant special consideration. 

Furthermore, section 1857(e) of the Act 

permits us to add contract provisions 

that are not inconsistent with Part C of 

the Act and that we find necessary and 

appropriate for the administration of 

Medicare Part C. We propose to amend 

the text and application of regulations 

implementing these provisions of the 

Act. In the April 15, 2010 final rule (75 

FR 19678), we characterized our current 

policy on the 2-year ban applicable to 

voluntary non-renewals and mutual 

terminations as applying the ban based 

on plan type and service area. We 

provided the following example to 

illustrate application of the rule: an MA 

organization’s non-renewal of a Private 

Fee-for-Service MA plan would not 

prohibit the MA organization from 

immediately applying for an MA HMO 

contract for the same service area. 

Similarly, our current policy, absent this 

proposal, would not apply the 2-year 

ban on an MA organization that nonrenewed a contract in one region from 

applying immediately for the same type 

of MA product in a different region. 

This current policy unnecessarily 

narrows the scope of the 2-year 

prohibition and precludes us from 

preventing poor performing MA 

organizations from reentering the MA 

program. We have reconsidered the 

wisdom of this policy and believe that 

the MA program would be better served 

if we applied the 2-year ban flowing 

from non-renewals and mutual 

terminations to new contracts or service 

area expansions regardless of the 

product type or service area of the nonrenewed or terminated contract. We 

note that we are retaining our ability to 

exercise discretion in applying the 2- 

year ban when there are special 

circumstances that warrant special 

consideration, as provided in the 

current regulations text at 

§ 422.503(b)(6)(ii), § 422.506(a)(4), and 

§ 422.512(e). 

First, we propose to address how a 

non-renewal or mutual termination of 

an MA contract would be treated. 

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Specifically, we propose to amend the 

regulation text at § 422.506(a)(4) and 

§ 422.512(e) to explicitly apply the 2- 

year prohibition to applications for 

service area expansions in addition to 

applications for new contracts. These 

changes to § 422.506 and § 422.512 

would make the text of these regulations 

consistent with the text at 

§ 422.503(b)(7) and § 422.508(c) with 

regard to the 2-year prohibition imposed 

as a condition of a mutual termination 

of an MA contract. We read the current 

text at § 422.503(b)(7) to permit us to 

deny a contract to a MA organization 

that has participated in a mutual 

contract termination, regardless of 

contract type, product type, or service 

area, within the past 2 years. We also 

note that the current text of 

§ 422.503(b)(6) is not explicit on this 

point but may be read to permit contract 

denials for new contracts and service 

area expansions, consistent with our 

proposal; we intend to apply this 

interpretation to the existing text at 

§ 422.503(b)(6). We also propose to add 

the following sentence to paragraphs (c) 

and (d) of § 422.508 to make it clear that 

a mutual termination of a MA contract 

would result in a ban of all contract 

types and service area expansions: 

‘‘This prohibition may apply regardless 

of the product type, contract type or 

service area of the previous contract.’’ 

These proposed amendments are in 

harmony with our policy, as articulated 

in the preamble to the April 15, 2010 

final rule (75 FR 19703) to apply the 2- 

year ban consistently in the context of 

voluntary non-renewals and mutual 

terminations. 

2. Withdrawal of Stand-Alone 

Prescription Drug Plan Bid Prior to 

Contract Execution (§ 423.503) 

Occasionally, organizations new to 

Part D that have qualified for a Medicare 

PDP sponsor contract withdraw their 

bids after we have announced the lowincome subsidy (LIS) benchmark but 

prior to executing the contract for the 

coming plan year. These withdrawals 

interfere with our administration of the 

Part D program, in particular the auto 

assignment of LIS beneficiaries. To 

address this problem, we are proposing 

to adopt regulatory provisions that 

would impose a 2-year application ban 

on organizations not yet under contract 

with us as PDP sponsors that withdraw 

their applications and bids after we 

have issued our approvals. We are 

making this proposal under our 

authority at section 1860D–12(b)(3)(D) 

of the Act to adopt additional contract 

terms, including the conditions under 

which we would enter into contracts, 

not inconsistent with the Part D statute. 

In February of each year, we solicit 

applications from organizations seeking 

to qualify to enter into a contract to offer 

stand-alone PDPs in the upcoming plan 

year. These organizations, along with 

current PDP sponsors who wish to 

continue participating in the Part D 

program, submit bids in June for our 

review and approval. We review these 

applications and bids with the 

expectation that, upon approval, the 

organizations would enter into PDP 

sponsor contracts with us in September 

to provide the Part D benefit for the plan 

year starting the following January. 

As part of the annual bid review, we 

calculate the LIS benchmark for each 

PDP Region based on the bids for basic 

PDPs submitted annually by current 

PDP sponsors that will operate in that 

region in the coming year. Sponsors 

whose monthly premiums fall at or 

below the benchmark in a region receive 

auto-enrollments from us of LIS-eligible 

beneficiaries in those regions. We 

normally announce the LIS benchmark 

in late July or early August. 

In recent years, some organizations 

have withdrawn their applications and 

bids following the announcement of the 

LIS benchmark. Because these 

organizations withdrew prior to 

executing a contract, and we cannot 

compel them to sign the contract, they 

are not subject to our compliance or 

oversight authority, and nothing in our 

current regulations prevents these 

applicants from withdrawing their 

applications late enough in the process 

to cause significant disruption. In 

contrast, when an existing PDP sponsor 

withdraws its bid, we treat such an 

action as an election by the PDP sponsor 

to non-renew its contract in that PDP 

Region, which renders the sponsor 

ineligible to submit another application 

for 2 years, under our regulations at 

§ 423.507(a)(3). We propose to make a 

regulatory change to ensure equal 

treatment between new applicants and 

existing PDP plan sponsors, which 

would allow us to maintain an accurate 

depiction of the contracting landscape. 

Specifically, we propose to amend 

§ 423.503 by adding paragraph (d) 

which would impose a 2-year Part D 

application ban on organizations 

approved by CMS as qualified to enter 

into stand-alone PDP sponsor contracts 

but which elect, after our announcement 

of the LIS benchmark, not to enter into 

such contract and withdraw their PDP 

bids. This proposed regulatory change, 

in effect, would subject a withdrawing 

applicant to the same penalty we may 

apply to an organization already under 

contract that elects to terminate or nonrenew its PDP contract. 

It is critical that we have an accurate 

portrayal of the number and type of plan 

benefit packages that would be available 

to beneficiaries in every PDP Region, 

especially during the end of the summer 

when much of the bid review, both the 

formulary and actuarial components, 

has been completed. During this period, 

we need to confirm that there are the 

required minimum number of plans 

available in each PDP region. We also 

need accurate plan information at the 

end of the summer so that we can meet 

the production deadlines associated 

with the annual election period, 

including publication of the Medicare & 

You handbook as well as updating the 

Medicare Plan Finder Web site and our 

payment and enrollment systems. An 

applicant that withdraws its application 

late in the process alters the contracting 

landscape, potentially disrupting 

preparations we have already made, 

including those related to the auto 

assignment of LIS beneficiaries, for the 

upcoming plan year. 

We acknowledge that PDP plan 

applicants may need to withdraw their 

pending contracts for a variety of 

legitimate business reasons. For this 

reason, we afford applicants several 

months to withdraw their applications, 

without penalty, following the 

application due date in February and 

the bid submission deadline of the first 

Monday in June. However, in adopting 

the proposed regulatory authority, we 

would place a reasonable limit on 

prospective PDP sponsors’ option to 

withdraw bids and applications without 

penalty. By imposing consequences on 

applicants that withdraw their bids 

following the announcement of the LIS 

benchmark, we also would discourage 

any ‘‘gaming’’ of the bid review and 

auto assignment processes (for example, 

by participating in the bid review 

process until it learns that it will not 

qualify for auto assignments) that can 

occur when applicants opt out of 

participation in the PDP at the last 

minute. 

3. Essential Operations Test 

Requirement for Part D (§ 423.503(a) and 

(c), § 423.504(b)(10), § 423.505(b)(28), 

and § 423.509) 

We propose to create, through 

regulation, a new step in the application 

and contracting process with newly 

contracted entities operating as standalone PDP sponsors or MA 

organizations offering Part D plans 

(MA–PDs). This step will be an 

‘‘essential operations’’ test which we 

would administer to ‘‘newly contracted 

entities.’’ We use the term ‘‘newly 

contracted entity’’ in this preamble to 

describe an organization that has 

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entered or applied to enter into a Part 

D contract with us for the first time for 

the upcoming plan year, and neither it, 

nor another subsidiary of the 

organization’s parent organization, is 

offering Part D benefits during the 

current benefit year. This would include 

organizations that are offering EGWPs 

for the first time. 

Currently, with the exception of the 

LIS readiness audits, we have no test for 

assessing the effectiveness of the 

arrangements organizations represent to 

us in their applications and bids prior 

to the actual start of delivery of benefits 

on January 1. An essential operations 

test would allow us to test whether an 

organization’s arrangements appear 

likely to allow the organization to 

effectively administer its contract. We 

are proposing to require organizations to 

pass an essential operations test either— 

(1) as a qualification to contract, with 

failure to pass the test nullifying our 

approval of the application; or (2) after 

contract execution as a contract 

requirement but prior to the start of the 

benefit year, with a failure to pass the 

test triggering an immediate contract 

termination under § 423.509. 

Pursuant to section 1860D–12(b)(3)(D) 

of the Act, which incorporates by 

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

we have the authority to add contract 

provisions that are necessary and 

appropriate to carry out the Part D 

program; section 1860D–11(b) provides 

authority for the collection of additional 

information as part of the bid as we may 

require to carry out the Part D program. 

Based on this authority we propose 

adding § 423.504(b)(10) and 

§ 423.505(b)(28) to include passing the 

essential operations test as a condition 

to enter into and a term of the Part D 

contract. Additionally, pursuant to our 

authority at section 1860D–12(b)(3)(B) 

and (b)(3)(F) of the Act (which 

incorporate by reference section 

1857(c)(2) and (h) of the Act, 

respectively, to apply to the Part D 

program), the current regulations at 

§ 423.509(a) and (b)(2)(i), authorize 

immediate termination of contracts with 

Medicare Part D plan sponsors in 

certain circumstances. We believe that 

immediate termination would be 

authorized under the standard of section 

1857(h)(2) of the Act because the 

inability of a plan sponsor to ensure 

future members’ access their drug 

benefit, as evidenced by failure to pass 

the essential operations test, would 

constitute an imminent and serious risk 

to beneficiary health and safety. We 

propose adding § 423.509(a)(4)(xii) and 

(b)(2)(i)(D) to subpart K to reflect this 

new cause for immediate termination. 

(Of note, we are reorganizing 

§ 423.509(a) to group the statutory basis 

for termination together followed by 

examples of violations that would meet 

the statutory basis. This new regulation 

is an example of a violation.) 

Additionally, we propose to explicitly 

include the essential operations test as 

a means to evaluate Part D applicants in 

§ 423.503(a)(1) and to add 

§ 423.503(c)(4) to subpart K to establish 

failure of an essential operations test as 

grounds for nullifying a CMS approval 

of application notice. 

The heart of the Part D benefit is the 

sponsor’s ability to process claims for 

prescription drugs in real-time because, 

unlike health benefits, where claims 

payment normally follows the delivery 

of services, pharmacies require 

confirmation of claims payment at the 

point-of-sale either from an insurer or 

the covered individual. Success in Part 

D claims processing depends largely on 

the sponsor’s ability to perform 

enrollment, benefit administration, and 

claims adjudication operations 

seamlessly at the point-of-sale. That is, 

the sponsor must be able to do all of the 

following essential operations in real 

time and at the point-of-sale to a 

satisfactory level: Identify a beneficiary 

as a member of one of its Part D plans; 

determine whether the drug requested 

is, in fact, appropriately covered under 

Part D (for example, that the drug is not 

covered: (a) Under Part B, (b) as part of 

end-stage renal disease (ESRD) 

treatment, or (c) as a hospice benefit); 

determine the phase of the benefit the 

beneficiary is currently in; and provide 

the pharmacy with instructions so that 

the beneficiary can be charged 

appropriate copays/coinsurance and 

deductibles. 

We are proposing the essential 

operations test and associated regulatory 

changes because of our experience with 

certain newly contracted entities in the 

Part D program that experienced 

significant operational difficulties at the 

start of the benefit year as a result of 

their inexperience administering Part D 

benefits. To prevent the recurrence of 

this problem and ensure that new 

sponsors are prepared to and actually 

can deliver Part D benefits at an 

acceptable level, starting with the 2015 

contract year application cycle, we 

propose that we may require newly 

contracted entities to pass an essential 

operations test conducted by us 

beginning in the fall of 2014. 

Often these newly contracted entities 

have little or no prior experience in 

administering health and drug benefit 

plans. Unfortunately, by the time 

deficiencies in the sponsor’s operations 

and ability to provide the Part D benefit 

become apparent (typically when we 

receive complaints about significant 

numbers of inappropriately rejected 

claims at the pharmacy), the sponsor 

has already executed an agreement with 

us, which has prevented us from 

moving quickly to remove the sponsor 

from the program and prevent further 

beneficiary harm. In these instances, we 

have found it necessary to provide 

inordinate amounts of resourceintensive technical assistance to 

sponsors that were not prepared to 

effectively administer Part D benefits 

when they signed their contract. The 

essential operations test would help to 

prevent the recurrence of problems of 

this nature. 

The essential operations test for 

newly contracted entities would entail 

testing of sponsors’ command of Part D 

benefit administration rules and systems 

related to these areas. Initially, the 

testing would consist of scenario testing 

with sponsors’ key staff to show us that 

they have a firm grasp of the Part D 

policies and essential operations. The 

test would be able to verify whether an 

applicant’s administrative and 

management arrangements, as attested 

to in its application, are sufficient for 

the applicant to carry out functions 

listed in § 423.504(b)(4)(ii) such as 

furnishing prescription drug services 

and implementing utilization 

management programs. 

Provided we have the resources, in 

the future, the test would likely become 

significantly more sophisticated and 

involve live testing of sponsors’ systems 

with test data. The more involved test 

would also likely include testing the 

processes related to enrollment such as 

MARx communication and processing; 

LIS processing and determinations; 

coverage determinations, appeals, and 

grievances (CDAG) processing; and realtime coordination of benefits data 

exchange and processing. For instance, 

the sponsor would need to demonstrate 

the ability to pay test claims correctly in 

real-time consistent with its CMSapproved benefit packages (including 

formulary) and the Part D transition fill 

policy. 

The timing of the essential operations 

test must fit within the timeline of the 

annual Part D contracting process, 

which is driven largely by the bid 

deadline and plan election period 

dictated by statute. In preparation for an 

upcoming benefit year beginning on 

January 1, we must solicit and review 

applications from organizations seeking 

a MA–PD or PDP sponsor contract in 

February of the preceding year. We 

issue application determinations (that 

is, approval or denial) in May. All 

existing Part D sponsors and new 

applicants must submit their plan 

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benefit package (PBP) bids (including 

formularies) in June. Then, we complete 

the bid review approval and negotiation 

processes at the end of August. Once we 

have approved the submitted bids, 

sponsors can then execute their 

contracts with us. Historically, we have 

executed all contracts by midSeptember so we can finalize 

preparations for the marketing season, 

which begins on October 1, and the 

annual election period (AEP), which 

begins on October 15. These 

preparations include publishing the 

Medicare & You handbook in 

September, which lists approved plans; 

releasing the Medicare Plan Finder Web 

site using plan-specific data; reviewing 

and approving sponsors’ marketing 

materials; and granting sponsors access 

to our enrollment systems. 

In contrast to an audit, the application 

process currently only requires that 

sponsors demonstrate to us that they 

have the necessary legal arrangements 

in place (for example, a risk-bearing 

license, executed contracts with firsttier and downstream entities, pharmacy 

network descriptions, etc.). Likewise, 

bid and formulary approvals indicate 

that the plans to be offered by the new 

sponsor are acceptable to us, not that 

the sponsor will necessarily be 

successful in implementing those plans. 

Under our current schedule, the 

essential operations test we propose to 

require as part of the application and 

contracting process would occur after 

contracts are signed in September but 

before the start of the benefit year on 

January 1. We would most likely 

complete the tests by November 15. In 

the future, we aim to conduct the 

essential operations tests prior to 

signing contracts with applicants which 

is why we are also proposing to add 

passing the test as a qualification to 

contract. Ultimately, in the event of an 

organization failing the test, we would 

apply the appropriate proposed 

regulatory provision based on the timing 

of the test administration. 

a. Failing Essential Operations Test as 

Cause for Immediate Termination 

Once a sponsor signs its contract, it is 

obligated to perform all of the required 

functions to support the benefits 

described in the contract even though 

the sponsor does not start offering 

benefits until January 1. Given the 

volume of preparations and tight 

resource constraints between our 

approving bids in late August and the 

start of the AEP in October, the first 

opportunity we currently have to devote 

resources to the essential operations test 

is most likely in late September to 

November. We are currently not likely 

to be in the position to conduct essential 

operations tests prior to contracting 

because it would be challenging to 

conduct the test prior to approving the 

benefit structure against which we 

would test a sponsor’s ability to process 

claims accurately. If we find that a 

sponsor does not have the requisite 

systems and processes in place to offer 

Part D benefits in real-time, we would 

consider this cause for immediate 

termination of the sponsor’s Part D 

contract in order to protect beneficiaries 

from harm at the start of the contract 

year. 

Pursuant to section 1857(h)(2) of the 

Act (incorporated by reference into PDP 

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

we have the authority to immediately 

terminate a contract with a sponsor 

(without notice and opportunity for a 

hearing) when a delay in termination 

would pose an imminent and serious 

risk to the health of beneficiaries 

enrolled in the sponsor’s plans. Also, 

under § 423.509(b)(2)(i) and 

§ 423.652(b)(2), unlike standard CMS 

terminations, the effective date of an 

immediate termination is not stayed 

when the sponsor requests a hearing 

under § 423.650(a)(2). Because 

enrollment and accurate benefit 

administration through real-time claims 

processing are so fundamental to the 

delivery of the Part D benefit, if a 

sponsor fails to demonstrate to us that 

it can perform these essential 

operations, we would view this as a 

substantial failure to meet the Part D 

contract requirements on the following 

grounds: (1) Evidence that the sponsor 

was carrying out the contract in a 

manner that was inconsistent with the 

effective and efficient administration of 

the plan; and (2) evidence that the 

sponsor did not substantially meet the 

applicable conditions set out in the Part 

D regulations which would ultimately 

justify, depending upon timing of the 

test, our termination of a contract 

consistent with § 423.509(a)(1) through 

(3) based on the sponsor’s failure to 

meet our proposed contract terms at 

§ 423.504(b)(10) and § 423.505(b)(28). 

We believe that a newly contracted 

entity’s failure to demonstrate certain 

critical capabilities and failing the 

essential operations test represents a 

substantial failure to carry out its Part D 

contract and is evidence that the 

sponsor is not prepared to carry out the 

contract in a manner that is consistent 

with the efficient and effective 

administration of the Part D program. 

Such a failure poses an unacceptable 

risk to the new sponsor’s future 

members’ access to Part D drugs, which 

would constitute an imminent and 

serious risk to beneficiary health and 

safety, justifying our immediate 

termination of the sponsor’s contract. 

For MA organizations that must offer 

Part D benefits pursuant to 

§ 423.104(f)(3)(i), failing the test would 

support the termination of the 

organization’s Part D addendum as well 

as its MA contract under § 422.510(a)(3) 

because the inability to offer Part D 

benefits means that the organization no 

longer meets the applicable conditions 

associated with offering Part C benefits. 

Given our experience with sponsors’ 

abilities to resolve systemic systems 

problems in a timely manner, we 

believe that sponsors that fail the test 

would most likely not have sufficient 

time before the start of the benefit year 

to remedy the breadth and magnitude of 

the failures we would have identified 

during the test. Even if the sponsor 

attested that it had corrected problems 

we identified, we would not have time 

to conduct a second test to validate the 

sponsor’s corrections prior to the start of 

the new benefit year. Simply put, we 

believe the risk of harm to enrollees’ 

health and safety is too great to move 

forward with a sponsor that has such 

significant and critical problems so 

close to the start of the plan year. Thus, 

an immediate termination of the 

contract before the start of the year 

would be the only way to protect 

beneficiaries and ensure successful 

operation of the Part D program by 

absolving the sponsor and us of the 

responsibilities in the contract. 

b. Failing Essential Operations Test as 

Failure of a Qualification to Contract 

and Grounds for Nullification of 

Approval 

If an organization fails an essential 

operations test we conducted prior to 

contract signature, no termination 

would be necessary as we would simply 

nullify our previous conditional 

approval of the organization’s Part D 

contract qualification application. 

Section 423.503(a) describes the 

mechanisms we use to evaluate an 

applicant and determine whether the 

applicant is qualified to contract. These 

mechanisms currently include 

application review and on-site visits. 

The general term ‘‘on-site visit’’ is used 

to describe interactions with applicants 

that include our visiting the applicant’s 

facility and vice versa, either in person 

or virtually. We are proposing to 

explicitly include the essential 

operations test as a qualification to 

contract at § 423.503(a)(1) to authorize 

our use of the test and any information 

learned in the course of the essential 

operations test in making the contract 

determination. Our experience over the 

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3Elsewhere in this proposed rule, we proposed to 

reorganize and renumber § 422.510(a). The 

discussed provision is current codified at 

§ 422.510(a)(14) but we are proposing to redesignate 

it as § 422.510(a)(4)(xi). 

past few years with newly contracted 

entities that have passed the paperbased application, but failed to have 

fully-functional administrative and 

management arrangements in place to 

effectively offer benefits in January, has 

demonstrated to us that implementing 

an essential operations test is key to the 

successful administration of the Part D 

program for all beneficiaries. 

We would view failure of the essential 

operations test as a determination that 

the applicant would not be qualified to 

contract with us. As a result, we would 

nullify our approval on that basis. 

Successful applicants receive a 

conditional approval at the end of May 

of their Part D application pursuant to 

§ 423.503(c)(1). The letter informs 

applicants that the conditional approval 

is based on the information contained in 

their application, and if we 

subsequently determined that any of the 

information was inaccurate or that 

qualification requirements are not met, 

we would withdraw the approval of the 

application. Through that notice, we 

preserve the right to nullify our 

approval. If that occurs, we would not 

provide appeal rights described in 

subpart N to applicants that have their 

approval nullified based on failing the 

essential operations test. 

We are proposing to not afford 

applicants appeal rights because CMS 

would not be able to conduct the 

appeals process provided for in Part 

423, Subpart N, within the timeframe 

imposed by § 423.650(c), which requires 

CMS to have all contract application 

appeals decided by September 1 for 

contracts to be effective on January 1 of 

the following year. We could not 

conduct a test in late August, find that 

the applicant failed the test, and move 

through a fair appeal process for both 

parties in less than 2 weeks. Therefore, 

we would not afford appeal rights to 

applicants that fail the test prior to 

contracting under our proposal. 

4. Termination of the Contracts of 

Medicare Advantage Organizations 

Offering PDP for Failure for 3 

Consecutive Years To Achieve 3 Stars 

on Both Part C and Part D Summary Star 

Ratings in the Same Contract Year 

(§ 422.510) 

In the final rule adopted April 12, 

2012 (77 FR 22168), we set forth at 

§ 422.510(a)(14) and § 423.509(a)(13) 

that a Medicare contracting 

organization’s consistent failure to 

achieve at least a 3-star summary star 

rating for 3 consecutive years provides 

a sufficient basis for us to make a 

decision to terminate our contract with 

a MA organization or stand-alone PDP 

sponsor. This termination standard was 

based on the criteria we used then to 

mark low-rated contracting 

organizations with a ‘‘low performing 

icon (LPI)’’ on the Medicare Plan Finder 

Web site. Recently, we revised our LPI 

assignment criteria for MA 

organizations that offer PDP benefits 

(MA–PDs) to more accurately reflect 

their contract performance. We propose 

here to revise the contract termination 

regulation related to consistent low star 

ratings to reflect the new LPI assignment 

methodology announced in the contract 

year 2014 Call Letter. Specifically, we 

are proposing to modify our existing 

authority at § 422.510(a) 3 by clarifying 

that MA–PD organizations that do not 

achieve at least 3 stars in both their Part 

C and D ratings in the same year for 3 

consecutive years may be subject to 

termination. 

In the April 12, 2012 final rule (77 FR 

22072), we finalized the contractual 

requirement at § 422.504(a)(18) and 

§ 423.505(b)(25) that MA organizations 

and PDP plan sponsors attain each year 

summary ratings of at least 3 stars (the 

‘‘average’’ performance rating). We 

explained that, because the star rating 

calculations are based on an 

organization’s performance across a 

wide array of operational measures, the 

summary star ratings are an accurate 

indicator of the extent to which the 

organization has in place effective 

administrative and management 

arrangements necessary to administer 

Part C and Part D benefit plans, as 

required under § 422.504(a)(17) and 

§ 423.505(b)(24). 

We further established, as part of the 

same rulemaking, our authority at 

§ 422.510(a)(14) and § 423.509(a)(13) to 

terminate the contracts of organizations 

offering MA and stand-alone PDPs when 

those organizations fail to achieve at 

least 3 stars on either their Part C or Part 

D summary rating for at least 3 

consecutive years. At the time, we 

stated that since the measures that make 

up the star ratings provide evidence of 

the sufficiency of a contracting 

organization’s administrative and 

management capability, it was 

reasonable for us to conclude that an 

organization receiving a summary rating 

below 3 stars for 3 consecutive years 

had substantially failed to meet that 

requirement, providing us justification 

for terminating the contract of that 

organization. We also explained that 3 

consecutive years was sufficient time for 

sponsors to analyze the underlying 

causes of their low ratings and take 

corrective action that would result in at 

least a 3-star summary rating. The 

rulemaking also called for an MA–PD 

organization’s Part C summary rating to 

be tracked separately from its Part D 

summary rating. That is, we could 

terminate an MA–PD organization 

contract if it failed for 3 straight years 

to achieve at least a 3-star Part C 

summary rating, regardless of its Part D 

summary ratings. Similarly, we could 

terminate the same organization if it 

failed to achieve at least a 3-star Part D 

summary rating for 3 straight years, 

regardless of its Part C performance. 

Since in most instances an MA 

organization must also offer Part D 

benefits, consistently low Part D 

summary ratings justify a termination of 

the entire MA–PD contract since the 

organization could no longer meet its 

obligation to offer Part D benefits. We 

stated that we would allow a 3-year 

transition period before we would begin 

using the star rating-based termination 

authority to issue termination notices to 

any sponsors whose performance met 

the criteria in late 2014 with an effective 

date of January 1, 2015. 

At the time we adopted this 

regulation, we identified certain 

organizations on the Medicare Plan 

Finder (MPF) Web site as consistently 

low performing organizations with the 

display of the LPI next to the 

organization’s other plan information. In 

the contract year 2014 Call Letter 

released in April 2013, we announced a 

change in the methodology for assigning 

the LPI mark to plan sponsors. On page 

105 of the notice, we noted that some 

stakeholders had raised concerns that 

MA–PD contractors could switch back 

and forth from poor performance on Part 

C to poor performance on Part D from 

year to year without ever being 

identified as a poor performer and 

marked with the LPI. We noted that 

such a situation was potentially 

misleading to beneficiaries, and we 

decided to address the matter by 

revising, effective in 2014, the criteria 

for the assignment of the LPI indicator 

to those organizations that fail for 3 

consecutive years to achieve both Part C 

and Part D summary ratings of at least 

3 stars in the same year for 3 

consecutive years. We concluded this 

announcement by observing that MA– 

PD organizations are responsible for 

providing adequate care and services 

across both Part C and Part D and that 

the LPI methodology change encourages 

consistent improvement in the quality 

of care by MA–PD organizations across 

all of the Part C and Part D measures. 

We believe that the justification for 

the change in the LPI methodology also 

requires a change in the way we would 

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4Elsewhere in this proposed rule, we would 

reorganize and renumber § 422.510(a) and 

§ 423.509(a) to better reflect the bases for contract 

termination in connection with our statutory 

authority to terminate. Using the current 

numbering, this proposal would be codified as 

§ 422.510(a)(14) but under our proposal here, it 

would be codified as § 422.510(a)(4)(xi). 

apply the standard for MA–PD contract 

termination based on star rating 

performance. The performance of an 

MA–PD organization must be assessed 

across the totality of its obligations 

under its Medicare contract. 

Organizations should not be permitted 

to target their compliance efforts from 

year to year on alternating sets of 

contract requirements, just barely 

meeting our minimum requirements in 

order to stay one step ahead of our 

enforcement authorities. Beneficiaries 

rightly expect quality in the delivery of 

all of their Medicare benefits, covering 

both health care and prescription drugs. 

MA–PD organizations that alternate 

their low star ratings from year-to-year 

between Part C and Part D are in fact 

subjecting their members to substandard 

performance every year. This is an 

unacceptable outcome that does not 

promote the best interests of Medicare 

beneficiaries. 

If an MA–PD organization is not able 

to achieve at least an ‘‘average’’ star 

rating across all of its Part C and Part D 

operations in at least 1 year out of 3, it 

would become clear that the 

organization had both substantially 

failed to meet the administrative and 

management requirements of a Medicare 

contractor and could not take effective 

corrective action over the same 3-year 

period. 

The artificiality of the division 

between Part C and Part D star rating 

performance becomes apparent when 

one notes the extent to which the 

measures for each part assess the 

MA–PD organization’s performance of 

similar functions or responsibilities. 

According to the most recent 

methodology we used to calculate star 

ratings, ‘‘The Medicare Health & Drug 

Plan Quality and Performance Ratings— 

2013 Part C & Part D Technical Notes,’’ 

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

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/

PerformanceData.html) the Part C 

measures are divided into 5 domains 

and the Part D measures into 4. Three 

of the Part C domains are virtually 

identical to those of Part D, with 

variations where necessary to reflect 

differences in terminology and features 

between health and drug plans. For 

example, Domain 1 for Part D, ‘‘Drug 

Plan Customer Service,’’ consists of 

measures that largely correspond to 

those of Part C’s Domain 5, ‘‘Health Plan 

Customer Service.’’ Both contain 

measures that reflect call center 

performance (including foreign language 

availability) and processing of appeals. 

The Part D Domain 2, ‘‘Member 

Complaints, Problems Getting Services, 

and Improvement in the Drug Plan’s 

Performance,’’ measures an 

organization’s performance in largely 

the same categories as Part C’s Domain 

4, ‘‘Member Complaints, Problems 

Getting Services, and Improvement in 

the Health Plan’s Performance.’’ Both 

domains consist of measures that reflect 

beneficiaries’ complaints about the plan, 

their access to benefits, their decision to 

leave the plan, and the plan’s quality 

improvement. Domain 3 of both the Part 

C and Part D measures are entitled 

‘‘Member Experience with the Health/

Drug Plan’’ and reflect plan members’ 

experience with their plans such as 

assessment of their ability to access 

covered services (needed prescription 

drugs in the case of Part D, physician 

appointments, and coordination of care 

in the case of Part C). Domain 4 for Part 

D, ‘‘Patient Safety and Accuracy of Drug 

Pricing,’’ corresponds to Part C’s 

Domain 1, ‘‘Staying Healthy: 

Screenings, Tests and Vaccines,’’ and 

Domain 2, ‘‘Managing Chronic (Long 

Term) Conditions,’’ in that they all 

capture an MA–PD organization’s 

attention to the clinical impact of the 

Medicare services they provide to their 

members. The Part D measures in 

Domain 4 reflect the extent to which 

plan members maintain adherence to 

their medication regimens and receive 

prescriptions for high risk medications. 

The Part C Domains 1 and 2 address 

clinical performance as it is carried out 

by a health plan, including the extent to 

which it has conducted screenings of its 

members for breast cancer, colorectal 

cancer, and high cholesterol and 

manages long term conditions such as 

diabetes, high blood pressure, and 

rheumatoid arthritis. 

The similarity in the Part C and Part 

D measures means that the operations 

associated with these 2 programs are not 

so different as to justify separate Part C 

and Part D analyses of MA–PD 

organization’s delivery of Medicare 

benefits to the same set of beneficiaries 

in the same service area. MA–PD 

organizations do not contract with us to 

provide separate Part C and Part D 

benefits. Rather, it is more correct to say 

that their contract obligates them to 

provide effective customer service, 

access to care, and promote clinical 

outcomes across the entire range of 

Medicare benefits. Therefore, the better 

way to assess an MA–PD organization’s 

administrative and management 

compliance is not to see whether it can 

meet Part C or Part D requirements, but 

whether it can meet the customer 

service, access to care, and clinical 

performance requirements in the 

delivery of all types of Medicare 

benefits. The only way to accurately 

measure the performance of such 

functions is to examine the 

organization’s ratings in the Part C and 

Part D measures in the related domains. 

For example, an MA–PD organization 

cannot be said to be providing 

satisfactory customer service to its 

members if it achieves a 3-star rating in 

only its Part C operations. 

Therefore, we propose to revise 

§ 422.510(a) 4 to clarify that MA-only 

contracts are subject to CMS termination 

when they fail for 3 consecutive years 

to achieve a Part C star rating of at least 

3 stars. Additionally, we propose to add 

a subparagraph to § 422.510(a) to 

establish as a basis for termination of 

MA–PD contracts the failure for 3 

consecutive years of the contract to 

achieve at least 3 stars in both its Part 

C and D ratings in the same year. When 

we first adopted the star rating-based 

contract termination authority in April 

2012, we stated that we would afford 

organizations a 3-year transition period 

before we would use that authority to 

make contract termination decisions. 

This period was necessary to allow 

organizations to make adjustments to 

their operations to reflect the dramatic 

increase in the consequences associated 

with low star rating performance created 

by our new termination authority. 

Accordingly, the regulation states that 

we may use only those star ratings 

issued after September 1, 2012, to make 

a decision to terminate a contract based 

on consistently low star ratings. Thus, 

organizations that fail to achieve at least 

a 3-star rating upon the release in 

September 2014 of the 2015 ratings 

would be the first group of Medicare 

contractors eligible for termination 

under our new authority. We are not 

proposing to extend this grace period as 

part of this proposed adjustment to the 

current policy, because there is no 

reason why failures under the current 

regulations (which contain the 

‘‘loophole’’ we are closing here) should 

not count towards the 3-year mark along 

with failures under the revised standard 

once in place. 

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III. Provisions of the Proposed 

Regulation 

E. Implementing Other Technical 

Changes 

1. Requirements for Urgently Needed 

Services (§ 422.113) 

Our regulations at § 422.113(b) require 

MA organizations to cover urgently 

needed services furnished outside a 

plan’s service area or contracted 

network of providers when the enrollee 

is in need of such services but is outside 

of the service area or is in the service 

area but the plan network is temporarily 

unavailable due to extraordinary and 

unusual circumstances. Further 

requirements built in to the definition of 

‘‘urgently needed services’’ specify 

additional criteria for out-of-network 

coverage of these services: (1) The need 

for services was a result of unforeseen 

illness, injury or condition; and (2) it is 

not reasonable, given the circumstances, 

for the enrollees to obtain the services 

through the organization offering the 

MA plan. 

In the preamble to our June 29, 2000 

final rule implementing the current 

requirements (65 FR 40199), we 

clarified the intended meaning of 

‘‘extraordinary and unusual 

circumstances’’ as ‘‘an earthquake or 

strike.’’ However, it is our experience in 

administering the MA program that 

there are other much less severe 

circumstances in which the plan 

network may be unavailable or 

inaccessible to an enrollee who is in the 

authorized service area and needs 

immediate care due to an unforeseen 

illness, injury or condition. Examples of 

such circumstances include the need for 

urgent care outside of the network’s 

business hours, (for example, during the 

weekend or at night). 

Many MA plans have responded to 

the need for urgently needed services by 

contracting with clinics that have hours 

of operation well beyond those of 

traditional physicians’ offices to furnish 

services to their enrollees when the plan 

network is not available. 

To better align the regulations with 

current practices regarding access to 

urgently needed care services, we are 

proposing to revise the regulation by 

removing the phrase ‘‘under 

extraordinary and unusual 

circumstances’’ at § 422.113(b)(1)(iii). 

The proposed regulatory language 

would read as follows: 

(iii) Urgently needed services means 

covered services that are not emergency 

services as defined in this section, 

provided when an enrollee is 

temporarily absent from the MA plan’s 

service (or, if applicable, continuation) 

area (or 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— 

2. Skilled Nursing Facility Stays 

(§ 422.101 and § 422.102) 

Under section 1814(a)(2)(B) of the 

Act, Medicare Part A generally only 

covers skilled nursing facility services 

(SNF) following a qualifying 3-day 

hospital stay. However, under section 

1812(f) of the Act, we may authorize 

Part A coverage of SNF care without a 

prior hospital stay if two conditions are 

met. First, the coverage of these services 

must not result in any increase in 

Medicare program payments, and 

second, the coverage must not alter the 

acute care nature of the benefit. For 

reasons discussed later in this proposed 

rule, in an August 22, 2003 final rule (68 

FR 50847), we exercised this authority 

under section 1812(f) of the Act with 

respect to SNF services covered under 

MA plans. 

The reason that we took this step is 

that, in the absence of this exercise of 

this authority, MA organizations could 

only cover SNF services without a 3-day 

prior hospital stay as a supplemental 

benefit. In such a case, if an MA 

enrollee is in a SNF pursuant to such 

coverage in the middle of a 100-day 

covered stay, and disenrolls from the 

MA plan, or the MA plan is terminated 

or non-renewed during such a stay, the 

beneficiary would lose SNF coverage, as 

it would not be covered under Medicare 

Part A because it would not have met 

the condition for coverage of a 3-day 

prior hospital stay. By exercising the 

authority under section 1812(f) of the 

Act to make the stay a Part A covered 

benefit, the stay would remain covered 

even if the individual is no longer 

enrolled in the MA plan. 

Our determination that SNF services 

provided by MA organizations without 

a 3-day prior hospital stay met the two 

tests in section 1812(f) of the Act was 

based on the fact that MA organizations 

are paid a monthly per-Medicare 

enrollee payment to provide all 

contracted services. Thus, Medicare 

costs would not be affected by 

permitting SNF services to be covered 

by Medicare without the prior 3-day 

hospital stay for so long as the 

beneficiary was enrolled in the MA plan 

because the plan is paid a fixed amount 

without regard to services received. We 

determined that this would provide 

incentives for the MA organizations to 

provide care more cost effectively. Some 

evidence at the time indicated that MA 

organizations, particularly coordinated 

care plans, could shorten hospital stays 

and shift patients to post-acute or 

subacute settings, such as SNFs, more 

quickly than under the original 

Medicare program. If SNF care is the 

appropriate level of care, MA 

organizations are then able to use SNF 

care rather than more expensive 

hospital care for similar patients 

requiring posthospital care. For some 

patients and diagnoses, the MA 

organization is able to bypass the 

hospital stay and admit the beneficiary 

directly to a SNF. 

Because the previously discussed 

rulemaking exercised authority under 

section 1812(f) of the Act to authorize 

Part A coverage in the absence of an 

otherwise-required 3-day prior hospital 

stay, the regulations addressing ‘‘basic 

benefits’’ (which include benefits under 

Part A) at § 422.101 were revised to 

include provision for this Part A 

coverage at § 422.101(c). 

Notwithstanding the fact that, when 

the option under § 422.101(c) is elected 

by an MA organization, the services are 

covered under Part A, at least some MA 

organizations did not include the costs 

of such stays in the Part A portion of 

their adjusted community rate (ACR) 

submissions, and in later years, in their 

bids. Rather, they continued to treat 

these Part A-covered services as 

‘‘supplemental benefits.’’ We 

understand why MA organizations did 

this, as the services (other than in the 

case described previously when an MA 

enrollee receiving such services is no 

longer enrolled in an MA plan covering 

them) would not be covered under Part 

A if the enrollee were not enrolled in 

the MA plan. However, because of the 

section 1812(f) of the Act waiver, these 

services technically were services 

‘‘covered under Part A,’’ included under 

§ 422.101(a), not supplemental benefits 

under § 422.102. 

We had determined in promulgating 

the August 2003 final rule that the 

services in this situation had to be 

treated as covered under Part A in order 

to protect coverage for a beneficiary who 

changes from MA coverage to original 

Medicare coverage mid-stay. However, 

in light of the fact that MA organizations 

have, over a period of years, been 

treating these benefits as supplemental 

benefits, we have determined that we 

can protect a beneficiary in the situation 

described without requiring an MA 

organization to include a SNF stay 

without a 3-day prior hospitalization as 

a Part A benefit under its MA plan by 

modifying our exercise of section 

1812(f) of the Act authority to waive the 

3-day prior hospitalization requirement 

only in cases in which an MA enrollee 

receiving SNF services without a 3-day 

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prior hospital stay changes from 

coverage under the MA plan to 

Medicare coverage under Original 

Medicare (or another MA plan that does 

not cover such stays as a supplemental 

benefit). This addresses the concern we 

were addressing in our August 2003 

final rule without requiring MA 

organizations to change their treatment 

of this MA plan benefit. 

In order to effectuate this proposed 

change in the scope of our section 

1812(f) waiver, we are proposing to 

move the provision describing an MA 

organizations’ authority to furnish 

covered SNF stays without the 

qualifying inpatient hospital stay 

required under original Medicare to a 

new § 422.102(f) in the section of the 

regulations governing supplemental 

benefits. 

We also propose to make a 

conforming revision in the crossreference to this provision that currently 

appears at § 409.30(b)(2)(ii), to—(1) 

reflect this provision’s relocation from 

§ 422.101 to § 422.102; and (2) reflect 

the fact that the Part A coverage 

provided for thereunder is not for the 

entire ‘‘duration of the SNF stay’’, but 

only for the period after the individual 

is no longer enrolled in the MA plan 

offering the coverage of the SNF stay as 

a supplemental benefit. 

3. Agent and Broker Training and 

Testing Requirements (§ 422.2274 and 

§ 423.2274) 

Pursuant to our authority under 

sections 1851(h)(2), 1860D– 

1(b)(1)(B)(vi), 1851(j)(2)(E), and 1860D– 

4(l)(2) of the Act, we previously codified 

agent and broker training and testing 

requirements at § 422.2274(b) and (c) 

and § 423.2274(b) and (c) to require all 

agents and brokers selling Medicare 

products be trained and tested annually 

through a CMS endorsed or approved 

training program, or as specified by us, 

on Medicare rules and regulations 

specific to the plan products they intend 

to sell. 

Since the training and testing 

requirements were implemented, we 

have embarked on various activities to 

improve and ensure the efficacy of 

training and testing. Specifically, we 

launched an online training and testing 

pilot in 2009 to increase understanding 

of the standardized Medicare program 

requirements. Although the pilot was 

successful, our ability to accommodate 

all agents and brokers nationally is 

limited and maintaining the training 

and testing module requirements creates 

a significant financial burden. 

Additionally, endorsing other entities 

limits our oversight of training and 

testing information, and assurance of 

consistency among program 

requirements. Moreover, through our 

monitoring efforts, we have found that 

MA organizations and Part D sponsors 

are complying with the annual guidance 

released by us. Specifically, we found 

that plans provided adequate detail on 

the level of information that must be 

covered in agent and broker training and 

testing materials. As a result, we 

propose to revise § 422.2274(b) and (c) 

and § 423.2274(b) and (c) to accomplish 

several things (i) remove CMS endorsed 

or approved training and testing as an 

option; (ii) require that agents and 

brokers be trained annually on Medicare 

rules and regulations; and details 

specific to the plan products they intend 

to sell: And (iii) require agents and 

brokers to be tested annually to ensure 

appropriate knowledge and 

understanding of the training topics. We 

believe this proposed change continues 

to ensure that all agents and brokers 

selling Medicare products have a 

comprehensive understanding of 

Medicare program rules. We previously 

proposed (see the provisions for 

‘‘Reducing the Burden of the 

Compliance Program Training 

Requirements (§ 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C)’’) to require a 

standardized compliance training 

program. Under those provisions, MA 

organizations and Part D sponsors will 

not be permitted to develop and 

implement plan specific training 

materials or supplemental materials. 

The proposed change in this section is 

exclusive to the requirements for 

conducting marketing activities under 

the MA and Part D program. 

4. Deemed Approval of Marketing 

Materials (§ 422.2266 and § 423.2266) 

Sections 1851(h) and 1860D– 

1(b)(1)(B)(vi) of the Act establish the 

requirements regarding the review and 

approval of marketing materials created 

by MA organizations and Part D 

sponsors. Sections § 422.2266 and 

§ 423.2266 provide the regulatory 

requirements for materials that are 

deemed approved. If we have not 

disapproved the distribution of 

marketing materials and forms 

submitted by an MA organization or 

Part D sponsor with respect to the plan 

in the area, we are deemed not to have 

disapproved in all other areas covered 

by the MA organization or Part D 

sponsor except with regard to any 

portion of the material or form that is 

specific to the particular area. Sections 

§ 422.2262 and § 423.2262 also provide 

the requirements for the review and 

distribution of marketing materials. The 

provisions stated in § 422.2266 and 

§ 423.2266 are also part of the review 

and distribution process of marketing 

materials, and therefore should be 

moved to align with the requirements in 

§ 422.2262 and § 423.2262. Therefore, 

we propose moving the substance of the 

current requirements in § 422.2266 and 

§ 423.2266 to § 422.2262 (a)(2) and 

§ 423.2262(a)(2), respectively. We 

propose reserving § 422.2266 and 

§ 423.2266. 

In addition, we also believe that the 

current regulatory requirements in 

§ 422.2266 and § 423.2266 do not clearly 

state when and to what extent marketing 

materials are considered deemed 

approved. Therefore, we propose to 

simplify the language presently 

contained in § 422.2266 and § 423.2266 

by stating, ‘‘if CMS does not approve or 

disapprove marketing materials within 

the specified review timeframe, the 

materials will be deemed approved. 

Deemed approved means that an MA 

organization or Part D sponsor may use 

the material.’’ We believe this change 

clarifies the present regulatory 

requirement for deemed marketing 

materials. 

5. Cross-Reference Change in the Part C 

Disclosure Requirements (§ 422.111) 

Prior to the publication of subpart V, 

Medicare Marketing Requirements, 

marketing-related rules were found in 

subpart B, Eligibility, Election, and 

Enrollment. These rules (codified in 

§ 422.80) included review of marketing 

materials and election forms. With the 

publication of our September 18, 2008 

final rule (73 FR 54208), the marketingrelated requirements were moved into 

the new subpart V and § 422.80 was 

removed. Since that time, we have 

discovered an incorrect cross-reference 

to § 422.80 at § 422.111(d)(1) for 

procedures MA organizations must 

follow when submitting its rules 

changes to us for review. The correct 

reference should be subpart V, Medicare 

Advantage Marketing Requirements. We 

are proposing in these regulations to 

correct the reference contained in 

§ 422.111(d)(1). 

6. Managing Disclosure and Recusal in 

P&T Conflicts of Interest: Formulary 

Development and Revision by a 

Pharmacy and Therapeutics Committee 

Under Part D (423.120(b)(1)) 

Section 1860D–4(b)(3)(A)(ii) of the 

Act requires Part D sponsors who use 

formularies to include on their P&T 

committees at least one practicing 

physician and at least one practicing 

pharmacist, each of whom is 

independent and free of conflict with 

respect to the sponsor and the plan and 

who has expertise in the care of elderly 

or disabled persons. In our August 3, 

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2004 proposed rule (69 FR 46659), we 

proposed to interpret ‘‘independent and 

free of conflict’’ to mean that such P&T 

committee members could have no 

stake, financial or otherwise, in 

formulary determinations. In our 

January 28, 2005 final rule (70 FR 4256), 

we adopted this interpretation, and 

clarified that we would consider a P&T 

committee member not to be free of 

conflict of interest if he or she had any 

direct or indirect financial interest in 

any entity—including Part D plans and 

pharmaceutical manufacturers—that 

would benefit from decisions regarding 

plan formularies. 

In a recent report (‘‘Gaps in Oversight 

of Conflicts of Interest in Medicare 

Prescription Drug Decisions,’’ OEI–05– 

10–00450), the HHS OIG recommended 

improvements in our requirements for 

Part D plan P&T committees. 

Specifically, the OIG report 

recommended that we establish 

minimum standards to ensure that these 

committees have clearly articulated and 

objective processes to determine 

whether disclosed financial interests are 

conflicts and to manage recusals due to 

conflicts of interests. The OIG report 

also suggested that we tell sponsors that 

they need to designate an objective 

party, such as a compliance officer, to 

flag and enforce the necessary recusals. 

In other words, the identification and 

evaluation of whether a disclosed 

financial interest represents a conflict of 

interest should be made by a 

knowledgeable and accountable 

representative of the sponsor’s 

organization, such as the compliance 

officer, and not solely by the P&T 

committee members themselves. We 

concurred that P&T committees should 

have clearly articulated and objective 

processes to determine whether 

disclosed financial interests are 

conflicts, and to manage recusals arising 

from any such conflicts. Therefore, to 

address these recommendations, we 

propose to revise our formulary 

requirements pertaining to development 

and revision by a P&T committee at 

§ 423.120(b)(1) to make it clear that the 

sponsor must establish such processes. 

Moreover, we propose that these 

processes must be clearly articulated 

and documented, and enforced by an 

objective party. 

In our response to the OIG report, we 

noted that statutory and regulatory 

provisions (section 1860D–4(b)(3) of the 

Act and 42 CFR § 423.120(b)) indicate 

that it is the plan sponsor’s 

responsibility to meet the formulary 

requirements, which include 

development of these processes. We also 

noted that we believe the agency’s 

current Part D formulary review 

provides appropriate protections to 

beneficiaries from any adverse effects 

resulting from potential conflicts of 

interest. The agency thoroughly reviews 

Part D formularies to prevent 

discrimination against Medicare 

beneficiaries based on age, disease, or 

setting in which they receive care. The 

review process ensures inclusion of a 

broad distribution of therapeutic 

categories and classes by using 

reasonable benchmarks to ensure drug 

lists are robust. Further, we ensure that 

cost-sharing levels and utilization 

management strategies are appropriate 

and non-discriminatory. We identify 

potential outliers at each review step for 

further investigation and require 

reasonable clinical justification when 

outliers appear to create beneficiary 

access problems. We devote extensive 

resources to plan formulary oversight— 

and reserve the right to reject any 

formulary—to ensure compliance with 

industry best practices for formulary 

development and to ensure 

beneficiaries’ access to clinically 

appropriate therapies. 

Therefore, if a P&T committee, while 

operating under a potential conflict of 

interest were to create a formulary 

representative of such conflicts, the 

formulary would likely be 

discriminatory. Because a 

discriminatory formulary would not be 

approved, the only potential impact we 

can envision would be that the bid 

could be more expensive and, therefore, 

less competitive. However, in this case, 

beneficiaries could easily evaluate these 

higher premiums in the marketplace 

and choose a more efficient plan to meet 

their needs. As a result, we would 

expect that, given our level of formulary 

review, a conflict of interest in the P&T 

committee would disadvantage the 

sponsor rather than the beneficiary or 

the Medicare program. 

We have also been asked to consider 

whether the practicing physician and 

the practicing pharmacist on the P&T 

committee who must be free of conflict 

of interest from Part D plans and 

pharmaceutical manufacturers should 

also be free of conflict of interest from 

Pharmacy Benefit Managers (PBMs). As 

discussed previously, we believe that 

our current formulary review process 

confers appropriate protections to 

beneficiaries from any potential adverse 

effects of conflicts of interest. 

Additionally, we have devoted 

extensive resources to the oversight of 

plan formularies and audit of P&T 

committee proceedings to ensure that 

they comply with industry best 

practices for development and 

management, and ensure beneficiaries’ 

access to clinically appropriate 

therapies. 

P&T committees must first base their 

clinical decisions on the strength of 

scientific evidence and standards of 

practice, including assessing peerreviewed medical literature, 

pharmacoeconomic studies, outcomes 

research data, and other such 

information as it determines 

appropriate, consistent with the 

program goal of maintaining a 

competitive market. Therefore, given 

that sponsors must balance both quality 

and costs in developing formularies, 

and that PBMs are the entities that 

negotiate for price concessions on behalf 

of sponsors, we believe that it is 

appropriate that PBMs have an interest 

in formulary decisions. However, we 

solicit comment on the pros and cons of 

defining PBMs as entities that could 

benefit from formulary decisions from 

which one practicing and one practicing 

pharmacy on the P&T committee must 

be free of conflict of interest. 

As discussed previously, we believe 

the potential effects of conflicts of 

interest would theoretically result in 

either discriminatory or inefficiently 

priced plans. However, our formulary 

review process prevents discrimination, 

and higher priced plans will be subject 

to competition on premiums in the 

marketplace. Nonetheless there may be 

risks to formularies that we have not 

anticipated. In addition, we believe that 

sponsors should be accountable for 

objectively managing potential conflicts 

of interest as directed by the statute. 

Therefore, we propose revising our 

regulations at § 423.120(b)(1) to 

renumber the existing provisions and 

add a new paragraph (b)(1)(iv) to require 

that the sponsor’s P&T committee 

clearly articulates and documents 

processes to determine that the 

requirements under paragraphs (b)(1)(i), 

through (iii) have been met, including 

the determination by an objective party 

of whether disclosed financial interests 

are conflicts of interest and the 

management of any recusals due to such 

conflicts. 

7. Definition of a Part D Drug (§ 423.100) 

Section 1860D–2(e) of the Act defines 

a covered Part D drug as a drug that may 

be dispensed only upon a prescription 

and that is described in subparagraph 

(A)(i), (A)(ii), or (A)(iii) of section 

1927(k)(2) of the Act; or a biological 

product described in clauses (i) through 

(iii) of subparagraph (B) of such section, 

or insulin described in subparagraph (C) 

of such section and medical supplies 

associated with the injection of insulin 

(as defined in regulations of the 

Secretary), and such term includes a 

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vaccine licensed under section 351 of 

the Public Health Service Act (and, for 

vaccinations administered on or after 

January 1, 2008), its administration, and 

any use of a covered Part D drug for a 

medically accepted indication (as 

defined in paragraph (4)). We codified 

this definition in § 423.100. 

a. Combination Products 

The FDA approves and regulates 

many products that include drug-drug 

and drug-device combinations. 

However, for the purposes of the Part D 

program, only combination products 

approved and regulated by the FDA as 

drugs, vaccines, or biologics (or any 

approved combinations of these) are 

potentially eligible for Part D coverage, 

in line with the Part D drug definition. 

We have previously addressed the status 

of combination products through 

guidance, including initially a 

published Q&A response and later in 

Section 10.3 of Chapter 6 of the 

Medicare Prescription Drug Benefit 

Manual (Part D Manual). This guidance 

has specified that combination products 

that contain at least one Part D drug 

component are Part D drugs when used 

for a medically accepted indication, 

unless such product, as a whole, 

belongs in one of the categories of drugs 

excluded from coverage under the Part 

D program. We now propose to address 

this issue in regulation to codify and 

clarify our policy. 

We propose to add paragraph (vii) 

under the definition of a Part D drug to 

further clarify that only those 

combination products approved and 

regulated in its combination form by the 

FDA as a drug, vaccine, insulin, or 

biologic, as described in paragraph (i), 

(ii), (iii), or (v) of the Part D drug 

definition, may be eligible for Part D 

coverage. Our proposal would make it 

clear that the definition of a Part D drug 

excludes products where a combination 

of items are bundled or packaged 

together for convenience (such as one 

box packaging together multiple 

products, each in separate bottles), 

where the bundle has not been 

evaluated and approved by the FDA. 

This proposal would not affect products 

where multiple active ingredients 

(including at least one Part D eligible 

prescription-only ingredient) are 

incorporated into a single pill or single 

injection, as such products would have 

had to go through FDA approval in this 

combined form, meeting the Part D 

requirement. Combination products that 

are FDA approved would then be 

treated like other Part D drugs, eligible 

for coverage only when being used for 

a medically accepted indication and not 

otherwise excluded from Part D 

coverage (for example, because it is 

covered as prescribed and dispensed or 

administered under Medicare Part B). 

This proposed policy is intended to 

clarify that a combination product 

containing at least one constituent 

ingredient that would, if dispensed 

separately, meet the definition of a Part 

D drug is eligible for Part D coverage 

only if it has received FDA approval in 

its combined form. Combination 

products not FDA approved as drugs 

under the Federal Food, Drug, and 

Cosmetics Act would not satisfy section 

1927(k)(2)(A)(i) of the Act, defining 

covered outpatient drugs as those 

approved for safety and effectiveness as 

a prescription drug. Combination 

vaccines not licensed as a vaccine under 

section 351 of the Public Health Service 

Act similarly would not satisfy the 

definition of a Part D drug as defined in 

section 1927(k)(6). 

Our proposal would not require that 

all constituent ingredients of a 

combination product be FDA-approved 

prescription drugs. An example would 

be an FDA-approved prescription drug 

that combines a Part D drug with a nonPart D covered vitamin. Conversely, a 

product combining a Part D drug with 

a medical food, dietary supplement, or 

another Part D drug, where the 

combined product has not received FDA 

approval as a prescription drug, vaccine, 

or biologic would not be eligible for Part 

D coverage. 

b. Barbiturates and Benzodiazepines 

We also propose to amend the 

definition of a Part D drug to address 

certain exclusions by revising paragraph 

(2)(ii). When the Part D benefit started 

in 2006, all uses of barbiturates and 

benzodiazepines were excluded from 

coverage by statute. In 2008, section 175 

of the MIPPA amended section 1860D– 

2(e)(2)(A) of the Act to include coverage 

for barbiturates when used in the 

treatment of epilepsy, cancer, or a 

chronic mental health disorder and for 

benzodiazepines when used for any 

medically accepted indication, effective 

January 1, 2013. In 2010, section 2502 

of the Affordable Care Act amended 

section 1927(d) of the Act, to remove 

barbiturates and benzodiazepines from 

the list of drugs subject to exclusion 

from coverage, effective for services 

provided on or after January 1, 2014. 

Thus, this subsequent statutory change 

effectively includes barbiturates as a 

Part D drug for all medically accepted 

indications. The proposed revision to 

§ 423.100 would conform our definition 

of Part D drug to the new statutory 

requirement. 

c. Medical Foods 

We propose to add paragraph (2)(iii) 

to the list of exclusions from the 

definition of Part D drug to specify that 

medical foods, as defined in 21 U.S.C. 

360ee, are not Part D drugs. Medical 

foods are not described in 

subparagraphs A(i), A(ii) or A(iii) of 

section 1927(k)(2) of the Act, and 

therefore do not meet the statutory 

definition of a covered Part D drug, nor 

do they fall under other categories 

eligible for Part D coverage listed in the 

Part D drug definition, such as biologics, 

vaccines, and insulin. 

Moreover, as described previously in 

the section on combination products, a 

product with relevant components 

including some or all ingredients 

meeting the definition of a Part D drug 

would not be eligible for Part D coverage 

unless the combined product has also 

been approved by the FDA as a drug, 

vaccine, or biologic. 

The proposed clarifications involving 

coverage for approved combination 

products and non-coverage of medical 

foods would not affect current policies 

surrounding Part D coverage of 

parenteral nutrition. (See the Part D 

manual guidance, Chapter 30.7 

regarding the payment for parenteral 

and enteral nutrition items and 

services.) Extemporaneously 

compounded prescription drug products 

(addressed separately in Chapter 6 of 

the Part D manual and in § 423.120) also 

would not be affected by the proposed 

changes. Part D coverage for 

extemporaneously compounded 

prescriptions is available for the 

ingredients that independently meet the 

definition of a Part D drug when the 

product needed is one requested by the 

provider to meet a specific medical 

need, where there is no commercially 

available alternative. The convenience 

packaging of unapproved combination 

products for broad distribution does not 

meet the criteria set out specifically for 

extemporaneously compounded 

prescriptions. 

8. Thirty-Six Month Coordination of 

Benefits (COB) Limit (§ 423.466(b)) 

In our April 15, 2010 final rule (75 FR 

19819), we exercised our authority 

under sections 1860D–23 and 1860D–24 

of the Act to impose a timeframe on the 

coordination of benefits between PDP 

sponsors and other payers including 

State Pharmaceutical Assistance 

Programs (SPAPs), other providers of 

prescription drug coverage, or other 

payers. In the preamble of the final rule, 

we explained our approach to 

determining the 3-year timeframe, 

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including the benefits derived from its 

establishment. 

We stated, ‘‘PDP sponsors must 

coordinate benefits with SPAPs, other 

entities providing prescription drug 

coverage, beneficiaries, and others 

paying on the beneficiaries’ behalf for a 

period not to exceed 3 years from the 

date on which the prescription for a 

covered PDP drug was filled.’’ The 

phrase ‘‘a period not to exceed 3 years’’ 

has caused confusion among some 

sponsors, who interpreted this to mean 

that the coordination of benefits period 

could be shorter than 3 years, and have 

consequently imposed tighter 

timeframes for coordination of benefits. 

To clarify the requirement and avoid 

further confusion, we are proposing to 

remove from the regulation the phrase 

‘‘not to exceed,’’ and adding the word 

‘‘of.’’ This would clarify that sponsors 

must employ a coordination of benefits 

period of 3 years, and would remove 

any uncertainty about whether they may 

impose a shorter coordination of 

benefits period. 

We also propose to revise the heading 

of § 423.466 to reference claims 

adjustments, which are addressed in 

§ 423.466(a). 

9. Application and Calculation of Daily 

Cost-Sharing Rates (§ 423.153) 

We are proposing technical changes to 

the daily cost-sharing rate rule to clarify 

the application and calculation of daily 

cost-sharing rates and cost-sharing 

under the rule. We reminded Part D 

sponsors in the contract year 2014 Final 

Call Letter that, beginning January 1, 

2014, in accordance with 

§ 423.153(b)(4)(i), they must establish 

and apply a daily cost-sharing rate 

whenever a prescription is dispensed by 

a network pharmacy for less than a 30 

days’ supply, unless the drug is 

excepted in the regulation. These 

provisions were finalized in a rule 

entitled ‘‘Medicare Program; Changes to 

the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs for Contract Year 2013 and 

Other Changes’’ (77 FR 22072) (‘‘April 

12, 2012 final rule’’). We provided 

information in the contract year 2014 

Final Call Letter about changes to the 

PBP to accommodate a mandatory Daily 

Copayment field for any tier where the 

plan enters a Copayment Field to assist 

sponsors that have been confused about 

how to calculate daily cost-sharing 

rates. We also noted in the contract year 

2014 Final Call Letter that the daily 

cost-sharing rate rule does not address 

how pharmacy dispensing fees are to be 

negotiated, calculated, or paid. We did 

so because we had heard that some 

sponsors are prorating dispensing fees 

as part of implementing the LTC shortcycle dispensing requirement of 

§ 423.154 effective beginning January 1, 

2013 and may be incorrectly referencing 

the upcoming daily cost-sharing rate 

rule as the reason. We made clear that 

there is no necessary connection 

between daily cost-sharing rates charged 

to beneficiaries and how dispensing fees 

are paid to pharmacies. Nothing in the 

daily cost-sharing rate rule at 

§ 423.153(b)(4) requires the proration of 

dispensing fees, and we proposed a 

prohibition on the proration of 

dispensing fees in the LTC setting in 

another section of this proposed rule, 

because we believe it encourages 

inefficient dispensing in LTC facilities. 

In light of continuing confusion among 

some Part D sponsors about the daily 

cost-sharing rate rule, we believe 

technical changes to the rule are 

warranted. 

Currently, under § 423.100, in cases 

when a copayment is applicable, ‘‘daily 

cost-sharing rate’’ is defined as the 

‘‘monthly copayment under the 

enrollee’s Part D plan, divided by 30 or 

31 and rounded to the nearest lower 

dollar amount, if any, or to another 

amount, but in no event to an amount 

that would require the enrollee to pay 

more for a month’s supply of the 

prescription than would otherwise be 

the case.’’ When we drafted this 

definition, we used the numbers ‘‘30’’ 

and ‘‘31,’’ as these are the numbers of 

days that are typically in a month’s 

supply in Medicare Part D prescription 

drug benefit plans. However, we 

clarified in the Call Letter that the 

maximum amount that can be entered 

for the Daily Copayment field in the 

PBP will be based on the 1-month 

copayment amount divided by the 

actual number of days entered for the 

1-month supply for that specific tier. 

Therefore, we are proposing to replace 

these numbers with the phrase ‘‘the 

number of days in the approved month’s 

supply for the drug dispensed’’ to 

address how Part D sponsors that have 

other days’ supplies as their month’s 

supplies are to calculate daily costsharing rates. 

Also, under our existing definition of 

‘‘daily cost sharing rate’’ in § 423.100, as 

noted above, and with respect to 

copayments, the daily copayment 

cannot be an amount that would require 

the enrollee to pay more for a month’s 

supply of the prescription than would 

otherwise be the case. For example: If a 

plan uses a 31-day supply as its 1- 

month supply and establishes a onemonth copayment of $70 for Tier 3, then 

the Daily Copayment field entry for that 

tier could not be higher than $2.25 ($70/ 

31 = $2.258). Thus, if a plan must round 

the daily cost-sharing rate to a dollar 

and cents figure, the highest amount the 

plan could round to would be the 

nearest lower dollar and cents amount, 

as shown in the example. If a plan 

rounded the daily cost-sharing rate up, 

then if an enrollee eventually received 

a month’s supply of a medication, the 

enrollee would pay more than ‘‘would 

otherwise be the case,’’ meaning more 

than the 1-month cost sharing specified 

in the approved benefit package. In the 

example, if a plan were to round the 

daily cost-sharing rate up to $2.26, an 

enrollee who eventually receives a 

month’s supply of the medication 

would pay $70.06, which is higher than 

the approved $70 copay for that tier. In 

other words, rounding up is not 

permitted under the current definition 

of ‘‘daily cost-sharing rate’’ and this has 

been another cause of confusion for 

some Part D sponsors. 

While our original intention was to 

prohibit significant increases in cost 

sharing, such as charging the full 30-day 

copay for both the trial supply and any 

subsequent refill of a medication, the 

current limitation on any increase in 

cost sharing over the 30-day supply 

amount has reportedly led to 

unnecessarily complicated 

programming, as well as proration of 

other amounts on the claim, such as the 

dispensing fees, as discussed 

previously. Therefore, we are proposing 

to replace the language ‘‘lower dollar 

amount, if any, or to another amount,’’ 

with ‘‘the nearest cent.’’ We believe this 

language would be the simplest way to 

convey the concept of rounding, while 

realizing this language would allow Part 

D sponsors to round daily cost-sharing 

rates up or down to the nearest 2 

decimal places. For instance, in the 

example provided previously, the daily 

cost-sharing rate would actually be 

rounded to $2.26, as this amount would 

be the nearest cent. For the reasons we 

describe in the following paragraph, we 

believe this slight change in policy is 

not significant and that the proposed 

revised regulation text would address 

current confusion about the daily costsharing rate rule. The revised definition 

of ‘‘daily cost-sharing rate’’, if adopted, 

would read with respect to copayments: 

‘‘as applicable, the established monthly 

copayment under the enrollee’s Part D 

plan, divided by the number of days in 

the approved month’s supply for the 

drug dispensed and rounded to the 

nearest cent.’’ 

As noted previously, the daily costsharing rate rule applies whenever a 

prescription is dispensed by a network 

pharmacy for less than a 30 days’ 

supply, unless the drug is excepted in 

the regulation. However, as detailed in 

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the preamble to the April 12, 2012 final 

rule (77 FR 22072), it is primarily 

expected to incentivize Part D enrollees 

to talk with their prescribers about trial 

supplies, when they are prescribed an 

expensive chronic medication for the 

first time. By obtaining a less-than-30- 

days’ supply, beneficiaries reduce their 

cost sharing when the medication is 

discontinued in the first month due to 

poor tolerance or side effects, which 

also benefits the Part D program by 

reducing costs of unused medications. 

In addition, as noted in the April 12, 

2012 final rule (77 FR 22072), we 

believe some enrollees will be 

encouraged to request that their 

pharmacists assist them with 

synchronizing the refill dates of 

multiple medications, because they 

could do so without having to pay a full 

month’s cost sharing for the shortened 

days’ supplies necessary to synchronize 

refill dates. Although permitted under 

the rule, we do not foresee enrollees 

choosing to continue to receive chronic 

medications incrementally on a 

sequential basis. We anticipate that 

enrollees who tolerate a chronic 

medication would obtain months’ 

supplies after the first incremental fill, 

and enrollees who are synchronizing 

medications are expected to do so 

through one incremental fill of all 

medications except one. Therefore, even 

though the proposed revised definition 

of ‘‘daily cost-sharing rate’’ could result 

in an enrollee who receives the 

remainder of month’s supply after 

receiving an incremental fill paying 

slightly more than he or she otherwise 

would have for a month’s supply, we 

believe such cases would be rare, if any, 

and the amounts involved are nominal 

anyway. We are more concerned that 

the regulation text with respect to 

rounding is clearer, and in this regard, 

we solicit comments on whether 

sponsors need any additional rounding 

guidance. 

We are also proposing other technical 

changes to the daily cost-sharing rate 

rule at § 423.153(b)(4)(i) to improve the 

regulation’s clarity. First, we are 

proposing to consolidate the language of 

§ 423.153(b)(4)(i)(A) into 

§ 423.153(b)(4)(i) and to consolidate 

§ 423.153(b)(4)(i)(B)(1) and (2) into a 

new paragraph § 423.153(b)(4)(ii). 

Second, we are proposing that the 

language in § 423.153(b)(4)(i) that 

addresses the application of the daily 

cost-sharing rate in the case of a 

monthly copayment be revised for 

clarity, and moved to a new paragraph 

(b)(4)(iii)(A). This paragraph would state 

that in the case of a drug that would 

incur a copayment, the Part D sponsor 

must apply cost-sharing as calculated by 

multiplying the applicable daily costsharing rate by the days’ supply actually 

dispensed when the beneficiary receives 

less than a 30 days’ supply. Again, this 

is not a change in policy but is merely 

a technical change to the regulation text 

for better clarity. Third, we are 

proposing that § 423.153(b)(4)(iii)(B) 

would state that, in the case of a drug 

that would incur a coinsurance 

percentage, the Part D sponsor shall 

apply the coinsurance percentage for the 

drug to the days’ supply actually 

dispensed. We note that this means, 

with respect to dispensing fees, that the 

enrollee’s portion of additional 

dispensing fees for the incremental 

supply would be calculated by 

application of this percentage. We 

believe all the foregoing technical 

clarifications will assist sponsors in 

correctly setting, calculating, and 

applying daily cost-sharing rates in the 

retail and LTC settings beginning 

January 1, 2014 whenever a prescription 

is dispensed by a network pharmacy for 

less than a 30 days’ supply, unless the 

drug is excepted in the regulation. 

10. Technical Change To Align 

Regulatory Requirements for Delivery of 

the Standardized Pharmacy Notice 

(§ 423.562) 

The current regulations at 

§ 423.562(a)(3) require Part D plan 

sponsors to make arrangements with 

their network pharmacies to distribute 

notices instructing enrollees how to 

contact their plans to obtain a coverage 

determination or request an exception. 

This is accomplished through delivery 

of a standardized notice, CMS–10147— 

‘‘Medicare Prescription Drug Coverage 

and Your Rights’’ (‘‘pharmacy notice’’). 

Section 423.562(a)(3) cross-references 

§ 423.128(b)(7)(iii), added in our April 

2011 final rule (76 FR 21432), which 

requires plans to have a system in place 

that transmits codes to network 

pharmacies so the pharmacy is notified 

to deliver the pharmacy notice at the 

point of sale (POS) in designated 

circumstances where the prescription 

cannot be filled as written. 

Pursuant to the 2011 regulatory 

change, we issued subsequent guidance 

(HPMS memoranda dated October 14, 

2011 (‘‘Revised Standardized Pharmacy 

Notice’’) and December 27, 2012 

(‘‘Revised Guidance for Distribution of 

Standardized Pharmacy Notice’’) which 

clarifies that distribution of the 

pharmacy notice is required upon 

receipt of certain transaction responses 

indicating that the claim is not covered 

by Part D, as well as revised manual 

guidance in Chapter 18, section 40.3.1 

of the Medicare Prescription Drug 

Benefit Manual related to 

operationalization of this requirement 

specific to a variety of specialty 

pharmacy settings. 

In practice, we have never based 

distribution of or referral to the 

pharmacy notice on whether or not the 

enrollee disagrees with information 

provided by the pharmacist, but rather 

on whether the drug in question can be 

provided under Part D and whether the 

enrollee is able to obtain the covered 

drug at the pharmacy counter. Because 

the existing regulation text at 

§ 423.562(a)(3) ties delivery of the 

pharmacy notice to the enrollee’s 

disagreement with information provided 

by the pharmacist, we are proposing to 

remove this reference. 

This proposed technical change 

would not alter the circumstances under 

which the pharmacy notice must be 

delivered to an enrollee and will align 

the regulation and the operational 

requirements for distribution of the 

pharmacy notice. In addition, this 

proposed change would be consistent 

with both the current OMB-approved 

instructions regarding the pharmacy 

notice and current CMS manual 

guidance. 

We do not prohibit distribution of the 

pharmacy notice in any circumstance, 

so pharmacies may choose to also 

provide a copy of the notice in 

circumstances where the enrollee 

disagrees with the information provided 

(for example, if the enrollee believes 

they are being charged an incorrect costsharing amount), but the notice is not 

required under the standards 

established in § 423.128(b)(7)(iii). 

Provision of the pharmacy notice is not 

a prerequisite for an enrollee to request 

a coverage determination or access the 

appeals process. Similarly, a plan 

sponsor’s failure to comply with the 

requirements of § 423.128(b)(7)(iii) or 

§ 423.562(a)(3) does not in any way 

limit an enrollee’s right to request a 

coverage determination or appeal. 

11. Special Part D Access Rules During 

Disasters or Emergencies (§ 423.126) 

Section 1860D–4(b) of the Act 

requires us to ensure beneficiaries have 

access to covered Part D drugs. When a 

disaster strikes or is imminent, 

beneficiaries may find they have trouble 

accessing drugs through normal 

channels or must move to safer 

locations far away from their regular 

pharmacies. In order to ensure that 

beneficiaries do not run out of their 

medications during or as a result of a 

disaster or emergency, we issued 

guidance on December 18, 2009 

identifying when, in the course of a 

disaster, Part D sponsors would be 

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expected to relax ‘‘refill-too-soon’’ (RTS) 

edits. We now propose to codify a 

revised version of that policy. Proposed 

§ 423.126(a)(1)(i) would require Part D 

sponsors to relax RTS edits in the event 

of any imminent or occurring disaster or 

emergency that would hinder an 

enrollee’s access to covered Part D 

drugs. By this we mean that there is an 

anticipated or actual disaster or 

emergency, as evidenced by a 

declaration of a disaster or emergency 

issued by an appropriate federal, state, 

or local official, and it is reasonable to 

conclude that such disaster or 

emergency or preparation therefore 

would make it difficult for beneficiaries 

to obtain refills of their medications 

because the disaster or emergency or 

anticipation thereof has affected, or will 

affect, their ability to have timely access 

to their usual pharmacies. For example, 

if federal, state or local authorities issue 

mandatory evacuation orders to 

populations or segments of the 

population in a geographic area, it 

would be reasonable to conclude that 

the evacuation would hinder an LTC 

resident’s ability to get a refill after he 

or she is evacuated from the facility. In 

such an instance, then, Part D sponsors 

with enrollees in the affected area 

would be required to relax RTS edits so 

that the LTC pharmacies could provide 

beneficiaries with refills to take with 

them to the location to which they are 

being evacuated. Our proposed 

requirement would apply to one refill 

for each drug the beneficiary is taking 

for refills sought within 30 days of the 

date the plan sponsor began relaxing 

RTS edits. We believe this timeframe 

would be sufficient to ensure that 

beneficiaries who are unable to obtain 

refills during the emergency or disaster 

will be able to do so as soon as they can 

safely access a network pharmacy. We 

solicit comment as to whether 30 days 

after the date of the triggering 

declaration provides an appropriate 

amount of time to ensure that 

beneficiaries do not run out of their 

medications. In particular, we would be 

interested in learning about any 

situations in which a beneficiary 

affected by an actual or impending 

disaster or emergency would be likely to 

go to a pharmacy more than 30 days 

after the triggering declaration such that 

the resumption of RTS edits after 30 

days would be problematic. We also 

solicit comment as to how it would be 

feasible for Part D sponsors to identify 

pharmacies or beneficiaries located in 

affected areas for which they would be 

required to relax edits and, how long it 

might then take to program the 

necessary changes. 

Although we believe our proposal 

provides a general framework for when 

RTS edits must be relaxed, we solicit 

comment on whether we should impose 

more particular requirements in cases 

where a disaster or emergency could 

result in a voluntary or mandatory 

evacuation of an LTC facility. We are 

also concerned that if a disaster strikes 

the area in which an LTC facility is 

located but not the area in which its 

servicing LTC pharmacy is located, the 

appropriate edits may not be relaxed. 

Accordingly, we solicit comment as to 

whether it would be more feasible to 

establish beneficiary specific edits 

limited to residents of LTC facilities in 

affected areas given that evacuation 

decision-making is rarely a 

straightforward, linear process (for 

example, not just based on the 

declaration of a disaster or emergency), 

but rather, often involves a myriad of 

facility-specific factors. In particular, we 

solicit comment on the practicality of 

requiring Part D sponsors to relax RTS 

edits for residents of a particular LTC 

facility after that facility decides on its 

own initiative to evacuate through use 

of National Council on Prescription 

Drug Programs (NCPDP) Submission 

Clarification Code (SCC) code 13, which 

conveys that there is an emergency. We 

solicit comment as to whether use of 

this code number, 13, is specific enough 

to signal that sponsors need to loosen 

RTS edits and whether it would be 

practical for LTC facilities to request 

that their LTC pharmacies enter the SCC 

code 13. Lastly, we would be interested 

in any other ideas on how to structure 

workable edits or institute manual 

procedures to best target only enrollees 

who live in LTC facilities located in 

areas affected by a disaster. 

We would also be interested in 

hearing from any commenters who 

would recommend any other triggering 

events that would require Part D 

sponsors to relax RTS edits. In 

particular, we solicit comment as to 

whether it would be feasible to require 

sponsors to relax edits after the issuance 

by the National Weather Service (NWS) 

of a Hurricane or Tropical Storm watch 

or warning. The NWS typically issues 

watches 36 hours in advance of adverse 

weather conditions possibly hitting an 

area, while the NWS issues watches 48 

hours (2 days) in advance of those 

conditions possibly hitting an area. All 

watches/warnings are posted on the 

NWS Web site immediately after their 

issuance. We solicit comment as to 

whether watch/warnings would require 

RTS overrides in the whole state, or just 

areas under the watch or warning. We 

are also interested in comments 

regarding the time generally needed to 

move residents of LTC facilities with 

their medication supplies to safety. 

Lastly, we believe that sponsors are in 

the best position to determine how to 

relax the specific RTS edits when 

required under our proposal. However, 

we also wish to ensure that all sponsors 

relax RTS edits in a consistent manner 

in order that enrollees have the same 

critical access to drugs when disasters 

and emergencies are imminent or have 

occurred—regardless of the specific 

plan in which they are enrolled. 

Accordingly, we solicit comments on 

the types of situations that might arise 

and the extent to which sponsors should 

be allowed to exercise some discretion 

in complying with this proposed 

requirement. 

And, as has been the case under our 

current guidance, Part D sponsors may 

consider extending the implementation 

of the RTS edits but are not required to 

do so. However, if sponsors choose to 

reinstate the RTS edits, they need to 

work closely with enrollees who 

indicate that they are still displaced or 

otherwise impacted by the disaster or 

emergency. 

12. MA Organization Responsibilities in 

Disasters and Emergencies (§ 422.100) 

Section 1852(d) of the Act requires 

MA organizations to provide proper and 

continued access to services, including 

making medically necessary benefits 

available and accessible 24 hours a day 

and 7 days a week. When a disaster 

occurs or is imminent, beneficiaries may 

find they have trouble accessing 

services through normal channels or 

must move to safer locations that are 

outside of their service areas. To date, 

we have relied on issuing subregulatory 

guidance for MA organizations through 

the HPMS system and have included 

that guidance in Chapter 4 of the 

Medicare Managed Care Manual. During 

a disaster, we expect MA organizations 

to continue to follow applicable 

standing regulations, including ensuring 

continuing access to care in addition to 

complying with our subregulatory 

guidance. 

We are proposing to add paragraph 

(m) to § 422.100 to codify and further 

clarify an MA organization’s 

responsibilities when health plan 

services are affected by public health 

emergencies or disasters. This provision 

is intended to ensure that beneficiaries 

continue to have access to care in 

situations where normal business 

operations are disrupted due to public 

health emergencies, disasters and 

warnings of imminent disasters. The 

proposed new paragraph (m) requires 

MA organizations to ensure access to 

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covered services that are furnished at 

non-contracted facilities and to charge 

no more cost sharing for services 

obtained by enrolled beneficiaries outof-network than they would pay innetwork. These requirements provide 

protections for enrolled beneficiaries, 

including those who move to safer 

locations that are outside of their service 

areas, who have trouble accessing 

services through normal channels due to 

the unusual circumstances created by 

the disaster or emergency. Additionally, 

the proposed new paragraph (m) 

provides MA organizations with 

guidance on the bases for determining 

the beginning and end of a disaster or 

emergency and requires that the 

organization post on its Web site and 

convey to enrollees and contracted 

providers at least annually, the disaster 

and emergency policies in order to 

facilitate enrollee access to needed 

services while normal care delivery is 

unavailable. In addition, this enables 

out-of-network providers to be informed 

of the terms of payment for furnishing 

services to affected enrollees. 

13. Termination of a Contract Under 

Parts C and D (§ 422.510 and § 423.509) 

a. Cross-Reference Change (§ 423.509(d)) 

Section 1857(h)(1)(B) and 1860D– 

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

procedures for termination for both Part 

C and Part D plan sponsors respectively. 

These statutory provisions give an 

organization an opportunity for a 

hearing before its contract is terminated. 

We codified organizations’ appeal 

rights under subpart N of parts 422 and 

423. Under the Part C § 422.510(d), a 

reference to the appeal rights ‘‘in 

accordance with subpart N’’ is made. 

However, in the corresponding section 

for Part D Plan sponsors at § 423.509(d), 

the reference to the appeal rights reads 

‘‘in accordance with § 423.642.’’ The 

Part C and Part D references should be 

the same. We are proposing to align the 

Part C and Part D appeal rights language 

under § 422.510(d) and § 423.509(d) by 

replacing the inconsistent language at 

§ 423.509(d) to now read ‘‘in accordance 

with subpart N of this part.’’ This 

change is proposed only to ensure 

consistent wording is used in both 

regulatory sections and in no way 

changes the meaning or policy 

encompassed in this provision. 

b. Terminology Changes (§ 422.510 and 

§ 423.509) 

Sections 1857(c) and 1860D– 

12(b)(3)(B) of the Act authorize contract 

terminations for Part C MA 

organizations and Part D plan sponsors 

respectively. In the current termination 

regulations at § 422.510 and § 423.509, 

there is inconsistent use of the terms 

‘‘days’’ and ‘‘calendar days’’. Calendar 

days are the appropriate term that 

should be used consistently throughout 

these sections. Therefore, we are 

proposing to replace the word ‘‘days’’ 

with ‘‘calendar days’’ in both § 422.510 

and § 423.509. This change is proposed 

only to ensure consistent wording is 

used in § 422.510 and § 423.509 and in 

no way changes the meaning or policy 

encompassed in these provisions. 

c. Technical Change To Align Paragraph 

Headings (§ 422.510(b)(2)) 

Sections 1857(c)(2) and 1860D– 

12(b)(3)(B) of the Act provide us with 

the authority to terminate contracts, for 

Part C and Part D sponsors respectively. 

The Part C paragraph heading at 

§ 422.510(b)(2) incorrectly reads 

‘‘Expedited termination of contract by 

CMS.’’ The Part D corresponding 

paragraph heading at § 423.509(b)(2) 

correctly reads ‘‘Immediate termination 

of contract by CMS’’. The Part C and 

Part D paragraph headings should be the 

same. Therefore, we are proposing to 

revise the paragraph of § 422.510(b)(2) 

to read ‘‘Immediate termination of 

contract by CMS’’. This change is 

proposed only to ensure consistent 

wording is used in both regulatory 

sections and in no way changes the 

meaning or policy encompassed in this 

provision. 

d. Terminology Change 

(§ 423.509(b)(2)(C)(ii)) 

Sections 1857(c)(2) and 1860D– 

12(d)(3)(B) of the Act provide us with 

the authority to terminate contracts, for 

Part C and Part D sponsors respectively. 

In § 423.509(b)(2)(C)(ii) the regulation 

incorrectly references ‘‘MA 

organization.’’ This section concerns 

Part D, so the correct reference is ‘‘Part 

D Plan Sponsor’’. Therefore, we are 

proposing to change 

§ 423.509(b)(2)(C)(ii) to appropriately 

reference Part D plan sponsor; not MA 

organization (Part C), as it currently 

states. This change is proposed only to 

ensure accurate wording is used in both 

regulatory sections and in no way 

changes the meaning or policy 

encompassed in this provision. 

14. Technical Changes To Align Part C 

and Part D Contract Determination 

Appeal Provisions (§ 422.641 and 

§ 422.644) 

Sections 1857(h) and 1860D– 

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

procedures for termination for both Part 

C MA organizations and Part D Plan 

sponsors, respectively. These statutory 

provisions provide an organization with 

an opportunity for a hearing before its 

contract is terminated. Appeal 

procedures were established under 

sections 1856(b)(2) and 1860D–12(b)(3) 

of the Act for both Part C and Part D 

sponsors, respectively. Sections 422.641 

and 423.641, list the types of Part C and 

Part D contract determinations that may 

be appealed. 

(a) Technical Change (§ 422.641) 

Currently in § 422.641, the contract 

termination is discussed in paragraph 

(b) and contract non-renewal is 

discussed in (c). Conversely, in 

§ 423.641 the contract terminations are 

discussed in (c) and contract nonrenewal is discussed in (b). Therefore, 

we are proposing to align the Part C list 

order for (b) and (c) in the contract 

determinations section at § 422.641 with 

its Part D corresponding section at 

§ 423.641. This change is proposed only 

to ensure consistency between the two 

parts and in no way changes the 

meaning or policy encompassed in this 

provision. 

(b) Technical Changes (§ 422.644(a) and 

(b)) 

Sections 1857(h)(1)(B) and 1860D– 

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

procedures for termination for both Part 

C and Part D sponsors, respectively. 

These statutory provisions provide an 

organization with an opportunity for a 

hearing before its contract is terminated. 

Appeal procedures were established 

under § 1856(b)(2) of the Act for both 

Part C and Part D sponsors. In § 423.642 

we specify that the notice is based upon 

a contract determination made ‘‘under 

§ 423.641.’’ Therefore, since Part C and 

Part D language should be consistent the 

same reference should be made in the 

Part C corresponding § 422.644. To 

remedy this error, we are proposing to 

insert ‘‘under § 422.641’’ into 

§ 422.644(a) for Part C contract 

determinations. This change is proposed 

only to ensure consistent wording is 

used in both regulatory sections and in 

no way changes the meaning or policy 

encompassed in this provision. 

In addition, the Part D Plan sponsor 

language in § 423.642(b) states that ‘‘(b) 

The notice specifies the—(1) Reasons for 

the determination; and’’. The Part C 

language in § 422.644(b) states that ‘‘(b) 

The notice specifies—(1) The reasons 

for the determination; and’’. Part C and 

Part D language should be consistent, 

therefore, the same reference should be 

made in the Part C corresponding 

section § 422.644. To remedy this error, 

we are proposing to align the Part C 

language at § 422.644(b) with that of the 

Part D language at § 423.642(b) for 

consistency between both the Part C and 

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Part D termination regulations. 

Specifically, we propose to change 

§ 422.644(b) by deleting the word ‘‘the’’ 

and revising it to read ‘‘(b) The notice 

specifies the—(1) Reasons for the 

determination; and’’. This change is 

proposed only to ensure consistent 

wording is used in both regulatory 

sections and in no way changes the 

meaning or policy encompassed in this 

provision. 

15. Technical Changes To Align Parts C 

and D Appeal Provisions (§ 422.660 and 

§ 423.650) 

Sections 1857(h)(1)(B) and 1860D– 

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

procedures for termination for both Part 

C and Part D, respectively. These 

statutory provisions provide 

organizations with an opportunity for a 

hearing before its contract is terminated. 

Appeal procedures were established 

under § 1856(b)(2) of the Act for both 

Part C and Part D sponsors. We propose 

to make technical changes in our 

regulations at § 422.660(a)(2), 

§ 422.660(a)(3), and § 423.650(a)(2) to 

ensure consistency. Specifically, we are 

proposing to replace the term ‘‘under’’ 

with the phrase ‘‘in accordance with’’ in 

§ 422.660(a)(2), § 422.660(a)(3), and 

§ 423.650(a)(2). This change is proposed 

only to ensure consistent wording is 

used in § 422.660 and § 423.650 and in 

no way changes the meaning or policy 

encompassed in these provisions. 

In addition, we are proposing to make 

a technical change in our regulations at 

§ 423.650(a)(4) to ensure consistency 

with the authorizing language contained 

in sections 1856(b)(2), 1857(h), and 

1860D–12(d)(3)(F) of the Act which 

gives us the authority to terminate 

contracts for both Part C and Part D 

sponsors. Under the Part C 

§ 422.660(a)(4), a reference to imposing 

intermediate sanctions and civil money 

penalties ‘‘in accordance with 

§ 422.752(a) through (b) of this part’’ is 

made. The corresponding section for 

Part D is at § 423.650(a)(4). However, the 

reference to imposing intermediate 

sanctions and civil money penalties 

reads ‘‘in accordance with § 423.752(a) 

and (b)’’. The Part C and Part D 

references should be the same and both 

state ‘‘(a) through (b)’’. Specifically, we 

are proposing to replace the word ‘‘and’’ 

with ‘‘through’’ in § 423.650(a)(4). This 

change is proposed only to ensure 

consistent wording is used in both 

regulatory sections and in no way 

changes the meaning or policy 

encompassed in this provision. 

Sections 422.660(b)(4) and 

423.650(b)(4) give a general reference to 

§ 422.752 and § 423.752, but do not refer 

the reader to the applicable paragraphs 

contained in those sections. Therefore, 

we are proposing to modify 

§ 422.660(b)(4) and § 423.650(b)(4) to 

add the language ‘‘§ 422.752(a) through 

(b)’’ and ‘‘§ 423.752(a) through (b)’’, 

respectively, to refer the reader to the 

applicable regulations for intermediate 

sanctions. This change is proposed only 

to accurately reflect applicable 

regulatory requirements and in no way 

changes the meaning or policy 

encompassed in this provision. 

16. Technical Changes Regarding 

Intermediate Sanctions and Civil Money 

Penalties 

Sections 1857(g) and 1860D– 

12(b)(3)(E) of the Act provides us with 

the authority to impose intermediate 

sanctions (sanctions) and CMPs on Part 

C and Part D sponsors, respectively. 

a. Technical Changes to Intermediate 

Sanctions Notice Receipt Provisions 

(§ 422.756(a)(2) and § 423.756(a)(2)) 

Under § 422.756(a)(2) and 

§ 423.756(a)(2) the current language 

states that written requests for rebuttal 

by the MA organization or Part D plan 

sponsor must be received within ‘‘10 

calendar days from the receipt of 

notice’’. This language is inconsistent 

with other the language that appears in 

other sections within subpart O, the 

appeals section in subpart N and the 

termination sections in subpart K. In 

those sections we state that written 

requests must be received within ‘‘10 

calendar days after receipt of the 

notice’’. The language in all sections 

should be consistent. Therefore, we are 

proposing to modify the language at 

§ 422.756(a)(2) and § 423.756(a)(2) to 

state ‘‘10 calendar days after receipt of 

the notice’’. This change is proposed 

only to ensure consistent wording is 

used in all sections and in no way 

changes the meaning or policy 

encompassed in this provision. 

In addition, we are proposing to 

correct the grammatical error that exists 

in current § 422.756(a)(2) and 

§ 423.756(a)(2). The Part C and Part D 

language currently reads, ‘‘CMS 

considers receipt of notice as the day 

after notice is sent by fax, email, or 

submitted for overnight mail’’. To fix 

the grammatical errors we are proposing 

to revise the language in both 

§ 422.756(a)(2) and § 423.756(a)(2) to 

read ‘‘CMS considers receipt of the 

notice as the day after the notice is sent 

by fax, email, or submitted for overnight 

mail.’’ This change is proposed only to 

make a grammatical correction and in 

no way changes the meaning or policy 

encompassed in this provision. 

b. Cross-Reference Changes 

(§ 422.756(b)(4) and § 423.756(b)(4)) 

Under § 422.756(b)(4) and 

§ 423.756(b)(4), we furnish our 

procedures for imposing intermediate 

sanctions and civil money penalties on 

MA organizations and Part D sponsors, 

respectively. The current language at 

§ 422.756(b)(4) states that MA 

organizations, if sanctioned, must 

follow the right to a hearing procedure 

as specified at § 422.660 and § 422.684. 

The current language at § 423.756(b)(4) 

states that Part D sponsors, if 

sanctioned, must follow the right to a 

hearing procedure as specified at 

§ 423.650 and § 423.662. However, MA 

organizations and Part D sponsors must 

adhere to procedures promulgated 

within subpart N of the regulations, not 

just § 422.660 and § 422.684; and 

§ 423.650 and § 423.662, respectively. 

Therefore, we are proposing to modify 

the language at § 422.756(b)(4) and 

§ 423.756(b)(4) to state that MA 

organizations and Part D sponsors 

‘‘must follow the right to a hearing 

procedures as specified in subpart N’’. 

This change is proposed only to 

accurately reflect applicable regulatory 

requirements and in no way changes the 

meaning or policy encompassed in this 

provision. 

c. Technical Changes (§ 422.756(d) and 

§ 423.756(d)) 

In § 422.756(d) and § 423.756(d) we 

provide alternatives to sanctions, 

including non-renewal or termination of 

the organizations contract. However, the 

paragraph heading of both § 422.756(d) 

and § 423.756(d) only refers to 

terminations by CMS. Therefore, we are 

proposing to revise the paragraph 

heading to ‘‘Non-renewal or termination 

by CMS’’ in both sections to reflect the 

content specified within the provision. 

This change is proposed only to 

accurately reflect applicable regulatory 

requirements and in no way changes the 

meaning or policy encompassed in this 

provision. 

Within § 422.756(d) and § 423.756(d) 

we state that we may decline to 

authorize the renewal of an 

organization’s contract in accordance 

with § 422.506(b)(2) and (b)(3) for MA 

organizations and in accordance with 

§ 423.507(b)(2) and (b)(3) for Part D 

sponsors. However, in both § 422.756(d) 

and § 423.756(d), all of paragraph (b) 

applies to the provisions. Therefore, we 

are proposing to change both provisions 

§ 422.756(d) and § 423.756(d) to read 

‘‘§ 422.506(b)’’ and ‘‘§ 423.507(b)’’, 

respectively. This change would 

accurately reflect that all of paragraph 

(b) applies in both provisions. This 

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change is proposed only to accurately 

reflect applicable regulatory 

requirements and in no way changes the 

meaning or policy encompassed in this 

provision. 

Within § 422.756(d) and § 423.756(d), 

we refer to the sanctions described in 

paragraph (c) of each section but in each 

section, paragraph (c) refers to the 

effective date and duration of sanctions, 

rather than sanctions which are 

described in § 422.750 and § 423.750, 

respectively. Therefore, we are 

proposing to change the current 

language at § 422.756(d) to read ‘‘In 

addition to or as an alternative to the 

sanctions described in § 422.750 . . .’’ 

and change the language at § 423.756(d) 

to read ‘‘In addition to or as an 

alternative to the sanctions described in 

§ 423.750.’’ This change would 

accurately reflect the applicable 

provision referenced in both 

§ 422.756(d) and § 423.756(d). This 

change is proposed only to accurately 

reflect applicable regulatory 

requirements and in no way changes the 

meaning or policy encompassed in this 

provision. 

d. Technical Changes To Align the Civil 

Money Penalty Provision With the 

Authorizing Statute (§ 422.760(a)(3) and 

§ 423.760(a)(3)) 

The provisions at § 422.760(a)(3) and 

§ 423.760(a)(3) state, ‘‘the harm which 

resulted or could have resulted from 

conduct of an MA organization’’ and 

‘‘the harm which resulted or could have 

resulted from conduct of a Part D plan 

sponsor’’, respectively. However, this 

language is not consistent with the 

authorizing statutory provisions, nor is 

it consistent with other provisions in 

the corresponding sections. Therefore, 

we are proposing to align the language 

with paragraph (b) in both 

§ 422.760(a)(3) and § 423.760(a)(3). The 

language would be revised to state ‘‘The 

adverse effect to enrollees which 

resulted or could have resulted . . .’’ in 

both § 422.760(a)(3) and § 423.760(a)(3). 

This change is proposed only to 

accurately reflect applicable statutory 

requirements and in no way changes the 

meaning or policy encompassed in this 

provision. 

e. Technical Changes To Align the Civil 

Money Penalty Hearing Notice Receipt 

Provisions (§ 422.1020(a)(2), 

§ 423.1020(a)(2), § 422.1016(b)(1), and 

§ 423.1016(b)(1)) 

Sections 1857(g)(4) and 1860D– 

12(b)(3)(E) of the Act provides us with 

the authority to impose civil money 

penalties on Part C and Part D sponsors, 

respectively. Under § 422.1020(a)(2) and 

§ 423.1020(a)(2), we discuss our 

procedures for appealing CMPs. The 

current language in both sections state 

written requests for appeal by the MA 

organization or legal representative or 

authorized official must be filed within 

60 calendar days from the receipt of 

notice of initial determination, to 

request a hearing before the 

Administrative Law Judge to appeal any 

CMS decision. However, this language 

does not align with the appeal language 

in subpart N. Therefore, we are 

proposing to change the language at 

§ 422.1020(a)(2) and § 423.1020(a)(2) to 

align it with the language within 

subpart N for appeals. Specifically, we 

are changing both § 422.1020(a)(2) and 

§ 423.1020(a)(2) to state ‘‘within 60 

calendar days after receipt of the notice 

of initial determination’’. This change is 

only to ensure consistent wording is 

used in all sections and in no way 

changes the meaning or policy 

encompassed in this provision. 

In addition, under § 422.1016 and 

§ 423.1016, we furnish our procedures 

for filing briefs with the Administrative 

Law Judge or Departmental Appeals 

Board, and opportunity for rebuttal. The 

provisions at § 422.1016(b)(1) and 

§ 423.1016(b)(1) state, ‘‘the other party 

will have 20 days from the date of 

mailing or personal service to submit 

any rebuttal statement or additional 

evidence’’. However, this language is 

not consistent with provisions in other 

corresponding sections. Therefore, we 

are proposing to revise the language at 

§ 422.1016(b)(1) and § 423.1016(b)(1) to 

state ‘‘The other party will have 20 days 

from the date of mailing or in person 

filing’’. This change is proposed only to 

ensure consistent wording is used in all 

sections and in no way changes the 

meaning or policy encompassed in this 

provision. 

17. Technical Change to the Restrictions 

on Use of Information Under Part D 

(§ 423.322) 

We are proposing a technical change 

to § 423.322 due to section 6402(b)(1) of 

the Affordable Care Act which amended 

section 1860D–15(f)(2) of the Act. For 

background, most of the payment 

provisions for the Part D program are 

found in section 1860D–15 of the Act. 

Subsections (d) and (f) of section 

1860D–15 of the Act authorize the 

Secretary to collect any information 

needed to carry out this section. 

However those subsections, as originally 

enacted, also stated that ‘‘information 

disclosed or obtained under [section 

1860D–15 of the Act] may be used by 

officers, employees, and contractors of 

[HHS] only for the purpose of, and to 

the extent necessary, in carrying out 

[section 1860D–15 of the Act].’’ Thus, 

section 1860D–15 of the Act contains 

provisions that limit the use of 

information disclosed or obtained under 

its authority. 

Section 6402(b)(1) of the Affordable 

Care Act amended section 1860D– 

15(f)(2) of the Act to relax the limitation 

on the use of information that is 

disclosed or obtained under section 

1860D–15 of the Act. Specifically, the 

Affordable Care Act removed the word 

‘‘only’’ from subsection (f)(2)(A) and 

added a new subsection (ii) which states 

that information disclosed or obtained 

under section 1860D–15 of the Act may 

be used by officers, employees, and 

contractors of HHS for the purposes of, 

and to the extent necessary, in 

‘‘conducting oversight, evaluation, and 

enforcement under this title.’’ Section 

6402(b)(1) also added a new subsection 

(B) which states that information 

disclosed or obtained pursuant to 

section 1860D–15 of the Act may be 

used ‘‘by the Attorney General and the 

Comptroller General of the United 

States for the purposes of, and to the 

extent necessary in, carrying out health 

oversight activities.’’ Thus, the 

Affordable Care Act considerably 

broadened the purposes for which HHS, 

its contractors, and the Attorney General 

and Comptroller General may use the 

information disclosed or obtained 

pursuant to section 1860D–15 of the Act 

by removing the word ‘‘only’’ in 

subsection (A) and adding a new clause 

(ii) and a new subsection (B). However, 

we note, that the Affordable Care Act 

did not change the existing restriction 

on the use of information under 

subsection (d). 

In light of the Affordable Care Act 

amendment to section 1860D–15(f) of 

the Act, we are proposing to make 

conforming changes to § 423.322. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

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• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs). 

A. ICRs Related to Eligibility of 

Enrollment for Individuals Not Lawfully 

Present in the United States (§ 417.2, 

§ 417.420, § 417.422, § 417.460, § 422.1, 

§ 422.50, § 422.74, § 423.1, § 423.30, and 

§ 423.44) 

We are proposing to amend § 417.2, 

§ 417.420, § 417.422, § 417.460, § 422.1, 

§ 422.50, § 422.74, § 423.1, § 423.30, and 

§ 423.44 to include the eligibility 

requirement of citizenship or lawful 

presence to enroll in MA, Part D, or cost 

plans. To implement these regulations, 

we would relay data regarding an 

individual’s lawful presence status to 

plans through the MARx system so that 

the plans will be aware of an 

individual’s eligibility when requesting 

enrollment and notify plans when 

current members lose lawful presence 

status. This data is already available to 

us; thus no new data will be collected, 

and there is no new information 

collection or burden on organizations. 

B. ICRs Related to Improper Prescribing 

Practices and Patterns (§ 424.535(a)(13) 

and (14)) 

Our proposed additions of 

§ 424.535(a)(13) and (14) would result in 

an increase in revocations and 

associated appeals. However, we are 

unable to estimate the number of 

revocations and appeals. We do not 

have data available that can be used to 

make such a projection, as each 

situation would have to be carefully 

reviewed and addressed on a case by 

case basis. Since we would invoke 

§ 424.535(a)(8)(iii) only in the most 

egregious of circumstances, we believe 

that the number of revocations under 

this provision would be small. The 

concomitant increase in the ICR burden 

would therefore be minimal. 

C. ICRs Related to Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part 

D Functions (§ 423.504(b)(8)(i) Through 

(iii)) 

Proposed § 423.504(b)(8)(i) through 

(iii) would require that Part D 

organizations seeking a new Medicare 

contract must have arrangements in 

place such that either the applicant or 

a contracted entity that will be 

performing certain key Part D functions 

has at least 1 full benefit year of 

experience providing the function or 

providing the function for another Part 

D plan sponsor. The burden associated 

with this requirement is the time and 

effort put forth by Part D applicants to 

answer questions about such experience 

as part of the Part D application process. 

For entities that hold an existing Part D 

contract, or whose parent or another 

subsidiary of that parent has already 

held a Part D sponsor contract for at 

least a year, it is estimated that it will 

take each Part D applicant for a new 

contract 2 minutes to provide 1 or 2 new 

sentences in the organizational history 

section of the application, and 1 minute 

to respond to yes-no questions about 

experience with the 3 functions for 

which experience is required, for a total 

of 3 minutes per applicant. For entities 

new to Part D, it is estimated that it will 

take each Part D applicant for a new 

contract 2 minutes to provide 1 or 2 new 

sentences in the organizational history 

section of the application, 1 minute to 

respond to yes-no questions about 

experience with the 3 functions for 

which experience is required, and 1 

additional minute to provide at least 1 

contract number of an existing or recent 

Part D sponsor under which the entity 

to provide the key function obtained its 

experience, for a total of 4 minutes. 

Based on the number of Part D 

applications we receive each year, we 

would anticipate no more than 60 Part 

D applications for a new contract, of 

which no more than 15 would be 

entities new to Part D. Thus, the burden 

for the 45 existing entities at 3 minutes 

each, plus the burden for the 15 new 

entities at 4 minutes each, brings the 

total burden hours to approximately 

3.25 hours. If approved, the new 

application questions would be 

addressed under currently approved 

OMB control number (OCN) 0938–0936. 

D. ICRs Related to Eligibility of 

Enrollment for Incarcerated Individuals 

(§ 417.460, § 422.734, and § 423.44) 

We are proposing to amend 

§ 417.460(b)(2)(i), § 417.460(f)(1)(i), 

§ 422.74(d)(4)(i)(A), § 422.74(d)(4)(v), 

and § 423.44(d)(5) to clarify the 

eligibility requirement for residing in 

the plan’s service area related to 

incarceration for the purposes of 

enrolling into and remaining enrolled in 

MA, Part D, and Medicare cost plans. To 

implement these regulations, we would 

relay data to plans regarding an 

individual’s incarceration through the 

MARx system so that the plans would 

be aware of the individual’s eligibility 

when requesting enrollment and notify 

the plans of loss of eligibility for current 

members. This data is already available 

to us. Thus no new data would be 

collected, and there is no new 

information collection or burden on 

organizations. 

E. ICRs Related to Rewards and 

Incentives Program Regulations for Part 

C Enrollees (§ 422.134) 

This requirement does not impose any 

new information collection 

requirements. This is an existing 

recordkeeping requirement in which 

MA organizations must retain 

information pertaining to any rewards 

and incentives programs in accordance 

with our regulations at 42 CFR 422.118. 

We believe the burden associated with 

this requirement is exempt from the 

PRA under 5 CFR 1320.3(b)(2) as we 

believe this is a usual and customary 

business practice. Furthermore, any 

requests to furnish the information in a 

form and manner we designate are 

unique, that is, non-standardized and 

specific to each individual MA 

organization. 

F. ICRs Related to Expanding Quality 

Improvement Program Regulations 

(§ 422.152) 

This requirement does not impose any 

new information collection 

requirements. PRA approval is current 

under OCN 0938–1023. 

G. ICRs Related to Revisions to Good 

Cause Processes (§ 417.460, § 422.74, 

and § 423.44) 

We are proposing to amend § 417.460, 

§ 422.74, and § 423.44 to establish the 

ability for us to designate an entity other 

than CMS to implement the good cause 

process. To implement these 

regulations, the plan will already have 

the enrollment data necessary to make 

the good cause determinations within 

the process. Thus no new data would be 

collected. However, there would be 

additional burden to the plan in terms 

of completing the operational process, 

such as responding to requests for 

reinstatement from former members, 

gathering the attestation from the 

individual regarding his or her reason 

for not paying the plan premiums 

within the grace period, making the 

determination as to whether the 

individual meets the good cause criteria 

and maintaining the case notes and 

documentation to support its 

determination should it need to be 

reviewed. As plans already provide 

customer service to their current and 

past members, we estimate that this 

burden would be approximately 30 

minutes for each reinstatement request. 

According to the most recent wage data 

provided by the Bureau of Labor 

Statistics (BLS) for May 2012, the mean 

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hourly wage for the category of 

‘‘Customer Service Representatives’’— 

which we believe, considering the 

common point of entry for all issues at 

the plan, is the most appropriate 

category—is $15.92. With fringe benefits 

and overhead, the per hour rate is 

$24.03. It is calculated that the cost for 

30 minutes would be $12.01. Not all 

plans disenroll for non-payment of 

premiums. However, for those who do 

implement this voluntary policy, it 

results in an average of 20,000 

disenrollments each month. In response, 

we receive an average of 698 requests 

for reinstatement per month. The plan 

representative cost of $12.01 for each 

case is multiplied by 698 cases. 

Therefore, based on the proposed 

change, handling of these requests 

would result in a total monthly cost of 

$8,383 for all plans in the MA, Part D, 

and cost plan programs. 

H. ICRs Related to the Definition of 

Organization Determination (§ 422.566) 

The burden associated with this 

proposal is the time necessary for MA 

organizations to process organization 

determination requests, issue a decision 

and, where appropriate, effectuate any 

approved coverage decision. When an 

MA organization issues an adverse 

organization determination, it must give 

the enrollee written notice pursuant to 

the requirements in § 422.568(d) and (e) 

and § 422.572(e). This requirement is 

subject to the PRA, and the burden 

associated with it is currently approved 

under OCN 0938–0829. The information 

collection requirements are not 

expected to change because the 

proposed revisions to the definition of 

organization determination would not 

alter the frequency with which the 

current OMB-approved notice is 

required, nor the time required to issue 

the notice. The proposed change to 

§ 422.566(b)(3) would codify certain 

adverse decisions which MA 

organizations already treat operationally 

as adverse organization determinations 

subject to the standardized denial 

notice. The proposed addition of 

§ 422.566(b)(6) applies only to favorable 

organization determinations which do 

not require written notice. 

I. ICRs Related to Skilled Nursing 

Facility Stays (§ 422.101 and § 422.102) 

We propose to relocate the MA 

regulation language currently located at 

§ 422.101(c), ‘‘Requirements Related to 

Basic Benefits’’ to § 422.102(a)(5), 

‘‘Supplemental Benefits.’’ We are 

proposing to move the provision 

because it describes MA organizations’ 

authority to furnish covered SNF stays 

without the qualifying inpatient 

hospital stay required under original 

Medicare. For the past 10 years, MA 

organizations have offered the waiver of 

the 3-day inpatient hospital stay as a 

supplemental benefit. Thus, placing the 

provision in the section related to 

supplemental benefits is appropriate. 

We also propose to make a 

conforming revision in the crossreference to this provision that currently 

appears at § 409.30(b)(2)(ii), in order to 

reflect this provision’s relocation from 

§ 422.101 to § 422.102. This is a simple 

relocation of current regulation. There 

are no new PRA requirements. 

J. ICRs Related to Changes to Audit and 

Inspection Authority (§ 422.503(d)(2) 

and § 423.504(d)(2)) 

We are proposing a change to 

§ 422.503(d)(2) and § 423.504(d)(2) to 

include authority that will permit CMS 

to require MA organizations and Part D 

sponsors to hire an independent auditor 

to conduct full or partial program audits 

and/or perform validation exercises to 

confirm correction of deficiencies found 

during an audit. We currently conduct 

these audits and validation exercises, 

and collect data associated with these 

activities under OCN 0938–1000. We do 

not believe that requiring MA 

organizations and Part D sponsors to 

hire an independent auditor to conduct 

these audits or validation exercises will 

impose any additional burden on MA 

organizations and Part D sponsors. 

K. ICR Related to Recovery Audit 

Contractor Determinations (Part 422, 

Subpart Z and Part 423, Subpart Z) 

The information collection burden 

associated with our proposed 

requirements consists of the submission 

of requests for: (1) Reconsiderations; (2) 

CMS hearing official determinations; 

and (3) CMS Administrator reviews. 

Based on existing Part D appeals data, 

we estimate that plans will file the 

following numbers of requests on an 

annual basis: 

TABLE 7— ESTIMATED NUMBER OF

PART C & D RAC APPEAL REQUESTS

Type of request 

Number of 

requests per 

year 

Reconsideration .................... 104 

CMS Hearing Official ............ 10 

Administrator Review ............ 2 

Total .................................. 116 

The reasons for the decrease in 

requests at higher appeal levels are that: 

(1) The plan may succeed in its appeal 

and thus have no need to appeal to the 

next level; and (2) the plan may simply 

wish to forgo further appeals. We stress 

that the figures in Table 7 are mere 

projections, though, again, they are 

based on the number of Part D appeals 

that have been submitted to date. 

We estimate that it would take a plan 

5 hours to prepare and file an appeal 

request. In terms of cost, it has been our 

experience that most appeals have been 

prepared by high-level officials of the 

plan. According to the most recent wage 

data provided by the Bureau of Labor 

Statistics (BLS) for May 2012, the mean 

hourly wage for the category of ‘‘General 

and Operations Managers’’—which we 

believe, considering the variety of 

officials who have submitted appeals, is 

the most appropriate category—is 

$55.22. With fringe benefits and 

overhead, the per hour rate is $83.35. 

Multiplying this figure by 580 hours (or 

116 submissions × 5 hours) results in a 

projected annual cost burden of 

$48,343, as outlined in Table 8. 

TABLE 8—ESTIMATED ANNUAL REPORTING/RECORDKEEPING BURDEN

Regulation 

section(s) 

OMB 

Control 

No. 

Respondents Responses 

Burden per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly labor 

cost 

of reporting 

($) 

Total labor 

cost of 

reporting 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

§ 422.2605 ............ N/A 52 52 5 260 83.35 83.35 0 21,671.00 

§ 422.2610 ............ N/A 5 5 5 25 83.35 83.35 0 2083.75 

§ 422.2615 ............ N/A 1 1 5 5 83.35 83.35 0 416.75 

§ 423.2605 ............ N/A 52 52 5 260 83.35 83.35 0 21,671.00 

§ 423.2610 ............ N/A 5 5 5 25 83.35 83.35 0 2083.75 

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TABLE 8—ESTIMATED ANNUAL REPORTING/RECORDKEEPING BURDEN—Continued 

Regulation 

section(s) 

OMB 

Control 

No. 

Respondents Responses 

Burden per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly labor 

cost 

of reporting 

($) 

Total labor 

cost of 

reporting 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

§ 423.2615 ............ N/A 1 1 5 5 83.35 83.35 0 416.75 

Total .............. N/A 116 116 N/A 580 ...................... .................. 0 48,343 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, 

Attention: CMS Desk Officer, CMS– 

4159–P 

Fax: (202) 395–6974; or 

Email: OIRA_submission@omb.eop.gov 

V. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

VI. Regulatory Impact Analysis 

A. Statement of Need 

The purpose of this proposed rule is 

to make revisions to the MA program 

(Part C) and Prescription Drug Benefit 

Program (Part D), implement provisions 

specified in the Affordable Care Act, 

and make other changes to the 

regulations based on our continued 

experience in the administration of the 

Part C and Part D programs. These latter 

revisions are necessary to: (1) Clarify 

various program participation 

requirements; (2) make changes to 

strengthen beneficiary protections; (3) 

strengthen our ability to identify strong 

applicants for Part C and Part D program 

participation and remove consistently 

poor performers; and (4) make other 

clarifications and technical changes. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). This 

proposed rule has been designated an 

’’economically significant’’ rule under 

section 3(f)(1) of Executive Order 12866. 

Accordingly, we have prepared a 

regulatory impact analysis that details 

the anticipated effects (costs, savings, 

and expected benefits), and alternatives 

considered by proposed requirement. 

Finally, in accordance with the 

provision of the Executive Order 12866, 

this proposed rule was reviewed by the 

Office of Management and Budget. 

Two provisions result in a total of 

4,768 annual burden hours and a total 

annualized monetized impact of 

$148,939. See sections IV.G. and IV.K. 

of this proposed rule for details 

regarding the burden associated with 

the requirements of this proposed rule. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to 

$34.5 million in any 1 year). Individuals 

and states are not included in the 

definition of a small entity. This 

proposed rule primarily affects the 

Federal government, Medicare 

Advantage plans, and Part D Sponsors. 

Part D sponsors and MA plans, 

entities that will be affected by the 

provisions of this rule, are not generally 

considered small business entities. MA 

plans and Part D sponsors must meet 

minimum enrollment requirements 

(5,000 in urban areas and 1,500 in 

nonurban areas) and because of the 

revenue from such enrollments, these 

entities are generally above the revenue 

threshold required for analysis under 

the RFA. We determined that there were 

very few MA plans and Part D sponsors 

that fell below the size thresholds for 

’’small’’ businesses established by the 

Small Business Administration (SBA). 

Currently, the SBA size threshold is $7 

million in total annual receipts for 

health insurers (North American 

Industry Classification System, or 

NAICS, Code 524114) and we have 

confirmed that most Part D sponsors 

have Part D receipts above the $7 

million threshold. 

While a very small rural plan could 

fall below the threshold, we do not 

believe that there are more than a 

handful of such plans. A fraction of MA 

organizations and sponsors are 

considered small businesses because of 

their non-profit status. HHS uses as its 

measure of significant economic impact 

on a substantial number of small 

entities, a change in revenue of more 

than 3 to 5 percent. Consequently, we 

do not believe that this threshold would 

be reached by the proposed 

requirements in this proposed rule 

because this proposed rule would have 

minimal impact on small entities. 

Therefore, an analysis for the RFA will 

not be prepared because the Secretary 

has determined that this proposed rule 

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would not have a significant impact on 

a substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare an analysis if a 

rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 603 of the RFA. For purposes of 

section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is 

located outside of a metropolitan 

statistical area and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

the Secretary has determined that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year by state, 

local, or tribal governments, in the 

aggregate, or by the private sector of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2013, that 

threshold is approximately $141 

million. This proposed rule is not 

expected to reach this spending 

threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on state and local 

governments, preempts state law, or 

otherwise has Federalism implications. 

Based on CMS Office of the Actuary 

estimates, we do not believe that this 

proposed rule imposes substantial direct 

requirement costs on state and local 

governments, preempts state law, or 

otherwise has Federalism implications. 

Table 14 details the proposed rule’s 

impacts by entity, including the federal 

government and MA organizations and 

Part D sponsors. We note that the 

estimated savings do not represent net 

social benefits because they consist of 

transfers of value from drug 

manufacturers, pharmacies, incarcerated 

individuals and individuals not 

lawfully present in the United States to 

the federal government, MA 

organizations, Part D sponsors and 

beneficiaries who continue in the 

programs. 

C. Anticipated Effects 

1. Effects of Closing Cost Contract Plans 

to New Enrollment 

In our proposal to ensure that 

organizations do not move enrollees 

from one of their cost or MA plan types 

to another based on financial or some 

other interest, we propose to revise 

§ 422.503(b)(5) so that an entity seeking 

to contract as an MA organization must 

‘‘not accept new enrollees under a 

section 1876 reasonable cost contract in 

any area in which it seeks to offer an 

MA plan if the MA organization and 

reasonable cost contract are offered by 

the same parent organization.’’ We 

believe this provision will have minimal 

or no financial impact as only a handful 

of parent organizations currently offer 

MA and cost plans in the same service 

area. In addition, as the regulation 

requires that affected cost plans close to 

new enrollment, not that they terminate 

operations, we believe that there will be 

little or no impact to beneficiaries. 

2. Effects of Two-year Limitation on 

Submitting a New Bid in an Area Where 

an MA Has Been Required To Terminate 

a Low-Enrollment MA Plan 

Under § 422.506(b)(1)(iv), we must 

non-renew a MA plan that does not 

have a sufficient number of enrollees to 

establish that it is a viable independent 

plan option. We have established the 

threshold for termination due to 

insufficient number of enrollees at fewer 

than 500 enrollees for non SNPs and 

fewer than 100 enrollees for SNPs over 

a specified time period of 3 years. If we 

did not implement this, an MA 

organization required to terminate or 

consolidate one of its MA plans due to 

sustained low enrollment could avoid 

the consequences of such a requirement 

by submitting a bid for a new plan in 

the same service area. 

We are proposing to amend the MA 

regulations at § 422. 504(a)(19) to 

impose a contractual requirements that 

when CMS non renews, or asks the MA 

organization to terminate an MA plan 

due to sustained low enrollment 

pursuant to § 422.506(b)(1)(iv), the MA 

organization may not introduce any new 

MA plan in that service area for 2 

contract years. We believe this 

requirement will enhance our ongoing 

efforts to ensure that MA organization 

offerings in a service area present 

beneficiaries with viable plans that are 

responsive to their needs. We see no 

financial impact on MA organizations as 

this requirement has very limited 

application and imposes no 

independent financial burden. 

3. Effects of Authority To Impose 

Intermediate Sanctions and Civil Money 

Penalties 

We are proposing to make two 

changes to existing authority for the 

imposition of intermediate sanctions 

and civil money penalties (CMPs). First, 

under the Affordable Care Act, new 

authority was provided to the Secretary, 

which now permits CMS to impose 

intermediate sanctions for additional 

contract violations in the areas of 

marketing and enrollment. This new 

authority further permits CMS to 

impose intermediate sanctions on 

contracting organizations’ that employ 

or contract with organizations, agents, 

and suppliers who commit any of the 

contract violations contained in 

§ 422.752 and § 423.752. 

Second, we are clarifying our 

authority to impose CMPs for the 

aforementioned contract violations. 

Current regulations designate the OIG as 

the sole government agency with the 

authority to impose CMPs for the 

contract violations contained in 

§ 422.752 and/or § 423.752. We are 

modifying the language of these 

provisions to clarify that CMS or the 

OIG may impose CMPs for these 

contract violations except the provision 

that relates to the misrepresentation of 

falsification of information furnished to 

CMS, an individual or entity. 

We believe these provisions would 

not result in additional burden to 

sponsors nor would they have a 

financial impact on sponsors. 

4. Effects of Contract Termination 

Notification Requirements and Contract 

Termination Basis 

In current regulations, we are required 

to provide 90-day notice to 

organizations whose contracts are being 

terminated by CMS. The authorizing 

statute at section 1857(h)(1)(B) and 

1860D–12(b)(3)(F) of the Act states that 

the Secretary must provide reasonable 

notice and opportunity for hearing 

(including the right to appeal the initial 

determination) before terminating a 

contract (except under certain 

circumstances). We are proposing to 

modify the notice timeframe from 90 

days to 45 days. We believe these 

provisions would not result in 

additional burden to sponsors nor 

would it have a financial impact on 

sponsors. 

5. Effects of Reducing the Burden of the 

Compliance Program Training 

Requirements 

We are proposing to lessen the burden 

placed on contracting organizations and 

their first tier, downstream and related 

entities (FDRs). Current regulations 

specify that contracting organizations 

are required to provide general 

compliance program training for their 

FDRs upon initial contracting and 

annually thereafter. To lessen this 

burden, we would require all 

contracting organizations to accept a 

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certificate of completion of the CMS 

Standardized General Compliance 

Program Training and Education 

Module as evidence of satisfaction of 

this program requirement. Under this 

program change, contracting 

organizations would not be permitted 

(or required) to develop or implement 

organization specific training for FDRs. 

We anticipate that this would greatly 

reduce the burden on various sectors of 

the industry including, but not limited 

to, insurance providers, hospitals, 

suppliers, pharmacists and physicians. 

We anticipate that this change would 

actually provide savings for sponsors 

and the FDRs since FDRs would only 

have to take one training as opposed to 

the possible numerous trainings they 

may take under current requirements. 

Additionally, sponsors would save 

because they would not be required to 

provide training materials to each FDR 

with which they contract. 

We believe these provisions would 

not result in additional burden to 

sponsors nor would they have a 

financial impact on sponsors. 

6. Effects of Audit and Inspection 

Authority 

We are proposing two changes to 

§ 422.503(d)(2) and § 423.504(d)(2) that 

would allow CMS to require sponsors 

(MA organizations and Part D sponsors) 

to hire an independent auditor to 

conduct full or partial program audits of 

the sponsors’ operational areas and/or 

correction validation exercises. We 

currently conduct program audits of 

approximately 30 sponsors per year. 

Under this proposal, each MA 

organization and/or Part D sponsor 

would be required to hire an 

independent auditor to perform a full or 

partial program audit at least every 3 

years. There are currently 298 sponsors 

in the Parts C & D programs. Under this 

new authority, approximately 99, or 

one-third of these organizations would 

be required to hire an independent 

auditor to perform a program audit, 

beginning in contract year 2015. Once 

the sponsor’s audit is concluded in the 

year in which it was chosen, the 

sponsor would not be subject to another 

audit until its third year occurs (that is, 

plans selected for audit in contract year 

2015, would not be selected for audit 

again until contract year 2018); unless 

the sponsor demonstrates behavior that 

we believe poses a risk to Medicare 

beneficiaries, the Trust Fund or both. 

Sponsors demonstrating this type of 

noncompliance may be subjected to a 

CMS program audit at any time in order 

to identify and mitigate any risk of 

potential harm to our beneficiaries. This 

proposal ensures that all sponsors will 

be audited on at least a 3-year cycle 

while continuing to maintain the 

integrity of the program by allowing 

CMS to continue to conduct audits 

when it believes beneficiaries are at risk. 

Each independent auditor would 

work within CMS’ specifications and 

guidelines. We would make available to 

the sponsors all of the methods of 

evaluations, methodologies and 

protocols to be used by the independent 

auditor when conducting the audit. We 

would also provide technical assistance 

to auditors as necessary. 

We currently conduct program audits 

that examine the following operational 

areas: 

• Formulary and Benefits 

Administration (Part D) 

• Coverage Determinations, Appeals & 

Grievances (Part D) 

• Organization Determinations, Appeals 

& Grievances (Parts C) 

• Compliance Program effectiveness 

(Parts C & D) 

• Outbound Enrollment Verification 

(OEV) (Parts C & D) 

• Special Needs Plan Model of Care 

(SNP MOC) implementation (Parts C 

& D) 

We estimate that the independent 

auditor hired will need to have a team 

consisting of the following 

professionals: 

• Formulary and Benefits 

Administration—pharmacist, a senior 

claims analyst, and a senior auditor. 

• Coverage Determinations, Part D 

Appeals, Part D Grievances— 

pharmacist, senior auditor. 

• Organization Determinations, Part C 

Appeals, Part C Grievances—nurse 

practitioner, senior auditor, auditor. 

• Compliance Program 

effectiveness—two auditors (at least one 

senior). 

• Outbound Enrollment Verification 

(OEV)—two auditors (at least one 

senior). 

• Special Needs Plan Model of Care 

(SNP MOC) implementation—two 

auditors (at least one senior). 

We used the most recent (2010) wage 

statistics supplied by the Department of 

Labor, Bureau of Labor Statistics to 

develop estimates of direct wages. We 

also added fringe benefits, overhead 

costs, and general and administrative 

expenses using percentages that are 

consistent with CMS contracts. Based 

on our experience and in consultation 

with program experts, we developed an 

estimate of the hourly burden. The 

estimated mean cost per hour for each 

sponsor is $35.80 (wages, fringe 

benefits, and overhead). The team of 14 

professionals (listed previously) is 

necessary for the performance of each 

program audit. The estimated mean 

number of hours the team will need to 

perform the audit per sponsor is 160. 

The mean cost per sponsor to procure 

and support the auditor is therefore: 14 

× 160 × $35.80 = $80,192. The auditing 

costs will be allowable costs in the 

plan’s bid. Since, sponsors will only be 

subjected to these audits every 3 years; 

it is our expectation that sponsors will 

include one-third of this cost in its bid 

each year. Therefore, each plan year, the 

total cost included in a sponsors bid is: 

$80,192 ÷ 3 = $26,731. 

The total annual estimated burden 

hours related to the time and effort for 

all sponsors being audited is estimated 

to be 298 sponsors × $26, 731 per 

sponsor, per year = $7,965,838. 

Therefore, the estimated annual cost for 

this requirement is $7,965,838. 

We are also proposing to revise our 

regulations to permit CMS to require 

MA organizations or Part D sponsors 

with audit results that reveal noncompliance with CMS requirements to 

hire an independent auditor to validate 

that correction has occurred. As 

mentioned previously, under our 

existing authority we currently conduct 

approximately 30 audits per year. Based 

on our experience, the number of 

deficiencies identified and requiring 

corrective action can vary widely from 

sponsor to sponsor, which therefore 

affects the time and effort required for 

subsequent correction validation. 

Therefore, we have decided to provide 

an estimate that assumes that each 

sponsor audited has failed 50 percent of 

all elements audited; thereby requiring 

correction validation. We recognize that 

some sponsors may have far fewer 

elements that require validation and 

some sponsors may have more elements 

that require validation, but we believe 

that this is the most accurate estimate 

we can provide of the number of 

sponsors that will undergo validation 

and the associated effort required with 

that validation. 

Under these circumstances we 

estimate that the independent auditor 

hired will need to have a team 

consisting of the following 

professionals: 

• Formulary and Benefits 

Administration—pharmacist, a senior 

claims analyst, and a senior auditor. 

• Coverage Determinations, Part D 

Appeals, Part D Grievances— 

pharmacist, senior auditor. 

• Organization Determinations, Part C 

Appeals, Part C Grievances—nurse 

practitioner, senior auditor. 

• Compliance Program 

effectiveness—one senior auditor. 

• Outbound Enrollment Verification 

(OEV)—one senior auditor. 

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• Special Needs Plan Model of Care 

(SNP MOC) implementation—one 

senior auditor. 

We used the same wage statistics 

provided previously to develop an 

estimate of the hourly burden (which 

includes fringe benefits, overhead costs, 

and general and administrative 

expenses that use percentages that are 

consistent with CMS contracts). The 

estimated mean cost per hour for these 

sponsors is $35.80. A team of 10 

professionals (listed previously) is 

necessary for the performance of each 

correction validation. The average 

hourly cost for a validation with a team 

of 10 professionals is the same as the 

average hourly cost of an initial audit 

with a team of 14 professionals because 

in both scenarios, the mix of auditors to 

specialists (or non-auditors) is roughly 

70 percent auditors and 30 percent 

specialists. Since the need for 

specialists can vary widely (that is, in 

some validations they may not be 

needed at all, and in other cases, all of 

the specialists from the original audit 

may be needed), we determined that the 

average breakdown of the team is the 

same for initial audit and validation. 

Therefore, the average hourly cost has 

not changed, despite the change in the 

number of team members. The 

estimated mean number of hours the 

team will need to perform the correction 

validation per sponsor is 80. The mean 

cost per sponsor to procure and support 

the independent auditor is therefore: 10 

× 80 × $35.80 = $28,640. The validation 

costs will be allowable costs in the 

plan’s bid. Under existing regulations 

the total annual estimated burden hours 

related to the time and effort for 

sponsors to perform the correction 

validation is estimated to be 30 sponsors 

× $28,640 per sponsor, per year = 

$859,200. Therefore, the estimated 

annual cost for this requirement under 

existing regulations is $859,200. 

If the provision proposing that we 

acquire the authority to require sponsors 

to hire an independent auditor to 

conduct program audits is finalized, the 

number of sponsors being audited per 

year will increase from 30 (current) to 

99 (proposed). Using the same weighted 

data assuming that each sponsor audited 

has failed at least 50 percent of audited 

elements, the estimated mean cost per 

sponsor to procure and support the 

independent auditor is: 10 × 80 × $35.80 

= $28,640. The correction validation 

costs will be allowable costs in the 

plan’s bid. Since, sponsors will only be 

subjected to these audits/validations 

every 3 years; it is our expectation that 

sponsors will include one-third of this 

cost in its bid each year. Therefore, each 

plan year, the total cost included in a 

sponsors bid is: $28,640 ÷ 3 = $9,547. 

The total annual estimated burden 

hours related to the time and effort for 

all sponsors being audited to perform 

the correction validation is estimated to 

be 99 sponsors × $9,547 per sponsor, per 

year = $945,120. Therefore, the potential 

estimated annual cost for this 

requirement is $945,120. 

7. Effects of Procedures for Imposing 

Intermediate Sanctions and Civil Money 

Penalties Under Parts C and D 

We are proposing to make changes to 

our authority for imposing intermediate 

sanctions and for determining when 

such sanctions will be lifted. Sections 

1857(g) and 1860D–12(b)(3)(E) of the 

Act provide the Secretary the ability to 

impose intermediate sanctions on MA 

organizations and PDP sponsors. 

Intermediate sanctions consist of 

suspension of enrollment, suspension of 

marketing and suspension of payment. 

Current regulations governing 

intermediate sanctions are contained in 

subparts O of part 422 and part 423. 

Sections 422.756 and § 423.756 provide 

specific procedures for imposing 

intermediate sanctions, and include 

provisions which address the duration 

of the sanction and the standard that we 

apply when determining if a sanction 

should be lifted. As specified in the Act 

and regulations, when intermediate 

sanctions are imposed on contracting 

organizations, the sanctions remain in 

place until the Secretary/CMS is 

satisfied that the basis for the sanction 

determination has been corrected and is 

not likely to recur. 

In the October 2009 proposed rule (74 

FR 54634), we proposed a change that 

included a rule that allows us to require 

a plan under a marketing and/or 

enrollment sanction to market or accept 

enrollments or both for a limited period 

of time. As we explained in that 

proposed rule, the purpose of the test 

period is to assist us in making a 

determination as to whether the 

deficiencies that are the bases for the 

intermediate sanctions have been 

corrected and are not likely to recur. 

The test period provides us with the 

opportunity to observe a sanctioned 

plans ability to enroll or market to 

Medicare beneficiaries prior to lifting 

the sanction. 

We are proposing to extend the 

applicability of such a test period to 

include all intermediate sanctions and 

to clarify that while we may require a 

sponsor to receive enrollments during 

this test period, the sponsor would not 

receive any LIS annual or auto 

facilitated reassignments. 

We believe these provisions would 

not result in additional burden to 

sponsors nor would they have a 

financial impact on sponsors. 

8. Effects on Timely Access to Mail 

Order Services 

We believe it is necessary and 

appropriate to establish mail order 

fulfillment requirements defining 

maximum turnaround times from when 

the pharmacy receives the prescription 

order to when it is shipped. This would 

underscore the importance of consistent 

and reliable access to medications, 

protecting beneficiaries from 

inconsistent or unreliable practices that 

may otherwise jeopardize timely access 

to prescriptions. The proposed 

standards are in alignment with 

requirements already in place in the 

market, and as such we do not expect 

significant financial impacts to 

implement. 

9. Effects of Collections of Premiums 

and Cost Sharing 

In the proposed provision, ‘‘Waivers 

and Incorrect Collections of Premiums 

and Cost Sharing,’’ we propose to codify 

our existing guidance pertaining to the 

waiver of premiums and cost sharing by 

Part D sponsors and to specifically 

require sponsors to refund incorrect 

collections of premiums and cost 

sharing or retroactively collect 

underpayments of cost sharing. Since 

our policy on waivers of premiums and 

cost sharing has been specified in 

informal guidance since the beginning 

of the Part D program and the timeframe 

for sponsor refunds and recoveries is 

codified in regulations at § 423.466(a) 

indicating that such refunds and 

collections are required, we do not 

believe the proposed changes would 

result in any additional costs. 

10. Effects of Enrollment Eligibility for 

Individuals Not Lawfully Present in the 

United States 

In section III.A.10. of this proposed 

rule, we discuss our proposals to add 

’citizenship or lawful presence’ as an 

eligibility requirement to enroll and 

remain enrolled in MA, Part D, and 

section 1876 cost contracts to align with 

section 401 of the PRWORA mandating 

that aliens not lawfully present in the 

United States are not eligible to receive 

any federal benefit. In CY 2012, there 

were close to 50 million Medicare 

beneficiaries. Approximately 34.4 

million beneficiaries were enrolled in 

MA plans, PDPs or cost plans, which 

accounted for 68.8 percent of the total 

Medicare population. In the same year, 

an average of 4,285 Medicare 

beneficiaries enrolled in MA or Part D 

plans were identified by SSA as being 

unlawfully present. By directing MA 

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plans, PDPs, and cost plans to disenroll 

individuals who, at the time of 

notification from CMS, are not lawfully 

present, we intend to prevent improper 

payment for these individuals to MA 

plans, PDPs, and cost plans for periods 

when these individuals were ineligible 

to receive such services. Based on data 

for capitation payments for MA and 

PDPs, as well as the prepayments 

provided to cost plans, we estimate that 

the disenrollment of individuals who 

are unlawfully present would result in 

a decrease in payments made by CMS 

and would result in a cost savings of 

$10 million in 2015. We estimate, based 

on the numbers previously mentioned, 

that this change could save the MA 

program approximately $5 million in 

2015, increasing to $8 million in 2019, 

and could save the Part D program 

(includes the Part D portion of MA–PD 

plans) approximately $5 million in 

2015, increasing to $9 million in 2019. 

As cost plans are paid based on the 

reasonable costs delivering Medicarecovered services to their enrollees, 

instead of the fixed capitation amounts 

paid to MA plans and PDPs, we believe 

the impact to cost plans associated with 

this provision to be negligible. 

TABLE 9—PROJECTED NUMBER OF INDIVIDUALS DISENROLLED DUE TO LOSS OF LAWFUL PRESENCE AND ESTIMATED

SAVINGS TO THE MEDICARE ADVANTAGE PROGRAM BY PROVISION FOR CALENDAR YEARS 2015 THROUGH 2019 

2015 2016 2017 2018 2019 

Totals 

(CYs 2105– 

2019) 

Projected number of unlawfully present 

beneficiaries enrolled in MA plans ....... 1,118 1,247 1,375 1,503 1,632 6,875 

Projected federal impact due to unlawfully-present individuals disenrolled 6 

months sooner ...................................... 1¥$5 1¥$6 1¥$6 1¥$7 1¥$8 ¥$32 

Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 lawful presence data provided by the SSA. 1 Million. 

TABLE 10—PROJECTED NUMBER OF INDIVIDUALS DISENROLLED DUE TO LOSS OF LAWFUL PRESENCE AND ESTIMATED

SAVINGS TO THE MEDICARE PART D PROGRAM BY PROVISION FOR CALENDAR YEARS 2015 THROUGH 2019 

2015 2016 2017 2018 2019 

Totals 

(CYs 2015– 

2019) 

Projected number of unlawfully present 

beneficiaries enrolled in Part D plans 

(including MA–PDs) .............................. 5,780 6,276 6,771 7,267 7,762 33,856 

Projected federal impact due to unlawfully-present individuals disenrolled 6 

months sooner ...................................... 1¥$5 1¥$6 1¥$7 1¥$8 1¥$9 1¥$35 

Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 lawful presence data provided by the SSA. 1 Million. 

11. Effects of Part D Notice of Changes 

This section would codify current 

guidance for Part D sponsors to inform 

beneficiaries about changes to plan 

benefits from year to year and also 

correct an oversight whereby such a 

regulation currently exists for Part C but 

not for Part D. We anticipate that this 

proposal would result in no additional 

costs because Part D sponsors already 

typically provide this information. 

12. Effects of Separating the Annual 

Notice of Change (ANOC) From the 

Evidence of Coverage (EOC) 

Currently, members must receive the 

plan’s combined ANOC/EOC prior to 

the Annual Election Period (AEP). We 

propose to separate the distribution and 

dissemination requirements, such that, 

the ANOC is received by beneficiaries 

before the AEP and the EOC is received 

closer to the enrollment effective date. 

This way, beneficiaries who choose to 

leave their current plans and enroll in 

other plans will only receive an EOC 

from the plan in which they have 

enrolled. We believe that this will 

reduce confusion among beneficiaries 

about which EOC is for the plan in 

which they have enrolled. It eliminates 

the unnecessary waste from the 

production of EOCs that end up being 

discarded. It also allows MA 

organizations and Part D sponsors 

additional time to develop better quality 

documents. 

We propose to revise the language in 

§ 422.111(a)(3) and § 423.128(a)(3) to 

allow the EOC to be sent to members a 

few months after the ANOC. We believe 

this provision will have minimal or no 

financial impact as the proposal would 

merely change the timing of notices that 

MA organizations and Part D sponsors 

already provide. Further, the delay in 

providing the EOC could result in 

savings as MA organizations and Part D 

sponsors have additional time to ensure 

that these documents are accurate, thus 

eliminating the need for updates and 

correction notices. 

13. Effects of the Modification of the 

Agent/Broker Compensation 

Requirements 

The current independent agent 

compensation structure (as originally 

published as CMS–4138–IFC2 in 

November 2008) is comprised of a 6- 

year cycle and is scheduled to end 

December 31, 2013. MA organizations 

and Part D sponsors provide an initial 

compensation payment to independent 

agents for new enrollees or unlike plan 

changes (Year 1), and pay a renewal rate 

(equal to 50 percent of the initial year 

compensation) for Years 2 through 6. 

CMS is proposing to revise this existing 

compensation structure. MA 

Organizations and PDP sponsors would 

have the discretion to decide, on an 

annual basis, whether to pay initial and/ 

or renewal compensation payments to 

their independent agents. For new or 

unlike plan change enrollments, MA 

Organizations and PDP sponsors could 

make an initial payment that is no 

greater than the fair market value (FMV) 

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amount for such services, set annually 

by CMS in guidance interpreting these 

regulations. For renewals in Year 2 and 

subsequent years, the MA organization 

or PDP sponsor could pay up to 35 

percent of the FMV amount for that 

year. We are proposing that recovery of 

compensation payments not happen 

when the disenrollment does not result 

from the agent’s behavior. In addition to 

the agent and broker compensation 

structures, we are amending the training 

and testing requirements and setting 

limits on referral fees for agents and 

brokers. 

We do not believe that any of these 

revisions will add additional burden or 

have financial impact. We are simply 

revising the existing compensation 

structure under which MA 

organizations may pay independent 

agents and believe that the total 

compensation amounts will generally 

remain unaffected. Furthermore, we 

believe these proposed changes would 

actually lessen the burden and impact 

on MA organizations by simplifying the 

compensation structure for independent 

agent brokers. 

14. Effects of Drug Categories or Classes 

of Clinical Concern and Exceptions 

We believe that this proposed 

provision to establish new criteria for 

identifying Part D drug categories or 

classes of clinical concern would 

generate significant Part D savings. This 

provision would require that Part D 

sponsors include all Part D drugs on 

their formularies in categories or classes 

of clinical concern that CMS specifies 

for a typical individual with a disease 

or condition treated by the drugs in the 

category or class meet the following 

proposed criteria: (1) hospitalization, 

persistent or significant disability or 

incapacity, or death likely will result if 

initial administration (including selfadministration) of a drug in the category 

or class does not occur within 7 days of 

the date the prescription for the drug 

was presented to the pharmacy to be 

filled; and (2) more specific CMS 

formulary requirements will not suffice 

to meet the universe of clinical drugand-disease-specific applications due to 

the diversity of disease or condition 

manifestations and associated 

specificity or variability of drug 

therapies necessary to treat such 

manifestations. 

The expected savings to the Part D 

program would result from reducing the 

number of categories or classes of drugs 

for which Part D sponsors currently 

must include all Part D drugs on their 

formularies, as compared to existing 

requirements. Specifically, in applying 

the proposed criteria to all categories 

and classes of Part D drugs, CMS has 

determined that three existing categories 

and classes of Part D drugs would meet 

the new criteria and that no additional 

categories or classes of drugs would 

meet the criteria. Specifically, we 

determined that only the antineoplastic, 

antiretroviral and anticonvulsant 

categories and classes would meet the 

new criteria. This means that Part D 

sponsors would no longer be required to 

include all Part D drugs from within the 

antidepressant and immunosuppressant 

(used for transplants rejection) classes 

on their formularies. Relative to the 

antipsychotic class, however, we are 

deferring any change in formulary 

requirements for the antipsychotic class 

at this time and will continue to require 

that all drugs within the antipsychotic 

class be included on all Part D 

formularies, subject to the exceptions 

that get finalized in § 423.120(b)(2)(vi). 

Based upon this determination, we 

estimated that full implementation 

(including the antipsychotic class) of 

this provision would result in federal 

savings to the Medicare Part D program 

of $720 million for the period CY 2015 

through CY 2019, with most of these 

savings generated from the 

antipsychotic class (see table 14). We 

note this estimate is based upon the 

information that is available. Projected 

savings are based upon full 

implementation of the criteria and do 

not reflect that changes for the 

antipsychotic class of drugs are deferred 

at this time. However, there could be 

additional savings when new drugs 

enter the market and compete with each 

other by providing higher rebates. 

A consensus panel applied our 

proposed criteria to determine the 

categories or classes of clinical concern. 

Our consensus panel determined that of 

the current six categories or classes of 

clinical concern, three met both of the 

proposed criteria, three did not, and no 

new drug categories or classes met both 

criteria. Finally, we estimated the 

impact on drug expenditures for those 

drugs that ultimately met the criteria, as 

well as those drug categories or classes 

that no longer qualify as categories or 

classes of clinical concern. 

To arrive at the cost estimate for the 

implementation of the categories or 

classes of clinical concern, we began by 

putting drug spending into three 

groupings: (1) Drugs that were already 

included in the six categories or classes 

of clinical concern; (2) drugs with a 

greater likelihood of being affected by 

this change because formularies without 

them would be acceptable under our 

formulary review process; (3) drugs with 

a lesser likelihood of being affected by 

this statutory change because 

formularies without them would not be 

acceptable under our formulary review 

process; and (4) drugs in the research 

and development pipeline in the six 

categories or classes of clinical concern 

that would be affected by this statutory 

change. Because we reduced the number 

of categories or classes of clinical 

concern relative to the six for which we 

currently require formulary inclusion of 

all Part D drugs, we expect Part D 

sponsors’ negotiating power to increase. 

As a result, Part D sponsors could incur 

lower drug costs and could lower their 

bids, which could result in lower 

premiums and co-pays. We also believe 

that direct savings would be generated 

by the increasing generic utilization by 

removing brand products from 

formularies. Although, based on other 

categories and classes of drugs that 

exhibit generic saturation, we have 

reason to believe that some plans would 

still cover the brand products. 

Moreover, we believe that the program 

would avoid future costs because some 

drugs in the research and development 

pipeline would not be required on 

formularies as a result of this change. 

To support the panel’s conclusion 

that our formulary checks could 

efficiently require adequate access to 

these categories and classes without 

requiring that every drug in them be 

included on Part D formularies, we 

compared a Part D formulary to other 

formularies. To accomplish this, we 

took an approved CY 2014 formulary 

containing the average number of 

RxNorm Concept Unique Identifiers 

(RxCUIs). This formulary includes the 

following: 23 Generic (ANDA) 

antidepressant drug entities, 7 brand 

(NDA) antidepressant drug entities, 18 

generic antipsychotic drug entities, and 

9 brand antipsychotic drug entities. We 

then reviewed the drugs comprising the 

previously mentioned list against our 

formulary review requirements 

standards for treatment guidelines, 

common Medicare drugs, and the 

discrimination review. We found that 

the formulary could have passed these 

checks with 9 generic antidepressant 

drug entities, and 6 generic 

antipsychotic drug entities. No brands 

were necessary to meet the formulary 

review requirements. Thus, this 

formulary includes an excess of 16 

brand drug entities and 26 generic drug 

entities within these two classes of 

medications. Because all these products 

are currently required on all Part D 

formularies, there is significantly less 

need for manufacturers to restrain list 

prices or offer rebates to sponsors for 

formulary placement. In contrast, under 

our proposal, 100 percent of the brands 

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(16/16) and 63 percent of the generics 

(26/41) would be expected to meet or 

exceed the price concessions applicable 

to the least expensive products in those 

classes to remain competitive. If 

manufacturers increased price 

concessions in response, sponsors might 

elect to keep the products on the 

formulary. Otherwise, we would expect 

sponsors to take those products off 

formulary. Thus, individuals on brand 

versions of these drugs or on the 63 

percent of generic versions would in 

most cases either stay on the drug at that 

more competitive price, or switch to an 

even cheaper alternative that remains on 

formulary. Either way, the beneficiary’s 

drug costs and costs to the program 

would decrease. Moreover, to evaluate 

whether plans would continue to offer 

brand drugs (because new generic drugs 

would be available), and therefore 

whether any rebates would be available, 

we evaluated CY 2014 formularies for 

three classes of drugs that face 

saturation by generics. We found that 

even though the majority of drugs in 

those classes were generic, some plans 

continued to offer brand drugs. We also 

propose to establish exceptions that we 

believe permit Part D sponsors to apply 

meaningful utilization management to 

these drugs without compromising 

access. Although these exceptions are 

generally similar to existing policy, we 

propose to permit prior authorizations 

for drugs in the categories and classes of 

clinical concern to verify medically 

accepted indications or in Part A/B 

versus D situations. These lower costs 

could be reflected in bids submitted to 

CMS by Part D sponsors and could 

result in decreased premiums for 

Medicare beneficiaries. 

Although Part D sponsors would be 

required to include all Part D drugs on 

their formularies in fewer categories or 

classes than are currently required, we 

believe that our formulary review 

processes are sufficient to ensure that 

the implementation of this provision 

would not negatively impact beneficiary 

access to drugs or enrollment in Part D 

plans. Moreover, robust transition, 

exceptions and coverage determination, 

appeals and grievances processes ensure 

beneficiary access in the event that they 

have enrolled, either self-enrolled or 

auto-enrolled, in a plan where their 

drugs are not on formulary. We also do 

not believe that the proposed provisions 

would lead to greater beneficiary 

confusion or any increased difficulty in 

making enrollment decisions. We 

continue to believe that overall 

enrollment would increase given 

demographic trends and the increasing 

cash prices for drugs paid by 

beneficiaries who must pay cash 

because they do not enroll. Accordingly, 

we believe Medicare beneficiaries 

would continue to find Part D to be a 

cost efficient method of obtaining robust 

drug coverage at a range of acceptable 

costs. 

We plan on working closely with Part 

D sponsors as our guidance in this area 

develops to ensure that they continue to 

provide high quality prescription drug 

coverage at the most economical price. 

It is not clear to us whether PBMs 

would experience a decrease in 

administrative costs. On one hand, the 

provisions in this rule may decrease 

formulary maintenance expenses, such 

as managing a small formulary. This 

may result in PBMs decreasing their fees 

to Part D sponsors. On the other hand, 

these provisions may increase exception 

requests, appeals, prior authorizations, 

and outreach to Part D sponsors, thereby 

increasing PBMs’ administrative costs. 

However, because these types of 

administrative costs exist for PBMs 

today, it is unclear how much of an 

increase we would see specifically as a 

result of these provisions. Similar to our 

ongoing communications with our Part 

D sponsors, we intend to work closely 

with the industry to minimize the 

likelihood of any unanticipated 

increases in beneficiary costs. 

15. Effects of Medication Therapy 

Management Program (MTMP) Under 

Part D 

Current regulations require that Part D 

sponsors must have established a 

Medication Therapy Management 

Program that targets beneficiaries who: 

(1) Have multiple chronic diseases with 

three chronic diseases being the 

maximum number a Part D plan sponsor 

may require for targeted enrollment; (2) 

are taking multiple Part D drugs, with 

eight Part D drugs being the maximum 

number of drugs a Part D plan sponsor 

may require for targeted enrollment; and 

(3) are likely to incur costs for covered 

Part D drugs in an amount greater than 

or equal to $3000, as increased by an 

annual percentage. We specified in 

guidance that while Part D sponsors are 

permitted to target beneficiaries with 

select chronic diseases, they must 

include at least five of nine core chronic 

diseases in their criteria. These 

provisions have generated wide 

variability in MTM programs. Moreover, 

despite opt-out enrollment, completion 

rates for comprehensive medication 

reviews (CMR) remain very low. 

We propose to broaden the MTM 

criteria to require that Part D sponsors 

now target beneficiaries who have two 

or more chronic diseases and are taking 

two or more covered Part D drugs. We 

propose to set the annual cost threshold 

at an amount commensurate with the 

annual amount of Part D costs incurred 

by individuals that meet the first two 

criteria regarding multiple chronic 

conditions and use of multiple covered 

Part D drugs. Applying this 

methodology, we would set the cost 

threshold at $620, which is the 

approximate cost of filling two generic 

prescriptions. We propose to revise this 

number periodically to reflect more upto-date information regarding the drug 

spending of beneficiaries that have two 

or more chronic conditions and use two 

covered Part D drugs. We estimate that 

2.5 million beneficiaries are currently 

eligible for MTM services, 13 percent 

opt-out of the MTM program, and 10 

percent of participating beneficiaries 

will receive an annual CMR. We also 

estimate that an average CMR requires 

35 minutes to complete and the average 

hourly compensation (including fringe 

benefits, overhead, general, and 

administrative expenses and fee) of the 

MTM provider is $120 (labor cost per 

CMR is $70), and that it costs $0.91 to 

print and mail a CMR summary in CMS’ 

standardized format. Therefore, the 

estimated total annual cost of providing 

CMRs in all settings is $15,422,925 

($70.91/CMR × 217,500 CMRs). 

Previously, prior to the availability of 

more precise opt-out and CMR rates, we 

estimated that the total burden 

associated with conducting CMRs and 

delivering the CMR written summary in 

CMS’ standardized format was 

1,192,429 hours with a cost of 

$143,363,555, including delivery of 

1,896,500 CMRs in all settings under the 

current eligibility criteria, and 

implementation and mailing costs for 

the CMR summary in standardized 

format (see OMB Control No. 0938– 

1154). We do not currently have data or 

estimates to determine the costs 

associated with quarterly targeted 

medication reviews and follow-up 

interventions, if necessary. 

We estimate that 18 million 

beneficiaries would be eligible for MTM 

services based on the proposed criteria. 

Using the same opt-out, CMR, and 

expense rates as before, the estimated 

total annual cost of providing CMRs in 

all settings is $111,045,060 ($70.91/

CMR × 1,566,000 CMRs). This is below 

previous estimates. 

Additionally, there is currently no 

requirement to ensure that beneficiaries 

in special populations receive focused 

targeting, outreach, or engagement for 

enrollment or participation in MTM. 

Moreover, the opt-out method of 

enrolling targeted beneficiaries into 

MTM at 42 CFR 423.153(d)(1)(v) may 

only partly address the increased 

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barriers to care faced by some 

beneficiaries. Without being 

prescriptive about what strategies must 

be employed, we are proposing that 

sponsors develop an effective strategy to 

ensure access to services for all MTMeligible beneficiaries. We would expect 

to see details concerning sponsors’ 

specialized strategies regarding outreach 

and service provisions in their bids. We 

believe that current plan reporting 

requirements, along with other CMS 

data sources, will be sufficient for us to 

evaluate the impact of such strategies. 

We cannot definitively score this 

proposal because the portion of the 

administrative costs attributable to 

MTM is not a specific line item that can 

be easily extracted from the bid. 

Although the increase in the number of 

CMRs is estimated to cost $111 million, 

mounting evidence shows that MTM 

services may generate overall medical 

savings. 

Supporting this conclusion, a recent 

study conducted in conjunction with 

the Center for Medicare and Medicaid 

Innovation (‘‘CMMI MTM study’’) 

(available at http://innovation.cms.gov/

Files/reports/MTM-Interim-Report-01- 

2013.pdf) found that MTM programs 

effectively targeted high risk individuals 

who had problems with their drugtherapy regimens and had high rates of 

hospital and emergency room visits 

before enrollment as well as those that 

experienced a recent visit to the hospital 

or emergency room. The study also 

found that individuals enrolled in MTM 

programs—particularly those who 

received annual CMRs—experienced 

significant improvements in drug 

therapy outcomes when compared to 

beneficiaries who did not receive any 

MTM services, thus supporting the 

hypothesis that the annual CMR may be 

one of the more crucial elements of 

MTM. Significant cost savings 

associated with all-cause 

hospitalizations at the overall PDP and 

MA–PD levels were found, which may 

be due to MTM’s comprehensive rather 

than disease-specific approach. This 

research supports statements in a recent 

Congressional Budget Office report that 

programs and services that manage the 

benefit well or improve prescription 

drug use might result in medical savings 

(Congressional Budget Office, 

‘‘Offsetting Effects of Prescription Drug 

Use on Medicare’s Spending for Medical 

Services’’, November 2012, available at 

http://www.cbo.gov/sites/default/files/

cbofiles/attachments/43741- 

MedicalOffsets-11-29-12.pdf). 

We anticipate that many more 

beneficiaries will have access to MTM 

services under the proposed revisions to 

the eligibility criteria, and believe that 

these changes will simplify the MTM 

criteria and minimize beneficiary 

confusion when choosing or 

transitioning between plans. Moreover, 

we believe these changes will reduce 

disparity and allow more beneficiaries 

with drug therapy problems to receive 

MTM services. Similarly, we expect the 

proposed requirement that sponsors 

develop an effective strategy to ensure 

access to services for all MTM-eligible 

beneficiaries will help to ensure that 

beneficiaries in special populations 

receive focused targeting, outreach, or 

engagement for enrollment or 

participation in MTM. 

16. Effects of Business Continuity for 

MA Organizations and Part D Sponsors 

Proposed § 422.504(o) and 

§ 423.505(p) would, respectively, 

require MA organizations and Part D 

sponsors to develop and maintain 

business continuity plans which assess 

risks posed by disasters and contain 

strategies to mitigate those risks. We 

also would require that essential 

functions—including at a minimum 

benefit authorization, claim 

adjudication, call center and supporting 

operations—be restored within 24 hours 

after such functions fail or are 

disrupted. 

Business continuity plans are well 

established in the business community, 

and we believe that most MA 

organizations and Part D sponsors 

already have business continuity plans 

in place which cover the basic proposed 

subject areas. We estimate that 5 percent 

of the contracting entities (532 MA 

organizations and Part D sponsors in 

2013), or about 27 entities, will be 

affected by this requirement, resulting 

in an initial burden of 2,080 hours. 

We estimate the first year burden of 

an emergency management director to 

help design the plan would be a burden 

of 56,160 hours (27 × 2,080). The 

estimated cost associated with such 

expert is the estimated number of hours 

multiplied by the estimated hourly rate 

of $36.50 (hourly rate for an emergency 

management director, General Medical 

and Surgical Hospitals, according to 

May 2012 wage data from Bureau of 

Labor Statistics Occupational 

Employment Statistics) plus 48 percent 

for fringe benefits and overhead, which 

equals a first year cost of $3,033,763. 

In subsequent years, the burden 

associated with this proposed 

requirement would be the costs of an 

emergency management director 

working on a part time basis for an 

ongoing burden of 28,080 (27 × 1,040). 

The estimated cost associated with such 

expert is the estimated number of hours 

multiplied by the estimated hourly rate 

of $36.50 plus 48 percent for fringe 

benefits and overhead, which equals an 

annual cost of $1,516,882 for 

subsequent years. 

We do expect that the burden would, 

should a disaster or other disruption of 

business occur, ultimately result in 

savings from planning that would avoid 

even more losses, but such offsets 

cannot be calculated here. 

Requiring business continuity plans 

would benefit Medicare beneficiaries in 

these Part C and Part D plans because 

planning helps to negate problems: The 

more prepared that MA organizations 

and Part D sponsors are for disasters and 

other disruptions to business, the more 

likely it would be that these 

organizations would address timely any 

problems encountered and ultimately 

return to regular operations and the less 

likely it would be that individuals 

would lose access to benefits as a result 

of disruptions. Requiring the restoration 

of essential functions within 24 hours 

after failure would help by providing a 

clear deadline by which priority 

operations must be available to 

beneficiaries. Our proposal to deem as 

essential benefit authorization certain 

minimum functions, including claim 

adjudications, and all supporting 

operations would benefit individuals by 

providing the means to ensure 

beneficiaries access to their Medicare 

benefits—and therefore health care and 

drugs. Designating operation of the call 

center as essential would provide 

beneficiaries real time customer support 

which could be critical to ensuring 

access to benefits in times of disaster or 

other disruption. For instance, if 

beneficiaries could not get to their 

regular places of business or found their 

claims were rejected at point of sale, 

customer service representatives could 

then send them to providers and 

pharmacies that could provide them 

with benefits or resolve questions in real 

time such that they would be more 

likely to leave pharmacies with any 

appropriate drugs in hand. 

17. Effects of Requirement for 

Applicants or Their Contracted First 

Tier, Downstream, or Related Entities to 

Have Experience in the Part D Program 

Providing Key Part D Functions 

Based on CMS’ authority at section 

1860D–12(b)(3)(D) of the Act to adopt 

additional contract terms, not 

inconsistent with the Part C and D 

statutes, that are necessary and 

appropriate to administer the Part D 

program, we are proposing at 

§ 423.504(b)(8)(i) through (iii) that Part 

D organizations seeking a new Medicare 

contract must have arrangements in 

place such that either the applicant, or 

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a contracted entity that will be 

performing certain key Part D functions, 

has at least one full benefit year of 

experience providing key Part D 

functions. This proposal ensures that 

applicants take advantage of the 

abundant Part D industry expertise and 

experience that exists today in the 

development of their Part D program 

operations, rather than relying on 

technical assistance from CMS and 

having their inexperience place 

beneficiaries’ access to prescription 

drugs at risk. We believe this provision 

will have a very minor savings impact 

on the federal budget, based on savings 

of time and effort (staff time and 

contracted auditor time and resources) 

that the government would spend on 

overseeing the disproportionate level of 

problems experienced by organizations 

operating Part D plans without prior 

Part D experience. For each 

inexperienced organization allowed into 

the program in the absence of this 

proposal, we would anticipate a savings 

of 1,000 staff hours at an average rate of 

$50 per hour, for a total of $50,000 in 

employee time, plus an additional 

savings of $200,000 in contractor dollars 

to conduct an emergency audit, for a 

total of $250,000. In the absence of this 

proposal, we would anticipate no more 

than two such inexperienced entities 

beginning Part D operations per year, for 

a total annual savings of $500,000. 

The burden associated with this 

proposal on industry would be minimal, 

with a total estimated number of labor 

hours of 3.25 to submit information 

during the Part D application process. 

Using the same average hourly salary as 

previously mentioned, the total cost to 

Part D applicants would be $162.50. We 

do not believe there are any nonadministrative costs to industry 

associated with this proposal, as Part D 

applicants are already required to have 

arrangements in place to perform the 

key Part D functions discussed in our 

proposal. 

The main anticipated effect from this 

proposal is ensuring that only entities 

with some experience with Part D in 

critically important functional areas are 

permitted to offer new Part D contracts, 

thus strengthening the Part D program 

by enhancing the qualification criteria. 

We considered the alternate proposal of 

requiring the prior Part D experience to 

be tied to specific quality outcomes. We 

rejected the alternative because we 

believed it added unnecessary 

complexity and burden to the process, 

and we believe a simple experience 

requirement is currently sufficient. 

18. Effects of Requirement for 

Applicants for Stand Alone Part D Plan 

Sponsor Contracts To Be Actively 

Engaged in the Business of the 

Administration of Health Insurance 

Benefits 

Based on CMS’ authority at section 

1860D–12(b)(3)(D) of the Act to adopt 

additional contract terms, not 

inconsistent with the Part C and D 

statutes, that are necessary and 

appropriate to administer the Part D 

program, we proposed at 

§ 423.504(b)(9)(i) through (ii) that 

organizations seeking to offer a standalone prescription drug plans (PDP) for 

the first time must have either: (i) 

Actively offered health insurance or 

health benefits coverage for 2 

continuous years immediately prior to 

submitting an application, or (ii) 

actively managed prescription drug 

benefits for a company offering health 

insurance or health benefits coverage for 

5 continuous years immediately prior to 

submitting an application. This 

proposal would ensure that applicants 

have substantial experience in 

administering health insurance benefits 

prior to becoming a Part D sponsor. We 

believe this provision will have a very 

minor savings impact on the federal 

budget, based on savings of time and 

effort (staff time and contracted auditor 

time and resources) that the government 

would spend on overseeing the 

disproportionate level of problems 

experienced by organizations operating 

stand-alone PDPs without prior health 

insurance administration experience. 

For each inexperienced organization not 

allowed into the program in the absence 

of this proposal, we would anticipate a 

savings of 1,000 staff hours at an average 

rate of $50 per hour, for a total of 

$50,000 in employee time, plus an 

additional savings of $200,000 in 

contractor dollars to conduct an 

emergency audit, for a total of $250,000. 

In the absence of this proposal, we 

would anticipate no more than two such 

inexperienced entities beginning Part D 

operations per year, for a total annual 

savings of $500,000. 

The burden associated with this 

proposal on industry would be minimal, 

with a total estimated number of labor 

hours of 3.25 to submit information 

during the Part D application process. 

Using the same average hourly salary as 

previously mentioned, the total cost to 

Part D applicants would be $162.50. We 

do not believe there are any nonadministrative costs to industry 

associated with this proposal, as Part D 

applicants are already required to be 

licensed in at least one state prior to 

offering Part D benefits. 

The main anticipated effect from this 

proposal is ensuring that only entities 

with some experience administering 

health insurance benefits will be 

permitted to offer new stand-alone 

PDPs, thus strengthening the Part D 

program by enhancing the qualification 

criteria. CMS considered the alternate 

proposal of requiring the prior health 

insurance benefit administration 

experience to be tied to specific quality 

outcomes. We rejected this alternative 

because we believed it added 

unnecessary complexity and burden to 

the process, and we believe a simple 

experience requirement is currently 

sufficient. 

19. Effects of Limit Parent Organizations 

to One Prescription Drug Plan (PDP) 

Sponsor Contract per PDP Region 

This provision has no quantifiable 

impact because the savings that might 

be achieved likely will be offset by the 

burden necessary with the consolidation 

activities and legal work necessary to 

implement these changes. 

20. Effects of Limit Stand-Alone 

Prescription Drug Plan Sponsors To 

Offering No More Than Two Plans per 

PDP Region 

This provision has no quantifiable 

impact because the savings that might 

be achieved likely will be offset by the 

burden necessary with the consolidation 

activities and legal work necessary to 

implement these changes. 

21. Effects of Efficient Dispensing and in 

Long Term Care Facilities and Other 

Changes 

We are proposing the following 

specific changes to the LTC short-cycle 

dispensing requirements at § 423.154: 

(1) Add a prohibition on payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques; (2) eliminate 

language that has been misinterpreted as 

requiring the proration of dispensing 

fees; (3) incorporate an additional 

waiver for LTC pharmacies using 

restock and reuse dispensing 

methodologies under certain conditions; 

and (4) make a technical correction to 

eliminate the requirement that Part D 

sponsors report on the nature and 

quantity of unused brand and generic 

drugs. Medicare Part D plan sponsors 

are already required to comply with the 

LTC short-cycle dispensing 

requirements. 

The prohibition on payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques is a clarification 

of the Congress’ intent in enacting 

section 1860D–4(c)(3) of the Act, and we 

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5 Depart of Labor quarterly census of Employment 

and Wages indicates that the average 2011 wage for 

private health insurance plans was $74,431. To 

project a 2015 wage this figure was increased 3 

percent per year to $83,772 in 2015. This lead to 

an hourly wage projection of $40.27 or with 20 

percent benefits an hourly rate of $48.33, which 

was in turn rounded upward to derive an hourly 

rate of $50. 

do not believe it will impose any new 

costs on stakeholders. Indeed, this 

proposal should reduce Part D sponsors’ 

costs by preventing Part D sponsors 

from penalizing the most efficient LTC 

dispensing techniques. The resulting 

reduction in brand drug costs should 

offset or surpass increases in dispensing 

fees. 

22. Effects of Applicable Cost-Sharing 

for Transition Supplies: Transition 

Process Under Part D 

We propose to add at 

§ 423.120(b)(3)(vi) a paragraph clarifying 

that a Part D sponsor must charge cost 

sharing as follows: (a) For low-income 

subsidy (LIS) enrollees, a sponsor must 

not charge higher cost sharing for 

transition supplies than the statutory 

maximum copayment amounts; (b) for 

non-LIS enrollees, a sponsor must 

charge: (1) The same cost sharing for 

non-formulary Part D drugs provided 

during the transition that would apply 

for non-formulary drugs approved under 

a coverage exception; and (2) the same 

cost sharing for formulary drugs subject 

to utilization management edits 

provided (for example, prior 

authorization and step therapy) during 

the transition that would apply once the 

utilization management criteria are met. 

Because increases or decreases in cost 

sharing during transition supplies under 

the various circumstances are likely to 

offset one another, we anticipate that 

there would be no cost impact on plans. 

23. Effects of Medicare Coverage Gap 

Discount Program and Employer Group 

Waiver Plans 

The regulation amends § 423.2325 by 

adding a new paragraph (h), ‘‘Medicare 

Coverage Gap Discount Program and 

Employer Group Waiver Plans’’. This 

new provision requires Part D sponsors 

to fully disclose to each employer group 

the projected and actual manufacturer 

discount payments under the Discount 

Program attributable to the employer 

group’s enrollees. 

We believe that the provision will 

have negligible regulatory impact 

because, in the interest of Full 

Disclosure requirements, the great 

majority of sponsors with employer 

group clients have likely already 

integrated Discount Program data into 

their existing client reporting. This 

additional reporting has enabled 

employer groups to begin to incorporate 

the manufacturer payments into their 

benefit packages. Also, for those few 

Part D sponsors that have not already 

incorporated the discounts into client 

reports, the provision creates a minimal 

financial burden. The requirement does 

not entail development or gathering of 

any new data as currently, Part D 

sponsors report beneficiary-level 

discounts to CMS on Prescription Drug 

Event (PDE) data, and report aggregated 

enrollee utilization to employer group 

clients. The new provision requires only 

that sponsors who have not yet 

modified their existing reports provide 

the aggregated discount amounts to each 

employer group, and use the existing 

processes for report dissemination. 

In estimating the associated regulatory 

costs we assumed that 80 percent of the 

sponsors were already supplying 

employer group clients with Discount 

Program information and that 20 

percent of the plans would need to 

modify the reports as a result of this 

provision. We used 2013 data to 

determine the number of sponsors that 

would be affected by this new 

requirement. In 2013, 131 Part D 

sponsors operated one or more EGWP 

plans. If 20 percent of these Part D 

sponsors were required to change their 

client reporting, approximately 26 

sponsors would be affected. Our 

research indicates that it would take 

each sponsor employing a mid-level 

analyst about 2-business days to 

aggregate the manufacturer discounts for 

each client and modify the existing 

reports to include the discount 

payments. Assuming an average hourly 

wage and benefits of $50,5 the cost of 

these 16 hours would be $50 × 16 = 

$800 for each Part D sponsor or a total 

of $800 × 26 = $20,800 for all 26 

sponsors combined. In subsequent years 

we do not believe that there will be any 

incremental costs associated with the 

regulation as sponsors will update the 

discount data per their existing 

processes. 

There is no quantifiable monetary 

value to CMS. Rather, requiring Part D 

sponsors to report amounts they receive 

on behalf of employer group enrollees 

will enable the employer group to use 

the payments in a way that best serves 

retirees. 

24. Effects of Interpreting the NonInterference Provision 

We are proposing to formally interpret 

section 1860D–11(i) of the Act, referred 

to as the non-interference provision. 

This provision prohibits CMS from 

interfering with the negotiations 

between drug manufacturers and 

pharmacies and Part D sponsors, and 

requiring a particular formulary or 

instituting a price structure for the 

reimbursement of covered part D drugs. 

We have not previously interpreted the 

statutory provision, which has resulted 

in different stakeholders having 

different views about its scope. 

Consequently, we believe that a clear 

interpretation of the statutory provision 

will remove ambiguity. We do not 

believe there is any regulatory impact 

because we are codifying an existing 

requirement that currently prohibits 

CMS from interfering in certain 

activities between Part D sponsors, 

pharmacies and manufacturers without 

adding any new requirements. 

25. Effects of Pharmacy Price 

Concessions in Negotiated Prices 

We propose to revise the definition of 

negotiated prices at § 423.100 to specify 

that all pharmacy price concessions 

must be included in the negotiated 

price. This would preclude the 

differential reporting that is taking place 

today in the realm of reporting drug 

costs and price concessions from 

network pharmacies. This proposal 

would change current policy that 

permits sponsors to elect to take some 

price concessions from pharmacies in 

forms other than the negotiated price 

and report them outside the PDE. This 

practice currently allows price 

concessions to be applied 

disproportionately to costs that plans 

are liable for, and thus may shift more 

low-income cost-sharing subsidy and 

reinsurance costs to the government, as 

well as to manufacturers in the 

calculation of coverage gap discount 

payments. A sponsor that engages in 

this practice can reduce its bid and 

achieve a competitive advantage relative 

to a sponsor that applies all price 

concessions to the negotiated price—a 

competitive advantage stemming not 

from greater efficiency, but from a 

technical difference in how costs are 

reported to CMS. Meanwhile, the higher 

the negotiated price, the higher 

beneficiary coinsurance will be, the 

faster the beneficiary is moved through 

the benefit, and the higher government 

subsidies for low-income cost sharing 

(LICS) and reinsurance subsidies will 

be. Our proposal would impose 

consistent treatment of drug price 

reporting. 

Our proposal to require all price 

concessions to be reflected in the 

negotiated price received by the 

pharmacy would not necessarily change 

the level of price concessions received 

from network pharmacies, but would 

impose a single consistent price 

concession reporting process on all Part 

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D sponsors. Therefore, it is not clear that 

any contractual arrangements between a 

subset of sponsors and network 

pharmacies would require renegotiation, 

since only the form of the price 

concession, rather than its level, would 

be affected by this proposal. 

In addition, when price concessions 

from pharmacies are in forms other than 

the negotiated price, the degree of price 

concession that the pharmacy has 

agreed is no longer reflected in the 

negotiated prices available at point of 

sale or reflected on the Medicare 

Prescription Drug Plan Finder (Plan 

Finder) tool. Thus, the true price of 

drugs at individual pharmacies is no 

longer transparent to the market. 

Consequently, consumers cannot 

efficiently minimize both their costs 

(cost sharing) and costs to the taxpayers 

by seeking and finding the lowest-cost 

drug/pharmacy combination. This 

proposal would ensure that the actual 

level of price competition is transparent 

to the Part D market. 

Under current policy, a sponsor may 

be able to offer a lower bid than its 

competitors and may achieve a 

competitive advantage stemming not 

from greater efficiency, but from a 

technical difference in how costs are 

reported to CMS. When this happens, 

such differential reporting may result in 

bids that are no longer comparable, and 

in premiums that are no longer valid 

indicators of relative plan efficiency. 

The changes we are proposing would 

lead to Part D bids being more 

accurately comparable and premiums 

more accurately reflecting relative plan 

efficiencies. The lowest premiums 

would more accurately direct 

beneficiaries to the plans that have the 

lowest costs to the program overall. 

We do not collect sufficient detail in 

price concession data reported to CMS 

to quantify the impact of this proposed 

change to standardize price concession 

reporting. We believe that only certain 

sponsors are engaging in the differential 

reporting practices today, and these 

sponsors face close competition from 

larger competitors that do not appear to 

be employing the same strategies. 

Consequently, if the sponsors 

employing these tactics increase their 

bids to maintain margin, they could 

likely risk losing market share. 

Therefore, we would expect these 

sponsors to carefully consider the risk of 

losing market share before raising their 

bids in response to our regulatory 

proposals, particularly those that are 

committed to the LIS market. 

We expect that the effect of our 

proposal to require consistent and 

transparent pricing would not only 

provide higher-quality information to 

the Part D market, but also promote 

increased price competition among 

network pharmacies. This expectation is 

consistent with economic theory that 

holds that increased price transparency 

will increase price competition. We 

believe pharmacies will support 

including the full price concession in 

the point-of-sale price, and fully 

transparent price competition will align 

beneficiary and taxpayer interests in 

minimizing costs. Our proposal would 

not change the level of price 

concessions and therefore costs under 

the program as a whole, but would 

apply consistency to how these are 

reported to CMS and treated in bidding 

and payment processes. Therefore, we 

anticipate that there would be no cost 

impact on plans. 

26. Effects of Payments to PDP Plan 

Sponsors for Qualified Prescription 

Drug Coverage and Payments to 

Sponsors of Retiree Prescription Drug 

Plans 

This section is not anticipated to have 

any significant impact since it is only a 

conforming change, necessary to align 

with the proposed definition change in 

another section of the regulation. 

27. Effects of Preferred Cost Sharing 

We propose to require that sponsors 

may offer reduced copayments or 

coinsurance for covered Part D drugs 

obtained through a subset of network 

pharmacies, as long as such preferred 

cost sharing is in return for consistently 

lower negotiated prices relative to the 

same drugs when obtained in the rest of 

the pharmacy network. Therefore, we 

intend to clarify that preferred cost 

sharing should consistently be aligned 

with and accurately signal lower costs. 

We propose that by ‘‘consistently 

lower’’ we mean that sponsors must 

offer better prices on all drugs in return 

for the lower cost sharing. In practice 

we believe this would mean that 

whatever pricing standard is used to 

reimburse drugs purchased from 

network pharmacies in general, a lower 

pricing standard must be applied to 

drugs offered at the preferred level of 

cost sharing. Our analysis shows that 

most sponsors offering preferred cost 

sharing are currently achieving these 

levels of savings, and therefore our 

proposed policy would only require a 

change in price concession levels or 

reporting for a limited number of 

sponsors. Our proposal would apply a 

consistent expectation across all 

sponsors to compete on the same basis 

on negotiated prices, including in 

related-party pharmacy operations. 

Instead of consistently passing 

through lower costs available through 

economies of scale or steeper discounts, 

some (but not the majority of) sponsors 

are actually charging the program higher 

negotiated prices in some cases. In other 

cases, the negotiated prices offered for 

preferred cost sharing are only slightly 

lower than the prices in the rest of the 

network. When either higher prices or 

very nearly the same prices are 

combined with significantly lower cost 

sharing, such pricing increases the 

proportion of costs borne by the plan 

and the government. Moreover, the 

lower cost sharing provides a defective 

price signal that distorts market 

behavior. In these cases, the lower cost 

sharing does not incent enrollees to 

select pharmacies with lower prices and 

thus make more efficient choices in the 

market, but the exact opposite. This 

would be expected to result in higher 

costs to the Part D program overall. 

Therefore, we believe our proposed 

policy change to require consistently 

lower negotiated prices in return for 

preferred cost sharing may not only 

decrease overall price levels in certain 

sponsor’s networks, but would also 

encourage beneficiaries to make drug 

purchase decisions that are better 

aligned with lower costs to the program 

overall. However, we do not have 

enough information on how negotiated 

prices might change—particularly in 

combination with the requirements for 

all price concessions from pharmacies 

to be reflected in negotiated prices, and 

for any-willing-pharmacy terms and 

conditions to include minimum price 

concession terms for preferred cost 

sharing—to predict the overall change 

in Part D costs. 

28. Effects of Maximum Allowable Cost 

Pricing Standard 

We are proposing a change to the 

regulations at § 423.505(b)(21) and 

§ 423.505(i)(3) governing the disclosure 

and updating of prescription drug 

pricing standards used by Part D 

sponsors to reimburse network 

pharmacies to make clear that drug 

pricing based on maximum allowable 

cost (MAC) is subject to these 

regulations. In the final rule at 76 FR 

54600 (September 1, 2011), we did not 

estimate a regulatory impact for Part D 

sponsors to comply with the 

prescription drug pricing standard 

requirements, and we do not believe 

these proposed changes would result in 

any regulatory impact. Read together, 

the new provisions in § 423.501, 

§ 423.505(b)(21), and § 423.505(i)(3)(viii) 

require sponsors, when applicable, to 

include provisions in network 

pharmacy contracts, to address the 

disclosure of MAC prices themselves to 

be updated to the applicable pharmacies 

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in advance of their use for 

reimbursement of claims, because the 

source of the MAC prices is not publicly 

available. Addressing prices that will be 

paid to a subcontractor is an activity 

undertaken in the normal course of 

business. Also, whether to use MAC 

prices is voluntary for Part D sponsors. 

Finally, sponsors must have procedures, 

systems, and technology currently in 

place to use these prices for 

reimbursement of pharmacy claims in 

the normal course of business. These 

systems would have to be adapted to 

also disclose the prices to pharmacies in 

advance of their use, which we believe 

would involve negligible effort for Part 

D sponsors’ existing employees and/or 

subcontractors. Therefore, we estimate 

the impact of these provisions to be 

negligible. 

29. Effects of Any Willing Pharmacy 

Standard Terms & Conditions 

Proposed changes to § 423.120(a)(8) 

would require Part D sponsors to offer 

the contract terms and conditions (T&C) 

for every level of cost sharing offered 

under a Part D plan (preferred, standard 

retail, mail order, etc.) to any willing 

pharmacy. We expect the burden for 

Part D sponsors to amend contracts, 

where necessary, to offer every level of 

cost sharing would be negligible. 

Sponsors already must meet any willing 

pharmacy requirements for retail and 

mail order cost sharing. In 2013, nearly 

half of non-employer group Part D 

sponsors were designing and marketing 

plans with T&C for preferred cost 

sharing levels. For these sponsors, the 

only change associated with this 

proposal will be to ensure that now T&C 

for all levels of cost sharing, including 

preferred, are being offered (if they are 

not already) to all interested 

pharmacies. For the other half of Part D 

sponsors not currently offering preferred 

cost sharing options, this proposal does 

not require them to start. 

Part D sponsors already negotiate 

contracts regularly with pharmacies in 

order to meet network access 

requirements. We estimate that for 

sponsors who currently offer benefit 

packages with a preferred cost sharing 

level (approximately 500 plans), an 

estimated new burden of 5,000 legal 

hours (500 plans × 10 hours) for revising 

contract language and 2,000 hours (500 

plans × 4 hours) for additional contract 

support staff time negotiating with and 

assisting pharmacies contracting at the 

preferred cost sharing level for the first 

time. The estimated cost associated with 

this change is the estimated number of 

hours multiplied by available average 

hourly rates ($62.93 per hour for a 

lawyer, $32.22 per hour for a financial 

specialist [May 2012 wage data from 

Bureau of Labor Statistics Occupational 

Employment Statistics]), plus 48 percent 

for fringe benefits and overhead, which 

equals a first year cost of $561,053.20. 

Once a sponsor has revised contracts to 

meet the proposed requirement, no 

extraordinary additional expenses are 

anticipated for subsequent years. For a 

plan not currently offering preferred 

cost sharing levels, it is expected that 

preferred cost sharing terms and 

conditions would be offered to any 

willing pharmacy if they ever decide to 

offer them. 

Any new burden on pharmacies is 

similarly expected to be negligible, as 

they are already reviewing and 

implementing terms from contracts, 

often annually. Pharmacies are not 

being directed to choose one set of T&C 

over another, but rather are gaining the 

option to review and implement terms 

for preferred cost sharing, if they so 

choose to accept the applicable 

negotiated pricing terms. 

Beneficiaries are expected to benefit 

from an increased number of 

pharmacies offering preferred cost 

sharing levels. 

30. Effects of Enrollment Requirements 

for the Prescribers of Part D Covered 

Our proposal is that prescribers must 

be enrolled in Medicare in order for 

their prescriptions to be coverable under 

the Part D program. This will entail Part 

D sponsors or their designated PBMs 

checking the prescriber’s individual NPI 

to determine whether the prescriber’s is 

validly enrolled in Medicare before 

paying a claim from a network 

pharmacy or request for reimbursement 

from a beneficiary. 

When we promulgated the NPI PDE 

requirement in a final regulation 

published on April 12, 2012 (77 FR 

22072), we estimated the impact for 

PBMs and plan organizations to contract 

for or build prescriber ID validation 

services. Thus, while this proposal 

entails a new requirement for Part D 

sponsors, we do not believe it would 

have any new or additional impact 

because Part D sponsors must already 

have prescriber validation capabilities 

to meet the NPI PDE requirement. 

Additionally, under our proposal, we 

do not estimate any savings. We 

presume that if a beneficiary’s 

prescriber is not enrolled or does not 

enroll in Medicare, the beneficiary will 

find a new prescriber who is enrolled, 

rather than go without needed 

medications. Therefore, we do not 

estimate any savings from this proposal. 

31. Effects of Improper Prescribing 

Practices and Patterns 

Our proposed revisions in 

§ 424.530(a)(11) and § 424.535(a)(13) 

would likely result in additional 

application denials and revocations. 

The DEA Web site found at http://

www.deadiversion.usdoj.gov/crim_

admin_actions/index.html contains a 

list of physicians, eligible professionals, 

and pharmacies that have had their DEA 

Certificate of Registration suspended or 

revoked since 2000. Based on our 

review of this data, we believe that 

approximately 200 Medicare-enrolled 

physicians and eligible professionals 

would be affected by proposed 

§ 424.535(a)(13). However, we do not 

have data available to assist us in 

calculating the potential costs to 

physicians and eligible professionals in 

lost potential billings or the potential 

costs or savings to the government 

arising from this provision; nor are we 

able to estimate the number of denials 

per year that would result from 

proposed § 424.530(a)(11). 

Our proposed § 424.535(a)(14) would 

result in an increase in the total number 

of revocations under § 424.535(a). We 

are unable, though, to project the 

number of providers and suppliers that 

would be revoked under 

§ 424.535(a)(14) because we do not have 

data available that can be used to make 

such an estimate. Thus, we cannot 

project: (1) The potential costs to 

providers and suppliers in lost billings, 

or (2) the potential costs or savings to 

the government arising from our 

proposed provision. 

32. Effects of the Transfer of TrOOP 

Between Part D Sponsors Due to 

Enrollment Changes During the 

Coverage Year 

We do not expect that codifying the 

requirement for Part D sponsors to 

report TrOOP-related data to a 

subsequent plan in which a beneficiary 

enrolls during the coverage year, and for 

the new plan to accept that data and use 

it to position the beneficiary in their 

benefit would generate savings or 

increase costs. 

We expect the requirement to report 

TrOOP-related data and to accept and 

use the data to position a beneficiary in 

a new plan benefit when the member 

changes plans during the coverage year 

would ensure the Part D benefit is 

correctly administered by the new plan 

and prevent a beneficiary who has 

already moved through the initial 

phase(s) of the Part D benefit from 

starting the benefit anew as a result of 

the enrollment change. 

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33. Effects of Broadening the Release of 

Part D Data 

We are proposing to revise our 

regulations governing the release of Part 

D data to expand the release of 

unencrypted prescriber, plan and 

pharmacy identifiers contained in 

prescription drug event (PDE) records to 

external researchers, as well as to make 

other changes to our policies regarding 

release of PDE data, as currently 

codified at § 423.505(f)(3) and (m). This 

proposal does not impose any new costs 

on any stakeholders. Medicare Part D 

plan sponsors are already required to, 

and do, submit the information that may 

be released in accordance with this 

proposal. Therefore, we are not 

including any assessment of this 

proposal for the regulatory impact 

statement. 

34. Effects of Establish Authority to 

Directly Request Information From First 

Tier, Downstream, and Related Entities 

Pursuant to sections 1857(d)(2) and 

1860D 12(b)(3)(c) of the Act, we are now 

proposing to specify at § 422.504(i)(2)(ii) 

and § 423.505(i)(2)(ii) that HHS, the 

Comptroller General, or their designees 

have the right to audit, evaluate, collect, 

and inspect any records directly from 

any first tier, downstream, or related 

entity. This proposed regulatory change 

would not grant CMS (or the MEDIC, the 

contractor that conducts fraud 

investigations on our behalf) any 

oversight authority beyond what we 

already possess. 

In enabling CMS or its designee(s) to 

directly request information from a first 

tier, downstream, or related entity, we 

would provide a more efficient avenue 

to obtain necessary information. This 

proposal would change the current 

policy, which requires going through 

the plan sponsor in order to collect 

information. Our proposal would save 

money and time for CMS as well as the 

plan sponsor. 

We anticipate that adoption of this 

proposal would result in cost savings for 

plan sponsors. Under the current 

regulatory structure, assuming that the 

MEDIC (the CMS contractor that 

typically would put forth such requests) 

puts forth 1000 requests per year to Part 

C and D sponsors, each request requires 

the plan sponsor to spend 5 hours 

developing and making the request for 

information from its first tier, 

downstream, or related entity, and 

communicating the results of that 

request back to CMS. At a rate of $55 

per hour, plan sponsors may save a total 

of $275,000 in employee costs in the 

aggregate. Additionally, we believe this 

provision will have a very minor 

savings impact on the federal budget. 

This calculation is based on the savings 

in time and effort the MEDIC will 

experience (2 hours per information 

request) resulting from the ability to 

request information directly from first 

tier, downstream, and related entities. 

The 2 hours reflects the time the MEDIC 

currently spends resolving ambiguities 

in the request or in the information 

provided in response that are created by 

the presence of an intermediary (that is, 

the plan sponsor) between the requestor 

(MEDIC) and the custodian of the 

information (that is; first tier, 

downstream, or related entity). 

In addition to cost savings, this 

proposed regulatory change will reduce 

the administrative burden on plan 

sponsors. The plan sponsor will no 

longer have to act as the gatekeeper 

between the MEDIC and its first tier, 

downstream, or related entity. 

We do not anticipate any additional 

burden relating to the proposed 

requirement that we alert the plan 

sponsor that we are contacting its first 

tier, downstream or related entity since 

CMS will be merely copying the plan 

sponsor on the request. 

35. Effects of Eligibility of Enrollment 

for Incarcerated Individuals 

We are proposing to amend 

§ 417.460(b)(2)(i), § 417.460(f)(1)(i), 

§ 422.2, § 422.74(d)(4)(i)(A), 

§ 422.74(d)(4)(v), § 423.4, and 

§ 423.44(d)(5) to clarify the eligibility 

requirement for residing in the plan’s 

service area related to incarceration for 

the purposes of enrolling into and 

remaining enrolled in MA, Part D, and 

Medicare cost plans. We expect the 

impact of this change to be primarily 

that of savings to the MA and Part D 

programs. In CY 2012, there were close 

to 50 million Medicare beneficiaries. 

Approximately 34.4 million of those 

beneficiaries were enrolled in MA 

plans, PDPs, or cost plans which 

accounts for 68.8 percent of the total 

Medicare population. In the same year, 

an average of 21,329 Medicare 

beneficiaries enrolled in MA or Part D 

plans were identified by SSA as being 

incarcerated. 

We issued guidance to MA plans and 

PDPs to investigate each individual’s 

incarcerated status and disenroll the 

individual for no longer residing in the 

plan’s service area if the plan confirmed 

incarcerated status. If the MA plan or 

PDP could not confirm the incarcerated 

status, those plans were to continue to 

investigate each instance of 

incarceration for up to 6/12 months and 

disenroll the individuals at the end of 

that time following § 422.74(b)(4)(ii)/

§ 423.44(b)(5)(ii) if they couldn’t verify 

the incarcerated status sooner. As a 

result, the plan received capitated 

payments when the individual was 

ineligible to receive payment of 

Medicare benefits. Section 1876 Cost 

contracts had no such instructions to 

disenroll individuals who are 

incarcerated. By directing MA plans, 

PDPs, and cost plans to disenroll 

incarcerated individuals at the time of 

notification from CMS, we intend to 

prevent improper payment for these 

individuals to MA plans, PDPs, and cost 

plans for periods when they were 

ineligible to receive such services. 

Based on the data for capitation 

payments for MA and PDPs, as well as 

the prepayments provided to cost plans, 

we estimate that the disenrollment of 

incarcerated individuals would result in 

a decrease in payments made by CMS 

and would result in a cost savings of 

$70 million in 2015. 

We estimate, based on the numbers 

mentioned previously, that this change 

could save the MA program 

approximately $27 million in 2015, 

increasing to $62 million in 2019, and 

could save the Part D program (includes 

the Part D portion of MA–PD plans) 

approximately $46 million in 2015, 

increasing to $90 million in 2019. As 

cost plans are paid based on the 

reasonable costs delivering Medicarecovered services to their enrollees, 

instead of the fixed capitation amounts 

paid to MA and PDPs, we believe the 

impact to cost plans associated with this 

provision to be negligible. 

TABLE 11—PROJECTED NUMBER OF INDIVIDUALS DISENROLLED DUE TO INCARCERATION AND ESTIMATED SAVINGS TO THE

MEDICARE ADVANTAGE PROGRAM BY PROVISION FOR CALENDAR YEARS 2015 THROUGH 2019 

2015 2016 2017 2018 2019 Totals (CYs 

2105–2019) 

Projected number of incarcerated beneficiaries enrolled in MA plans ............... 6,280 7,750 9,221 10,691 12,162 46,104 

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TABLE 11—PROJECTED NUMBER OF INDIVIDUALS DISENROLLED DUE TO INCARCERATION AND ESTIMATED SAVINGS TO THE

MEDICARE ADVANTAGE PROGRAM BY PROVISION FOR CALENDAR YEARS 2015 THROUGH 2019—Continued 

2015 2016 2017 2018 2019 Totals (CYs 

2105–2019) 

Projected federal impact due to incarcerated individuals disenrolled 6 months 

sooner ................................................... 1¥$27 1¥$35 1¥$43 1¥$52 1¥$62 1¥$219 

Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA. 1 Million. 

TABLE 12—PROJECTED NUMBER OF INDIVIDUALS DISENROLLED DUE TO INCARCERATION AND ESTIMATED SAVINGS TO THE

MEDICARE PART D PROGRAM BY PROVISION FOR CALENDAR YEARS 2015 THROUGH 2019 

2015 2016 2017 2018 2019 Totals (CYs 

2015–2019) 

Projected number of incarcerated beneficiaries enrolled in Part D plans (including MA–PDs) .................................. 49,275 55,970 62,666 69,362 76,058 1 313,331 

Projected federal impact due to incarcerated individuals disenrolled 12 months 

sooner ................................................... 2¥$46 2¥$55 2¥$65 2¥$77 2¥$90 2¥$333 

Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA. 1Accumulated; not unique individuals. 

2 Million. 

36. Effects of Rewards and Incentives 

Program Regulations for Part C Enrollees 

This proposal would permit plans to 

provide limited rewards and incentives 

to enrollees who participate in activities 

that focus on promoting improved 

health, preventing injuries and illness, 

and promoting efficient use of health 

care resources. While there would be a 

cost associated with providing rewards 

and incentives, we anticipate that there 

may be savings as a result of healthier 

beneficiary behavior. Because plans are 

not required to provide rewards and 

incentives and CMS does not have a 

means of calculating the costs and 

benefits of rewards/incentives at this 

time, we are not providing an impact 

analysis for this provision. 

37. Effects of Expand Quality 

Improvement Program Regulations 

The proposed regulation changes are 

only technical changes for the 

established quality improvement 

program requirements. These changes 

would clarify how MA organizations 

report quality improvement program 

information to CMS. As MA 

organizations are already reporting this 

information to CMS and the changes are 

only to codify the process, the changes 

will not increase costs for MA 

organizations. 

38. Effects of Authorization of 

Expansion of Automatic or Passive 

Enrollment Non-Renewing Dual Eligible 

SNPs (D–SNPs) to Another D–SNP To 

Support Alignment Procedures 

We propose to modify the situations 

in which CMS may passively enroll 

beneficiaries to include the situation 

when a Medicare Advantage Dual 

Eligible SNP (D–SNP) is non-renewing. 

More specifically, passive enrollment 

would be permitted for full-benefit dual 

eligible beneficiaries in the nonrenewing D–SNP when there is another 

D–SNP in the service area that offers 

substantially similar benefits, network, 

and cost-sharing as the non-renewing 

D–SNP, and that also offers the 

Medicaid managed care organization in 

which the beneficiary is enrolled. 

SNPs are due to sunset in 2014. 

Consequently, we are not scoring this 

provision for contract years 2015 

through 2019. 

39. Effects of Improving Payment 

Accuracy: Reporting Overpayments, 

RADV Appeals, Part D Payment 

Reopening, LIS Cost Sharing, and 

Coverage Gap Discount Program 

This proposed section proposes only 

technical changes for overpayment 

reporting, RADV appeals, Part D 

payment reopening, LIS cost sharing, 

and the Coverage Gap Discount 

Program. These technical changes will 

not result in costs to MA organizations 

and Part D sponsors, nor do we expect 

the impact of these technical changes to 

result in savings. 

40. Effects of Part C and Part D RAC 

Determination Appeals 

In section III.B.x of this proposed rule, 

to establish an administrative appeals 

process for overpayment determinations 

by the Part C and Part D RACs. The cost 

associated with these provisions 

involves the preparation and 

submission of appeal requests by plans. 

We estimate this cost to be $48,343 as 

summarized in the following Table 13. 

TABLE 13—SUMMARY OF RAC DETERMINATION APPEALS COSTS AND BENEFITS

Provision description Costs 

(in $millions) Benefits 

Submission of MA plans’ first level Request for Reconsideration.0.02167 Administrative appeal rights and accuracy in recovery demands. 

Submission of Part D plans’ first level Request for Reconsideration.0.02167 Administrative appeal rights and accuracy in recovery demands. 

Submission of MA plans’ second level Request for Review .... 0.00208 Administrative appeal rights and accuracy in recovery demands. 

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TABLE 13—SUMMARY OF RAC DETERMINATION APPEALS COSTS AND BENEFITS—Continued 

Provision description Costs 

(in $millions) Benefits 

Submission of Part D plans’ second level Request for Review 0.00208 Administrative appeal rights and accuracy in recovery demands. 

Submission of MA plans’ third level Request for Review by 

the CMS Administrator.

0.0004 Administrative appeal rights and accuracy in recovery demands. 

Submission of Part D plans’ third level Request for Review by 

the CMS Administrator.

0.0004 Administrative appeal rights and accuracy in recovery demands. 

41. Effects of Requirement To Provide 

High Quality Health Care 

The proposal to add contractual 

requirements for MA plans and Part D 

plans to provide high quality health care 

proposes to include in the terms and 

conditions in our contracts with Part D 

sponsors and explicit requirement that 

Part D plans administer a benefit that 

promotes and supports high quality 

care. We believe that we have conveyed 

this expectation in other ways, such as 

through our performance and quality 

measurements and methodologies. This 

proposal provides a basis for 

enforcement or corrective action for 

low-performing plans. Therefore, we do 

not believe there is an impact associated 

with this proposal. 

42. Effects of MA–PD Coordination 

Requirements for Drugs Covered Under 

Part D 

To ensure that Part A, Part B and Part 

D drug benefits are coordinated by MA– 

PDs so that enrollees receive needed 

medications on a timely basis, we are 

proposing to add a new section (b)(7) to 

§ 422.112 to require MA–PDs to 

establish adequate messaging and 

processing requirements with network 

pharmacies to ensure that appropriate 

payment is assigned at the point of sale 

(POS) and to ensure that when coverage 

is denied under Part D due to available 

coverage under Part A or Part B, that 

such coverage is authorized 

expeditiously so that the drug may be 

provided to the enrollee as his or her 

health condition requires. Our proposed 

regulation requires that MA–PDs have 

systems in place to accurately and 

timely adjudicate claims at the POS. 

In addition, we would like to ensure 

that MA–PD plans are coordinating their 

benefits appropriately during the 

coverage determination process. If an 

MA–PD denies PDP coverage due to the 

availability of Part A or Part B coverage, 

we expect the MA organization to 

ensure that the decision results in 

authorization or provision of the drug 

under Part B pursuant to the 

requirements in parts 422 and 423, 

subpart M. We do not expect MA–PD 

enrollees to have to request an initial 

Part A or B versus Part D coverage 

determination more than once. We are 

soliciting comments about our proposal, 

as well as other possible approaches to 

minimizing delays in beneficiary access 

to needed medications caused by 

inadequate coordination of Part A, Part 

B and Part D benefits at the POS and 

during the coverage determination 

process. In particular, we would 

appreciate organizations sharing their 

expertise regarding best practices for 

benefit coordination at the POS and 

plan processes that enhance those 

coverage determinations. We also are 

soliciting comments on challenges MA– 

PDs currently encounter in their efforts 

to integrate these benefits. Under 

Medicare regulations MA–PD plans are 

already required to coordinate member 

coverage for both Part A and B and Part 

D covered drugs. It is our understanding 

that the majority of MA–PDs are 

effectively performing this activity. 

However, we are aware that some MA– 

PDs have been less successful. With this 

regulation we propose to identify drug 

coverage standards that all MA–PDs can 

follow that have proven to be both cost 

effective and efficient. This proposed 

regulation does impose any new 

requirements or costs but rather will 

assist low performing MA–PDs in 

clarifying the necessary actions to meet 

existing regulatory requirements for the 

effective coordination of Part A, Part B 

and Part D covered drugs. 

43. Effects of Revisions to Good Cause 

Processes 

We are proposing to revise § 417.460, 

§ 422.74, and § 423.44 to allow an entity 

acting on behalf of CMS to conduct good 

cause reviews. Shifting responsibility 

for this activity from CMS to entities 

such as MA, Part D and cost plans 

would not change the number of 

individuals requesting reinstatement for 

good cause nor the number of those 

individuals who meet the criteria for 

reinstatement. While some plans may 

increase their bids to cover the costs to 

complete this work, the administrative 

burden to plans is negligible. Therefore, 

we do not expect this change to have a 

monetary impact to the Medicare Trust 

Funds or affect enrollment, as the 

policies permitting involuntary 

disenrollment for non payment of 

premiums and allowing beneficiaries to 

request reinstatement for good cause 

have been in existence for some time. 

44. Effects of the Definition of 

Organization Determination 

The proposed revisions at § 422.566 

are intended to clarify the meaning of 

organization determination and to 

maintain consistency between the 

regulatory definition of organization 

determination and the definition used 

elsewhere in CMS documents and 

subregulatory guidance. Specifically, we 

are seeking to include additional types 

of coverage decisions that are subject to 

Medicare appeals processing 

requirements set forth in subpart M. In 

other words, cases where a provider 

under contract with an MA organization 

provides a service directly to an enrollee 

and when a contract provider refers an 

enrollee to a non-contract provider for 

an item or service. Because this 

proposed change codifies the existing 

definition of organization 

determination, this proposal does not 

represent any new burden on MA 

organizations or burden for small 

businesses, rural hospitals, states or the 

private sector. 

45. Effects of MA Organization 

Extension of Adjudication Timeframes 

for Organization Determinations and 

Reconsiderations 

The proposed changes to § 422.568(b), 

§ 422.572(b), and § 422.590 would 

clarify the limited circumstances in 

which MA organizations are permitted 

to extend the adjudication timeframe for 

organization determinations and 

reconsiderations. We believe these 

proposed changes would have a 

minimal impact on MA organizations, 

because they are not likely to alter the 

number of coverage requests plans 

would receive or the required clinical 

resources to process each request. 

During audits of MA organizations, we 

identified cases where plans are 

improperly extending the applicable 

adjudication timeframe (for example, 

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where clinical documentation is needed 

from a contract provider or where the 

plan has failed to develop and review 

the case during the required timeframe) 

but we do not have data on the overall 

frequency with which extensions are 

being invoked and what percentage of 

those cases involve the scenarios 

described. 

46. Effects of Two-Year Prohibition 

When Organizations Terminate Their 

Contracts 

As part of a group of proposals 

intended to strengthen our ability to 

distinguish stronger applicants for Part 

C participation we propose to revise the 

regulation text at § 422.506 and 

§ 422.512 to explicitly apply the 2-year 

prohibition on re-application after an 

organization has terminated its contract 

to applications for service area 

expansions in addition to applications 

for new contracts. These changes to 

§ 422.506 and § 422.512would make the 

text of these regulations consistent with 

the language of a similar provision at 

§ 422.503 and § 422.508 (which bans reapplication for 2 years after we have 

terminated an organization’s contract). 

We believe this provision will have 

minimal financial impact as it only 

affects those organizations that choose 

to non-renew or mutually terminate a 

contract with CMS. This provision will 

not affect current beneficiaries as it only 

applies when an organization is 

applying for a new contract or to expand 

the service area of its existing contract; 

beneficiaries who are currently enrolled 

in an organization’s existing contracts 

are therefore not affected. 

47. Effects of Withdrawal of Stand 

Alone Prescription Drug Plan Bid Prior 

to Contract Execution 

This provision is not anticipated to 

have any significant impacts, as the 

withdrawn bids that this provision 

would not relate to any existing 

enrollees. 

48. Effects of Essential Operations Test 

Requirement for Part D 

This provision has no quantifiable 

impact because the requirement affects 

unknown individuals/entities in the 

future. Nevertheless, we believe this 

proposal to require new Part D sponsors 

to pass an essential operations test prior 

to being permitted to accept enrollments 

will enhance our ability to ensure that 

beneficiaries are permitted to choose 

only from among those Part D plans 

offered by sponsors truly qualified to 

administer the full range of benefits to 

which beneficiaries are entitled. This 

approach will reduce both the 

likelihood of disruptions in 

beneficiaries’ access to outpatient 

prescription drugs and the resources 

CMS has to dedicate to addressing such 

disruptions. 

49. Effects of Termination of the 

Contracts of Medicare Advantage 

Organizations Offering Part D for Failure 

for Three Consecutive Years To Achieve 

Three Stars on Both Part C and Part D 

Summary Star Ratings in the Same 

Contract Year 

This provision has no quantifiable 

impact because this affects unknown 

individuals/entities in the future. We 

believe the proposal to authorize the 

termination of contracts that fail to 

achieve three-star ratings for both Part C 

and D within three years is consistent 

with our overall emphasis on ensuring 

that beneficiaries receive quality 

services from their plan sponsors. 

Eliminating poor performing contracts 

will promote beneficiary satisfaction 

with the Part C and D programs and 

reduce the amount of effort we must 

apply to overseeing and correcting the 

performance of organizations that 

consistently fail to demonstrate a 

commitment to quality. 

50. Effects of Requirements for Urgently 

Needed Services 

The proposed revisions of 

§ 422.113(b)(1)(iii) removes the 

requirement of ‘‘extraordinary and 

unusual’’ for in-service-area, out-ofnetwork coverage for urgent needed 

services. Typically, this will mean that 

enrollees with non-emergent weekend 

medical problems will now be covered 

for services furnished out of network 

thus eliminating the need for 

beneficiaries to seek out-of-network 

care. Many plans already contract with 

24/7 walk-in clinics providing innetwork coverage. Historically, the 

alternative to plan coverage has been 

emergency-room care. We therefore 

expect minimal cost and possible 

savings as a result of this change. 

51. Effects of Skilled Nursing Facility 

Stays 

Our proposal that would relocate the 

MA regulation language currently 

located at § 422.101(c), ‘‘Requirements 

Related to Basic Benefits’’ to 

§ 422.102(a)(5), ‘‘Supplemental 

Benefits’’ is a technical change only and 

would have no financial impact. 

52. Effects of Agent and Broker Training 

and Testing Requirements 

At § 422.2274 and § 423.2274, we are 

proposing to revise § 422.2274(b) and (c) 

and § 423.2274(b) and (c) to remove the 

concept of a CMS endorsed or approved 

training and testing, and require instead 

that agents be trained and tested 

annually, as specified by CMS. We 

believe this proposed change continues 

to ensure that all agents/brokers selling 

Medicare products have a 

comprehensive understanding of 

Medicare program rules. The changes 

made to this regulation will not result 

in any additional costs for MA plans or 

Part D plans, or a new collection of 

information. We are simply revising the 

existing language to remove an 

obligation for CMS to endorse or 

approve a training program in favor of 

CMS providing such training directly. 

53. Effects of Deemed Approval of 

Marketing Materials 

At § 422.2266 and § 423.2266, CMS 

provides the regulatory requirements for 

materials that are deemed approved. It 

also provides the requirements for the 

review and distribution of marketing 

materials. We are proposing to move the 

current requirements in §§ 422.2266 and 

423.2266 to §§ 422.2262(a)(2) and 

423.2262(a)(2), respectively. We also 

propose to simplify the language in 

§§ 422.2266 and 423.2266 by stating if 

CMS does not approve or disapprove 

marketing materials within the specified 

review timeframe, the materials will be 

deemed approved. Deemed approved 

means that a MA organization or Part D 

sponsor may use the material. Changes 

to this regulation will not result in 

additional. We are simply revising the 

existing language to clarify the existing 

requirements for deemed approved 

materials. 

54. Effects of Part C Disclosure 

Requirements 

This provision would simply replace 

the current, incorrect, reference in 

§ 422.111 to the marketing materials and 

elections form requirements at § 422.80, 

with the correct reference to subpart V, 

Medicare Advantage Marketing 

Requirements. This is a technical 

change and represents no costs or 

impact. 

55. Effects of Managing Disclosure and 

Recusal in P&T Conflicts of Interest: 

Formulary Development and Revision 

by a Pharmacy and Therapeutics 

Committee Under Part D 

We propose to revise our regulations 

at § 423.120(b)(1) to reorder the existing 

provisions and add a new paragraph 

(b)(1)(iv) to require that a Part D 

sponsor’s P&T committee clearly 

articulates and documents processes to 

determine that the requirements under 

paragraphs (b)(1)(i), (ii), and (iii) have 

been met, including the determination 

by an objective party of whether 

disclosed financial interests are 

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conflicts of interest and that 

management of any recusals due to such 

conflicts of interest. 

Because plans were previously 

required to have these processes in 

place, and we are only asking that they 

document them, we anticipate that there 

would be no cost impact on plans. 

56. Effects of the Technical Changes to 

the Definition of Part D Drug 

There is no impact associated with 

this provision as it is a technical change 

to regulation language. 

57. Effects of Thirty Sixth Month 

Coordination of Benefits (COB) Limit 

There is no impact associated with 

this provision as it is a technical change 

to regulation language. 

58. Effects of Application and 

Calculation of Daily Cost-Sharing Rates 

There is no impact associated with 

this provision, as it is a technical change 

to regulation language. 

59. Effects of Technical Change To 

Align Regulatory Requirements for 

Delivery of the Standardized Pharmacy 

Notice 

Our proposed revision to 

§ 423.562(a)(3) is a technical change and 

does not represent a burden for small 

businesses, rural hospitals, states, or the 

private sector. 

60. Effects of Special Part D Access 

Rules During Disasters 

In proposed § 423.126(a), we would 

codify requirements similar to existing 

guidance that pertains to relaxing 

‘‘refill-too-soon’’ (RTS) edits to permit 

one refill in the event of any imminent 

or occurring disaster or emergency that 

would hinder an enrollee’s access to 

covered Part D drugs. 

The proposed changes would not 

result in any additional costs. For one, 

we currently expect through guidance 

that sponsors will relax edits after the 

issuance of certain federal declarations. 

We also do not anticipate that providing 

a general framework for when sponsors 

must relax RTS edits would necessitate 

an increase in resources because it is 

currently not uncommon for Part D 

sponsors to relax edits for particular 

individuals under certain 

circumstances. 

The proposed provisions would 

require Part D sponsors to relax ‘‘refilltoo-soon’’ (RTS) edits when, as 

evidenced by a declaration of a disaster 

or emergency or its imminence by an 

appropriate federal, state, or local 

official, it is reasonable to conclude that 

an occurring or imminent disaster or 

emergency would make it difficult for 

beneficiaries to obtain refills of their 

medications. Relaxing RTS edits in 

these circumstances would benefit 

beneficiaries by better ensuring that 

they do not run out of their medications 

when a disaster is imminent or after it 

strikes. 

61. Effects of MA Organization 

Responsibilities in Disasters and 

Emergencies 

The proposed addition of section 

§ 422.100(m) requires plan activities 

during disasters that are currently 

recommended in our guidance. Since 

plans are already cooperating with our 

recommendations we expect no impact 

as a result of this requirement. 

Additionally, we are requiring a 

dedicated Web page for disasters on 

plan Web sites. Since plans already 

have Web sites and technical staff 

supporting them, we expect minimal 

cost, if any, for the additional page. We 

are also requiring plans to annually 

notify enrollees about disaster 

preparation. Since plans, as required at 

§ 422.111, already annually notify 

beneficiaries using the Evidence of 

Coverage template, we expect minimal 

cost, if any, for the additional 

notification about disasters. 

62. Effects of the Technical Changes 

Regarding the Termination of a 

Contract, Contract Determination and 

Other Appeals, and Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D 

Sections III.E.13. and 14 this proposed 

rule include provisions making minor 

technical and clarifying changes. These 

changes include making language 

consistent, aligning titles and correcting 

references. These technical and 

clarifying changes will not result in 

additional burden to sponsors nor will 

they have a financial impact on 

sponsors. 

63. Effects of Technical Change to the 

Restrictions on use of Information 

Under Part D 

There is no impact associated with 

this provision as it is a technical change 

to regulation language to reflect the 

expansion, pursuant to section 

6402(b)(1) of the Affordable Care Act, in 

the purposes for which HHS, its 

contractors, and the Attorney General, 

and Comptroller General may use 

information disclosed or obtained 

pursuant to section 1860D–15 of the 

Act. 

TABLE 14—ESTIMATED 1 AGGREGATE COSTS AND SAVINGS TO THE HEALTH CARE SECTOR BY PROVISION FOR CALENDAR

YEARS 2015 THROUGH 2019 

Provision Regulation section(s) 

Calendar year ($ in millions) Total 

($ in millions) 

CYs 

2015–2019 2015 2016 2017 2018 2019 

Impacts to MA Organizations and Part D Sponsors 

A.6. Changes to Audit and Inspection § 422.503(d)(2), 

§ 423.504(d)(2).

8.9 8.9 8.9 8.9 8.9 44.5 

Total ($ in millions) ........................ ................................................. 8.9 8.9 8.9 8.9 8.9 44.5 

Federal Government (Medicare) Impacts 

A.10. Enrollment Eligibility for Individuals Not Lawfully Present in the 

United States 2.

§ 422.1, § 422.50, AND 

§ 422.74; § 423.1, § 423.30, 

and § 423.44.

¥10 ¥12 ¥13 ¥15 ¥17 ¥67 

A.14. Drug Categories or Classes of 

Clinical Concern and Exceptions 3.

§ 423.102(b)(2)(v)–(vi) ............ 0 ¥30 ¥50 ¥220 ¥420 ¥720 

A.35. Eligibility of Enrollment for Incarcerated Individuals 4.§ 422.74 .................................. ¥73 ¥90 ¥108 ¥129 ¥152 ¥552 

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TABLE 14—ESTIMATED 1 AGGREGATE COSTS AND SAVINGS TO THE HEALTH CARE SECTOR BY PROVISION FOR CALENDAR

YEARS 2015 THROUGH 2019—Continued 

Provision Regulation section(s) 

Calendar year ($ in millions) Total 

($ in millions) 

CYs 

2015–2019 2015 2016 2017 2018 2019 

Total ($ in millions) ........................ ................................................. ¥83 ¥132 ¥171 ¥364 ¥589 ¥1,339 

Notes: 

1Estimates of costs and savings reflect scoring by the CMS, Office of the Actuary. Also, only provisions with savings or cost exceeding 

$1,000,000 are listed. Other provisions either have no expected savings or cost, or, have a savings or cost under $1,000,000. Details on these 

savings and cost may be found in the RIA narrative. 2Supporting 2012 lawful presence data provided by SSA. 

3Projected savings are based upon full implementation of the criteria and do not reflect that changes for the antipsychotic class of drugs are 

deferred at this time. 4Supporting 2012 incarceration data provided by the SSA. 

D. Expected Benefits 

1. Drug Categories or Classes of Clinical 

Concerns and Exceptions 

(§ 423.102(b)(2)(v)–(vi) 

Proposed codification of the 

categories or classes of clinical concern 

provisions would assist PBMs in 

applying the Part D plans and managing 

the Part D sponsor’s benefit packages 

more efficiently. 

2. Medication Therapy Management 

Program under Part D 

We anticipate that many more 

beneficiaries will have access to MTM 

services and believe that the proposed 

changes will simplify the MTM criteria 

and minimize beneficiary confusion 

when choosing or transitioning between 

plans. Moreover, we believe the 

proposed changes would reduce 

disparity and allow more beneficiaries 

with drug therapy problems to receive 

MTM services. Similarly, we expect the 

proposed requirement that sponsors 

develop an effective strategy to ensure 

access to services for all MTM-eligible 

beneficiaries will help to ensure that 

beneficiaries in special populations 

receive focused targeting, outreach, or 

engagement for enrollment or 

participation in MTM. 

E. Alternatives Considered 

1. Separating the Annual Notice of 

Change from the Evidence of Coverage 

We considered reverting back to 

requirements in place prior to the 2009 

contract year, which allowed issuing 

EOCs as late as January 31 of the 

applicable contract year. We determined 

the EOC should be received by members 

before the effective date of their 

coverage for that contract year, 

beginning on January 1, in order for 

members to have full disclosure of plan 

rules prior to the beginning of the 

contract year. 

2. Modifying the Agent/Broker 

Compensation Requirements 

In the preamble we outlined a few 

alternative compensation schedules. 

Ultimately we determined that the best 

approach was a two tier payment 

schedule, incorporating an initial 

payment and a continuous renewal 

payment. 

3. Medicare Coverage Gap Discount 

Program and Employer Group Waiver 

Plans 

In the preamble we outlined the 

alternative approaches we considered in 

our efforts to make sure that the 

discounts were used to benefit 

enrollees. Ultimately we determined 

that the best approach would be to make 

sure that employer groups have the 

information needed to incorporate the 

payments into their benefit packages. 

4. Prescription Drug Pricing Standards 

and Maximum Allowable Cost 

No alternatives were considered. 

5. Access to Covered Part D drugs (c) 

Use of Standardized Technology 

No alternatives were considered. 

6. Any Willing Pharmacy Standard 

Terms & Conditions 

We considered the alternative of 

maintaining the current process where 

Part D plans can limit pharmacy access 

to preferred cost-sharing contracts. We 

have observed this in practice to be 

limiting market competition, creating a 

barrier to entry, and further, not 

producing the savings to the program 

that were initially anticipated. 

7. Negotiated Prices 

We did not identify any alternatives 

that both maintained consistent 

reporting among sponsors leading to 

comparable bids, and maximized price 

competition. 

8. Preferred Cost Sharing 

We considered whether a 

methodology that was based on lower 

average costs (or any other function of 

costs in the rest of the network) in 

return for preferred cost sharing would 

suffice to meet the statutory 

requirement. While such a methodology 

might technically meet the requirement 

not to increase CMS payments to plans, 

whether it did so or not would be 

dependent on the actual negotiated 

prices paid and could be determined 

only long after a coverage year had 

ended and complete the PDE data was 

available. We believe that to promote 

price competition, the relative levels of 

negotiated prices offered for preferred 

cost sharing and in the rest of the 

network should be transparent and 

verifiable at the point of sale, as well as 

to CMS oversight at any point prior to 

and during a coverage year. We were 

unable to identify any methodology 

other than our proposal to accomplish 

these goals. We solicit comments on 

alternative approaches to ensuring that 

the offering of preferred cost sharing 

does not increase CMS payments. We 

believe that any alternative 

methodology must be based solely on 

the level of negotiated prices and thus 

consistent with our proposal to amend 

that definition. We also solicit 

comments on whether we should also 

establish standards on how much lower 

drug costs should be in return for 

preferred cost sharing. 

9. Transfer of TrOOP Between Part D 

Sponsors Due to Enrollment Changes 

During the Coverage Year 

No alternative proposals were 

considered. 

10. Part D Notice of Changes 

We did not consider any alternatives 

for the proposed provision because it 

proposes to codify a longstanding 

policy. 

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11. Special Part D Access Rules During 

Disasters or Emergencies 

We did not consider alternatives to 

requiring Part D sponsors to lift ‘‘refill 

too soon’’ (RTS) edits in the event of any 

imminent or occurring disaster or 

emergency that would hinder an 

enrollee’s access to covered Part D 

drugs. It is important for the well-being 

and health of beneficiaries that they be 

able to obtain their medications after 

disasters strike. Furthermore, given the 

complexities of moving large numbers 

of people with different health 

conditions to safer locations, we also 

believed we had no alternative but to 

require Part D sponsors to relax RTS 

edits when a disaster is imminent and 

access to services might be jeopardized 

rather than waiting for it to strike. 

12. Business Continuity for MA 

Organizations and Part D Sponsors 

We did not consider any alternatives 

for the initial part of the provision 

found in §§ 422.504(o)(1) and 

423.505(p)(1) that would, respectively, 

require MA organizations and Part D 

sponsors to develop and maintain 

business continuity plans. Creating such 

a plan is an accepted business practice 

and we would require MA organizations 

and Part D sponsors to address a 

standard list of areas; in short, we know 

of no other options. 

In contrast, we considered other 

options when drafting proposed 

§§ 422.504(o)(2) and 423.505(p)(2), 

which would require the restoration of 

essential functions within 24 hours after 

failure. We considered requiring MA 

organizations and Part D sponsors to 

restore even more functions, but 

decided disruptions to business would 

presumably limit resources and that it 

was important to focus on only the most 

vital functions. We also considered 

paring down the list of essential 

functions, but found that we could not 

do so without jeopardizing the mandate 

of the Act—to ensure access to health 

care and covered Part D drugs through 

the provision of appropriate Medicare 

benefits. Benefit authorization, claim 

adjudications, and call center operations 

are all essential to providing appropriate 

Medicare coverage for beneficiaries both 

living inside and outside of areas hit by 

disasters and other disruptions. 

Lastly, we considered the option of 

requiring restoration of essential 

functions to occur for a shorter or longer 

time period than 24 hours after failure 

proposed. We decided that 12 hours 

might present operational challenges for 

MA organizations and Part D sponsors; 

conversely, requiring beneficiaries to 

wait more than 24 hours to access their 

coverage and therefore health care and 

drug benefits, seemed to pose an undue 

risk to both their present and possibly 

future health and well-being. 

13. Drug Categories or Classes of 

Clinical Concerns and Exceptions 

The critical policy decision was how 

broadly or narrowly to establish criteria 

and exceptions to those criteria 

pursuant to Affordable Care Act 

provisions. Broad criteria might easily 

encompass many classes of drugs and 

significantly increase costs to the Part D 

program by eliminating the need for 

manufacturers to aggressively rebate 

their products for formulary placement. 

Only narrow criteria would limit the 

number of categories or classes of 

clinical concern receiving additional 

protections under the Affordable Care 

Act. Similarly, broad exceptions further 

limit the products within those 

categories or classes of clinical concern 

that would receive additional protection 

under the Affordable Care Act. 

14. Medication Therapy Management 

Program (MTM) Under Part D 

We considered leaving the maximum 

number of multiple chronic diseases a 

plan may require for targeted enrollment 

at three, but believed this threshold 

significantly limited the number of 

beneficiaries who qualified for MTM 

services and was inconsistent with 

literature concerning the relative risk of 

the combination of multiple disease 

states and the need for access to MTM 

interventions. Similarly, we considered 

other numbers of Part D drugs less than 

eight, but again believed these 

thresholds decreased access to MTM 

services, contributed to beneficiary 

confusion, and led to racial disparities 

in access to MTM services. We also 

considered other cost thresholds less 

than $3,000, for example, $900 or 

$1,200, which roughly coincide with 

cost thresholds achieved by taking 3 or 

4 generic drugs, and we solicit 

stakeholder comment on where the 

threshold might alternatively be set. 

Relative to the requirement for 

sponsors to establish effective strategies 

for reaching all MTM-eligible 

beneficiaries, we do not believe it is 

appropriate at this time to prescribe 

outreach activities for Part D sponsors to 

effectively reach diverse, special 

populations of their enrolled 

beneficiaries. Rather, we propose that 

sponsors develop an effective strategy to 

ensure access to MTM services for all 

MTM-eligible beneficiaries. We will 

continue to monitor the efficacy of such 

programs and the impact of any change 

to the requirements and will consider 

other options as may be necessary. 

15. Requirement for Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part 

D Functions 

Based on CMS’ authority at section 

1860D–12(b)(3)(D) of the SSA to adopt 

additional contract terms that are 

necessary and appropriate to administer 

the Part D program, we proposed at 

§ 423.504(b)(8)(i) through (iii) that Part 

D organizations seeking a new Medicare 

contract must have arrangements in 

place such that either the applicant or 

a contracted entity that will be 

performing certain key Part D functions 

has at least one full benefit year of 

experience providing the function for 

another Part D plan sponsor. This 

proposal ensures that applicants take 

advantage of the abundant Part D 

industry expertise and experience that 

exists today in the development of their 

Part D program operations, rather than 

relying on technical assistance from 

CMS and having their inexperience 

place beneficiaries’ access to 

prescription drugs at risk. We believe 

this provision will have a very minor 

savings impact on the federal budget, 

based on savings of time and effort (staff 

time and contracted auditor time and 

resources) that the government would 

spend on overseeing the 

disproportionate level of problems 

experienced by organizations operating 

Part D plans without prior Part D 

experience. For each inexperienced 

organization allowed into the program 

in the absence of this proposal, we 

would anticipate a savings of 1,000 staff 

hours at an average rate of $50 per hour, 

for a total of $50,000 in employee time, 

plus an additional savings of $200,000 

in contractor dollars to conduct an 

emergency audit, for a total of $250,000. 

In the absence of this proposal, we 

would anticipate no more than two such 

inexperienced entities beginning Part D 

operations per year, for a total annual 

savings of $500,000. 

The burden associated with this 

proposal on industry would be minimal, 

with a total estimated number of labor 

hours of 3.25 to submit information 

during the Part D application process. 

Using the same average hourly salary as 

previously mentioned, the total cost to 

Part D applicants would be $162.50. We 

do not believe there are any nonadministrative costs to industry 

associated with this proposal, as Part D 

applicants are already required to have 

arrangements in place to perform the 

key Part D functions discussed in our 

proposal. 

The main anticipated effect from this 

proposal is ensuring that only entities 

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with some experience with Part D in 

critically important functional areas are 

permitted to offer new Part D contracts, 

thus strengthening the Part D program 

by enhancing the qualification criteria. 

CMS considered the alternate proposal 

of requiring the prior Part D experience 

to be tied to specific quality outcomes. 

CMS rejected the alternative because we 

believed it added unnecessary 

complexity and burden to the process, 

and we believe a simple experience 

requirement is currently sufficient. 

F. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at http://

www.whitehouse.gov/omb/circulars/

a0004/a-4/pdf), in Table 15, we have 

prepared an accounting statement 

showing the classification of the 

expenditures, costs, and savings 

associated with the provisions of this 

proposed rule for CYs 2015 through 

2019. 

TABLE 15—ACCOUNTING STATEMENT: CLASSIFICATIONS OF ESTIMATED COSTS AND TRANSFERS FROM CALENDAR YEARS

2015 TO 2019 

[$ in millions] 

Category 

Transfers 

Discount rate Period 

covered 7% 3% 

Annualized Monetized Transfers (Federal) ...................................................................................... ¥$251.23 ¥$260.49 CYs 2015–2019. 

Whom to Whom? Federal Government, MA Organizations and 

Part D Sponsors 

Costs 

(all other provisions) 

Discount rate Period 

covered 7% 3% 

Annualized Costs to MA Organizations and Part D Sponsors ........................................................ $8.9 $8.9 CYs 2015–2019. 

Note: Monetized Figures in 2014 Dollars. 

G. Conclusion 

We estimate the savings to the federal 

government from implementing these 

provisions will be $83 million in CY 

2015. The savings will increase 

annually. In CY 2019, the federal 

government savings from implementing 

these provisions will be $589 million. 

For the entire estimated period, CYs 

2015 through 2019, we estimate the total 

federal government (Medicare) impact 

to result in savings of approximately 

$1.34 billion in 2014 dollars. The cost 

impact to MA organizations and Part D 

sponsors is estimated at $8.9 million 

annually during CYs 2015 through 2019. 

We note that these savings do not 

represent net social benefits because 

they consist of transfers of value from 

drug manufacturers, pharmacies, 

incarcerated individuals and 

individuals not lawfully present in the 

United States to the federal government, 

MA organizations, Part D sponsors and 

beneficiaries who continue in the 

programs. 

List of Subjects 

42 CFR Part 409 

Health facilities and Medicare. 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs-health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs-health, Medicare, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, Reporting and record keeping 

requirements. 

42 CFR Part 424 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, Reporting and record keeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services proposes to amend 

42 CFR Chapter IV as follows: 

PART 409—HOSPITAL INSURANCE 

BENEFITS 

■ 1. The authority citation for part 409 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

■ 2. Section 409.30 is amended by 

revising paragraph (b)(2)(ii) to read as 

follows: 

§ 409.30 Basic requirements. 

(b) * * * 

(2) * * * 

(ii) If, upon admission to the SNF, the 

beneficiary was enrolled in an M+C 

plan, as defined in § 422.4 of this 

chapter, offering the benefits described 

in § 422.102(a)(5) of this chapter, the 

beneficiary will be considered to have 

met the requirements described in 

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

and also in § 409.31(b)(2), for the 

duration of the SNF stay. 

PART 417—HEALTH MAINTENANCE 

ORGANIZATION, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 3. 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 

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

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

■ 4. Section 417.1 is amended by 

revising the definition of ‘‘service area’’ 

to read as follows: 

§ 417.1 Definitions. 

* * * * * 

Service area means a geographic area, 

defined through zip codes, census 

tracts, or other geographic 

measurements, that is the area, as 

determined by CMS, within which the 

HMO furnishes basic and supplemental 

health services and makes them 

available and accessible to all its 

enrollees in accordance with 

§ 417.106(b). Facilities in which 

individuals are incarcerated are not 

included in the geographic service area 

of an HMO or CMP plan. 

* * * * * 

■ 5. Section 417.2 is amended by 

revising paragraph (b) to read as follows: 

§ 417.2 Basis and scope. 

* * * * * 

(b) Subparts G through R of this part 

set forth the rules for Medicare contracts 

with, and payment to, HMOs and 

competitive medical plans (CMPs) 

under section 1876 of the Act and 8 

U.S.C. 1611. 

* * * * * 

§ 417.420 [Amended]. 

■ 6. In § 417.420, paragraph (a) is 

amended by removing the phrase 

‘‘Individuals who are entitled to’’ and 

adding in its place the phrase ‘‘Eligible 

individuals who are entitled to’’. 

■ 7. Section 417.422 is amended— 

■ A. In the introductory text, by 

removing the phrase ‘‘any individual 

who—’’ and adding in its place the 

phrase ‘‘any individual who meets all of 

the following:’’ 

■ B. In paragraphs (a) through (e), by 

removing the ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. In paragraph (f), by removing the ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ D. Adding paragraph (h). 

The addition reads as follows: 

§ 417.422 Eligibility to enroll in an HMO or 

CMP. 

* * * * * 

(h) Is a United States citizen or 

qualified alien who is lawfully present 

in the United States as determined in 8 

CFR 1.3. 

■ 8. Section 417.460 is amended— 

■ A. Revising paragraph (b)(2)(i). 

■ B. In paragraph (b)(2)(iii), by removing 

‘‘; or’’ and adding in its place ‘‘;’’. 

■ C. By removing the period at the end 

of (b)(2)(iv) and adding ‘‘; or’’ in its 

place. 

■ D. By adding paragraph (b)(2)(v). 

■ E. In paragraph (b)(3), by removing the 

cross-reference ‘‘paragraphs (c) through 

(i)’’ and adding in its place the crossreference ‘‘paragraphs (c) through (j)’’. 

■ F. By revising paragraph (c)(3). 

■ G. In paragraph (c)(4), by removing the 

phrase ‘‘non-payment of premiums.’’ 

and adding in its place the phrase ‘‘nonpayment of premiums or other 

charges.’’. 

■ H. By adding new paragraphs 

(f)(1)(i)(A) through (C). 

■ I. By adding paragraph (j). 

The revisions and the additions read 

as follows: 

§ 417.460 Disenrollment of beneficiaries 

by an HMO or CMP. 

* * * * * 

(b) * * * 

(2) * * * 

(i) Moves out of the HMO’s or CMP’s 

geographic area or is incarcerated. 

* * * * * 

(v) Loses qualified alien status or 

lawful presence in the United States. 

* * * * * 

(c) * * * 

(3) Good cause and reinstatement. 

When an individual is disenrolled for 

failure to pay premiums or other charges 

imposed by the HMO or CMP for 

deductible and coinsurance amounts for 

which the enrollee is liable, CMS (or its 

designee) may reinstate enrollment in 

the plan, without interruption of 

coverage, if the individual shows good 

cause for failure to pay and pays all 

overdue premiums or other charges 

within 3 calendar months after the 

disenrollment date. The individual must 

establish by a credible statement that 

failure to pay premiums or other charges 

was due to circumstances for which the 

individual had no control, or which the 

individual could not reasonably have 

been expected to foresee. 

* * * * * 

(f) * * * 

(1) * * * 

(i) * * * 

(A) Incarceration. The HMO or CMP 

must disenroll an individual if the HMO 

or CMP establishes, on the basis of 

evidence acceptable to CMS, that the 

individual is incarcerated per § 417.1. 

(B) Notification by CMS of 

incarceration. When CMS notifies an 

HMO or CMP of disenrollment due to an 

incarceration as per § 417.1, 

disenrollment is effective the first of the 

month following the start of 

incarceration, unless otherwise 

specified by CMS. 

(C) Exception. The exception in 

paragraph (f)(2) of this section does not 

apply to individuals who are 

incarcerated. 

* * * * * 

(j) Loss of qualified alien status. 

Disenrollment is effective the first day 

of the month following the last month 

of lawful presence or qualified alien 

status in the United States. 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 9. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

■ 10. Section 422.1 is amended by 

revising paragraph (a) to read as follows: 

§ 422.1 Basis and scope. 

(a) Basis. This part is based on the 

indicated provisions of the following: 

(1) The following provisions of the 

Act: 

1128J(d)—Reporting and Returning of 

Overpayments. 

1851—Eligibility, election, and 

enrollment. 

1852—Benefits and beneficiary 

protections. 

1853—Payments to Medicare Advantage 

(MA) organizations. 

1854—Premiums. 

1855—Organization, licensure, and 

solvency of MA organizations. 

1856—Standards. 

1857—Contract requirements. 

1858—Special rules for MA Regional 

Plans. 

1859—Definitions; enrollment 

restriction for certain MA plans. 

(2) 8 U.S.C. 1611—Aliens who are not 

qualified aliens ineligible for Federal 

public benefits 

* * * * * 

■ 11. Section 422.2 is amended by— 

■ A. Revising the definition of 

‘‘Attestation process’’. 

■ B. Removing the definition of ‘‘Initial 

Validation Contractor (IVC)’’. 

■ C. Adding the definitions of ‘‘Parent 

organization’’ and ‘‘RADV appeal 

process’’. 

■ D. Removing the definition of ‘‘RADV 

payment error calculation appeal 

process’’. 

■ E. Revising the definition of ‘‘Risk 

adjustment data validation (RADV) 

audit’’. 

■ F. Revising introductory text of the 

definition of ‘‘Service area’’. 

■ G. Removing the definition of ‘‘The 

one best medical record for the purposes 

of Medicare Advantage Risk Adjustment 

Validation (RADV)’’. 

The revisions and additions read as 

follows: 

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§ 422.2 Definitions. 

* * * * * 

Attestation process means a CMSdeveloped RADV audit-related process 

that is part of the medical record review 

process that enables MA organizations 

undergoing RADV audit to submit CMSgenerated attestations for eligible 

medical records with missing or 

illegible signatures or credentials. The 

purpose of the CMS-generated 

attestations is to cure signature and 

credential issues. CMS-generated 

attestations do not provide an 

opportunity for a provider or supplier to 

replace a medical record or for a 

provider or supplier to attest that a 

beneficiary has the medical condition. 

* * * * * 

Parent organization means a legal 

entity that owns one or more other 

subsidiary legal entities. 

* * * * * 

RADV appeal process means an 

administrative process that enables MA 

organizations that have undergone 

RADV audit to appeal the Secretary’s 

medical record review determinations 

and the Secretary’s calculation of an MA 

organization’s RADV payment error. 

* * * * * 

Risk adjustment data validation 

(RADV) audit means a payment audit of 

a MA organization administered by the 

Secretary that ensures the integrity and 

accuracy of risk adjustment payment 

data. 

* * * * * 

Service area means a geographic area 

that for local MA plans is a county or 

multiple counties, and for MA regional 

plans is a region approved by CMS 

within which an MA-eligible individual 

may enroll in a particular MA plan 

offered by an MA organization. 

Facilities in which individuals are 

incarcerated, with the exclusion of 

Institutions for Mental Disease, are not 

included in the service area of an MA 

plan. Each MA plan must be available 

to all MA-eligible individuals within the 

plan’s service area. In deciding whether 

to approve an MA plan’s proposed 

service area, CMS considers the 

following criteria: 

* * * * * 

■ 12. Section 422.50 is amended— 

■ A. In paragraph (a) introductory text, 

by removing the phrase ‘‘if he or 

she—’’ and adding in its place the 

phrase ‘‘if he or she meets all of the 

following:’’ 

■ B. In paragraphs (a)(1) and (4), by 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. In paragraph (a)(5), by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ D. By adding paragraph (a)(7). 

The addition reads as follows: 

§ 422.50 Eligibility to elect an MA plan. 

* * * * * 

(a) * * * 

(7) Is a United States citizen or 

qualified alien who is lawfully present 

in the United States as determined in 8 

CFR 1.3. 

* * * * * 

■ 13. Section 422.60 is amended by 

redesignating paragraphs (g) 

introductory text through (g)(3) as 

paragraphs (g)(1) through (4), and by 

revising newly redesignated paragraph 

(g)(1) to read as follows: 

§ 422.60 Election process. 

* * * * * 

(g) * * * 

(1) Passive enrollment by CMS. CMS 

may implement passive enrollment 

procedures (as described in paragraph 

(g)(2) of this section) in any of the 

following situations: 

(i) Immediate terminations as 

provided in § 422.510(a)(5). 

(ii) Other situations in which CMS 

determines that remaining enrolled in a 

plan poses potential harm to the 

members. 

(iii) Situations which meet all of the 

following criteria: 

(A) A specialized MA plan for special 

needs individuals in which the 

individual is enrolled will no longer be 

offered following the end of the current 

calendar year, 

(B) The individual is a— 

(1) Special needs individual entitled 

to medical assistance under a Medicaid 

State plan, as defined in section 

1859(b)(6)(B)(ii) of the Act and § 422.2; 

and 

(2) Full-benefit dual eligible 

beneficiary, as defined in section 

1935(c) of the Act. 

(C) The passive enrollment is into a 

specialized MA plan for special needs 

individuals with a network and benefits 

that are substantially similar, as 

determined by CMS, to the nonrenewing plan, and where the 

sponsoring organization also offers the 

Medicaid managed care organization in 

which the individual is also enrolled. 

* * * * * 

■ 14. Section 422.74 is amended by— 

■ A. Adding paragraph (b)(2)(v). 

■ B. Revising paragraphs (d)(1)(v) and 

(d)(4)(i)(A). 

■ C. Adding paragraphs (d)(4)(v)and 

(d)(8). 

The additions and revisions read as 

follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(b) * * * 

(2) * * * 

(v) The individual loses qualified 

alien status or is no longer lawfully 

present in the United States. 

* * * * * 

(d) * * * 

(1) * * * 

(v) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failure to 

pay the plan premium, CMS (or its 

designee) may reinstate enrollment in 

the MA plan, without interruption of 

coverage, if the individual shows good 

cause for failure to pay within the initial 

grace period, and pays all overdue 

premiums within 3 calendar months 

after the disenrollment date. The 

individual must establish by a credible 

statement that failure to pay premiums 

within the initial grace period was due 

to circumstances for which the 

individual had no control, or which the 

individual could not reasonably have 

been expected to foresee. 

* * * * * 

(4) * * * 

(i) * * * 

(A) Out of the MA plan’s service area 

or is incarcerated as specified in 

paragraph (d)(4)(v) of this section. 

* * * * * 

(v) Incarceration. (A) The MA 

organization must disenroll an 

individual if the MA organization 

establishes, on the basis of evidence 

acceptable to CMS, that the individual 

is incarcerated as specified § 422.2 or 

when notified of the incarceration by 

CMS as specified paragraph (d)(4)(v)(B) 

of this section. 

(B) Notification by CMS of 

incarceration. When CMS notifies the 

MA organization of the disenrollment 

due to an incarceration as specified in 

§ 422.2, disenrollment is effective the 

first of the month following the start of 

incarceration, unless otherwise 

specified by CMS. 

* * * * * 

(8) Loss of qualified alien status. 

Disenrollment is effective with the 

month following the last month of 

lawful presence or qualified alien status 

in the United States. 

* * * * * 

■ 15. Section 422.100 is amended by 

adding paragraph (m) to read as follows: 

§ 422.100 General requirements. 

* * * * * 

(m) Special requirements during a 

disaster or emergency. (1) When a state 

of disaster is declared as described in 

paragraph (m)(2) of this section, an MA 

organization offering an MA plan must, 

until one of the conditions described in 

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paragraph (m)(3) of this section occurs, 

ensure access to benefits in the 

following manner: 

(i) Cover Medicare Parts A and B 

services and supplemental Part C plan 

benefits furnished at non-contracted 

facilities subject to § 422.204(b)(3). 

(ii) Waive, in full, requirements for 

gatekeeper referrals where applicable. 

(iii) Provide the same cost-sharing for 

the enrollee had the service or benefit 

been furnished at a plan-contracted 

facility. 

(iv) Make changes that benefit the 

enrollee effective immediately without 

the 30-day notification requirement at 

§ 422.111(d)(3). 

(2) Declarations of disasters. A 

declaration of disaster will identify the 

geographic area affected by the event 

and may be made as one of the 

following: 

(i) Presidential declaration of a 

disaster or emergency under the either 

of the following: 

(A) Stafford Act. 

(B) National Emergencies Act. 

(ii)(A) Secretarial declaration of a 

public health emergency under section 

319 of the Public Health Service Act. 

(B) If the President has declared a 

disaster as described in paragraph 

(m)(2)(i) or (2)(ii) of this section, then 

the Secretary may also authorize 

waivers or modifications under section 

1135 of the Act. 

(iii) Declaration by the Governor of a 

State or Protectorate. 

(3) End of the disaster. The public 

health emergency or state of disaster 

ends when any of the following occur: 

(i) The source that declared the public 

health emergency or state of disaster 

declares an end. 

(ii) The CMS declares an end of the 

public health emergency or state of 

disaster. 

(iii) Thirty days have elapsed since 

the declaration of the public health 

emergency or state of disaster and no 

end date was identified in paragraph 

(m)(3)(i) or (3)(ii) of this section. 

(4) MA plans unable to operate. An 

MA plan that cannot resume normal 

operations by the end of the public 

health emergency or state of disaster 

must notify CMS. 

(5) Disclosure. In addition to other 

requirements of annual disclosure under 

§ 422.111, an organization must do all of 

the following: 

(i) Indicate the terms and conditions 

of payment during the public health 

emergency or disaster for noncontracted providers furnishing benefits 

to plan enrollees residing in the state-ofdisaster area. 

(ii) Annually notify enrollees of the 

information listed in paragraphs (m)(1) 

through (3) and (m)(5) of this section. 

(iii) Provide the information described 

in paragraphs (m)(1) through (3) and 

(m)(4)(i) of this section on its Web site. 

§ 422.101 [Amended] 

■ 16. Section 422.101 is amended by 

removing and reserving paragraph (c). 

■ 17. Section 422.102 is amended by 

adding paragraph (a)(5) to read as 

follows: 

§ 422.102 Supplemental benefits. 

(a) * * * 

(5) MA organizations may elect to 

furnish, as part of their Medicare 

covered benefits, coverage of post 

hospital SNF care as described in 

subparts C and D of this part, in the 

absence of the prior qualifying hospital 

stay that would otherwise be required 

for coverage of this care. 

* * * * * 

■ 18. Section 422.111 is amended by 

revising paragraphs (a)(3) and (d)(1) to 

read as follows: 

§ 422.111 Disclosure requirements. 

(a) * * * 

(3) At the time of enrollment and at 

least annually thereafter by December 

31 for the following contract year. 

* * * * * 

(d) * * * 

(1) Submit the changes for CMS 

review under procedures of Subpart V 

of this part. 

* * * * * 

■ 19. Section 422.112 is amended by 

adding paragraph (b)(7) to read as 

follows: 

§ 422.112 Access to services. 

* * * * * 

(b) * * * 

(7) With respect to drugs for which 

payment as so prescribed and dispensed 

or administered to an individual may be 

available under Part A or Part B, or 

under Part D, MA–PD plans must 

coordinate all benefits administered by 

the plan and— 

(i) Establish and maintain a process to 

ensure timely and accurate claims 

adjudication at the point-of-sale; and 

(ii) Issue the determination and 

authorize or provide the benefit under 

Part A or Part B or as a benefit under 

Part D as expeditiously as the enrollee’s 

health condition requires, in accordance 

with the requirements of part 422, 

subpart M and Part 423, subpart M, as 

appropriate, when a party requests a 

coverage determination. 

* * * * * 

■ 20. Section 422.113 is amended by 

revising paragraph (b)(1)(iii) 

introductory text to read as follows: 

§ 422.113 Special rules for ambulance 

services, emergency and urgently needed 

services, and maintenance and poststabilization care services. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) Urgently needed services means 

covered services that are not emergency 

services as defined in this section, 

provided when an enrollee is 

temporarily absent from the MA plan’s 

service (or, if applicable, continuation) 

area (or 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— 

* * * * * 

■ 21. Section 422.134 is added to 

subpart C to read as follows: 

§ 422.134 Reward and incentive programs. 

(a) General rule. The MA organization 

may create one or more programs 

consistent with the standards of this 

section that provide rewards and 

incentives to enrollees in connection 

with participation in activities that 

focus on promoting improved health, 

preventing injuries and illness, and 

promoting efficient use of health care 

resources. 

(b) Non-discrimination. Reward and 

incentive programs— 

(1) Must not discriminate against 

enrollees based on race, gender, chronic 

disease, institutionalization, frailty, 

health status or other impairments; 

(2) Must be designed so that all 

enrollees are able to earn rewards; and 

(3) Are subject to sanctions at 

§ 422.752(a)(4). 

(c) Requirements. (1) A rewards and 

incentives program must meet all of the 

following: 

(i) Be offered in connection with 

completion of the entire service or 

activity. 

(ii) Be offered to all eligible members 

without discrimination. 

(iii) Have a monetary cap, as 

determined by CMS, of a value that may 

be expected to impact enrollee behavior 

but not exceed the value of the health 

related service or activity itself. 

(iv) Otherwise comply with all 

relevant fraud and abuse laws, 

including, when applicable, the antikickback statute and civil money 

penalty prohibiting inducements to 

beneficiaries. 

(2) Reward and incentive items may 

not— 

(i) Be offered in the form of cash or 

other monetary rebates; or 

(ii) Be used to target potential 

enrollees. 

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(3) The MA organization must make 

information available to CMS upon 

request about the form and manner of 

any rewards and incentives programs it 

offers and any evaluations of the 

effectiveness of such programs. 

■ 22. Section 422.152 is amended as 

follows: 

■ A. Paragraph (a) introductory text is 

amended by: 

■ i. Removing the phrase ‘‘for each of 

those plans’’ and adding in its place the 

phrase ‘‘for each plan’’. 

■ .ii. Removing the phrase ‘‘a plan 

must—’’ and adding in its place the 

phrase ‘‘a plan must do all of the 

following:’’ 

■ B. By redesignating paragraphs (a)(1) 

through (3) as (a)(2) through (4), 

respectively. 

■ C. By adding a new paragraph (a)(1). 

■ D. In newly redesignated paragraph 

(a)(2), by removing the ‘‘;’’ and adding 

in its place ‘‘.’’. 

■ E. In newly redesignated paragraph 

(a)(3), by removing the ‘‘; and’’ and 

adding in its place ‘‘.’’. 

■ F. By revising paragraphs (c), (g) 

introductory text, and (h). 

The addition and revisions read as 

follows: 

§ 422.152 Quality improvement program. 

(a) * * * 

(1) Create a quality improvement 

program plan that sufficiently outlines 

the elements of the plan’s quality 

improvement program. 

* * * * * 

(c) Chronic care improvement 

program requirements. (1) Develop 

criteria for a chronic care improvement 

program. These criteria must include all 

of the following: 

(i) Methods for identifying MA 

enrollees with multiple or sufficiently 

severe chronic conditions that would 

benefit from participating in a chronic 

care improvement program. 

(ii) Mechanisms for monitoring MA 

enrollees that are participating in the 

chronic improvement program and 

evaluating participant outcomes such as 

changes in health status. 

(iii) Performance assessments that use 

quality indicators that are objective, 

clearly and unambiguously defined, and 

based on current clinical knowledge or 

research. 

(iv) Systematic and ongoing follow-up 

on the effect of the program. 

(2) The organization must report the 

status and results of each program to 

CMS as requested. 

* * * * * 

(g) Special requirements for 

specialized MA plans for special needs 

individuals. All special needs plans 

(SNPs) must be approved by the 

National Committee for Quality 

Assurance (NCQA) effective January 1, 

2012 and subsequent years. SNPs must 

submit their model of care (MOC), as 

defined under § 422.101(f), to CMS for 

NCQA evaluation and approval, in 

accordance with CMS guidance. In 

addition to the requirements under 

paragraphs (a) and (f) of this section, a 

SNP must conduct a quality 

improvement program that meets all of 

the following: 

* * * * * 

(h) Requirements for MA private-feefor-service plans and Medicare medical 

savings account plans. MA PFFS and 

MSA plans are subject to the 

requirement that may not exceed the 

requirement specified in § 422.152(e). 

§ 422.300 [Amended] 

■ 23. Section 422.300 is amended by 

removing the phrase ‘‘and 1858 of the 

Act.’’ and adding in its place the phrase 

‘‘1858, and 1128J(d) of the Act.’’ 

■ 24. Section 422.310 is amended by: 

■ A. Redesignating the text of paragraph 

(e) as paragraph (e)(2) and adding new 

paragraph (e)(1) following current 

paragraph (e) subject heading. 

■ B. Adding new paragraph (e)(1). 

■ C. Revising paragraph (g)(2). 

■ D. Adding paragraph (g)(3). 

The additions and revision read as 

follows: 

§ 422.310 Risk adjustment data. 

* * * * * 

(e) * * * 

(1) Any medical record reviews 

conducted by an MA organization must 

be designed to determine the accuracy 

of diagnoses submitted under 

§ 422.308(c) and § 422.310(g). 

* * * * * 

(g) * * *. 

(2) After the payment year is 

completed, CMS recalculates the risk 

factors for affected individuals to 

determine if adjustments to payments 

are necessary. 

(i) Prior to calculation of final risk 

factors for a payment year, CMS allows 

a reconciliation process to account for 

risk adjustment data submitted after the 

March deadline until the final risk 

adjustment data submission deadline in 

the year following the payment year. 

(ii) After the final risk adjustment data 

submission deadline, which is 

announced by CMS, an MA organization 

can submit data to correct overpayments 

but cannot submit diagnoses for 

additional payment. 

(3) Submission of corrected risk 

adjustment data in accordance with 

overpayments after the final risk 

adjustment data submission deadline, as 

described in paragraph (g)(2) of this 

section, must be made as provided in 

§ 422.326. 

■ 25. Section 422.311 is amended as 

follows: 

■ A. In paragraph (a), by removing the 

phrase ‘‘CMS annually’’ and adding in 

its place the phrase ‘‘the Secretary 

annually’’. 

■ B. In paragraph (b)(2), by removing the 

phrase ‘‘to CMS or its contractors’’ and 

adding in its place the phrase ‘‘to the 

Secretary’’. 

■ C. By removing paragraph (b)(3). 

■ D. By revising paragraph (c). 

The revision read as follows: 

§ 422.311 RADV audit dispute and appeal 

processes. 

* * * * * 

(c) RADV audit appeals. (1) Appeal 

rights. MA organizations that do not 

agree with their RADV audit results may 

appeal. 

(2) Issues eligible for RADV appeals. 

(i) General rules. MA organizations may 

appeal RADV medical record review 

determinations and the Secretary’s 

RADV payment error calculation. In 

order to be eligible for RADV appeal, 

MA organizations must adhere to the 

following: 

(A) Established RADV audit 

procedures and requirements. 

(B) RADV appeals procedures and 

requirements. 

(ii) Failure to follow RADV rules. 

Failure to follow the Secretary’s RADV 

audit procedures and requirements and 

the Secretary’s RADV appeals 

procedures and requirements will 

render the MA organization’s request for 

appeal invalid. 

(iii) RADV appeal rules. The MA 

organization’s written request for 

medical record review determination 

appeal must specify the following: 

(A) The audited HCC(s) that the 

Secretary identified as being in error. 

(B) A justification in support of the 

audited HCC selected for appeal. 

(iv) Number of medical records 

eligible for appeal. For each audited 

HCC, MA organizations may appeal one 

medical record that has undergone 

RADV review. If an attestation was 

submitted to cure a signature or 

credential-related error, the attestation 

may be included in the HCC appeal. 

(v) Selection of medical record for 

appeal. The MA organization must 

select the medical record that undergoes 

appeal. 

(vi) Written request for RADV 

payment error calculation appeal. The 

written request for RADV payment error 

calculation appeal must clearly specify 

the following: 

(A) The MA organization’s own RADV 

payment error calculation. 

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(B) Where the Secretary’s RADV 

payment error calculation was 

erroneous. 

(3) Issues ineligible for RADV appeals. 

(i) MA organizations’ request for appeal 

may not include HCCs, medical records 

or other documents beyond the audited 

HCC, RADV-reviewed medical record, 

and any accompanying attestation that 

the MA organization chooses for appeal. 

(ii) MA organizations may not appeal 

the Secretary’s medical record review 

determination methodology or RADV 

payment error calculation methodology. 

(iii) As part of the RADV payment 

error calculation appeal—MA 

organizations may not appeal RADV 

medical record review-related errors. 

(iv) MA organizations may not appeal 

RADV errors that result from an MA 

organization’s failure to submit a 

medical record. 

(4) Burden of proof. The MA 

organization bears the burden of proof 

by a preponderance of the evidence in 

demonstrating that the Secretary’s 

medical record review determination(s) 

or payment error calculation was 

incorrect. 

(5) Manner and timing of a request for 

RADV appeal. (i) At the time the 

Secretary issues its RADV audit report, 

the Secretary notifies audited MA 

organizations of the following: 

(A) That they may appeal RADV HCC 

errors that are eligible for medical 

record review determination appeal. 

(B) That they may appeal the 

Secretary’s RADV payment error 

calculation. 

(ii) MA organizations have 30 days 

from date of issuance of the RADV audit 

report to file a written request with CMS 

for RADV appeal. This request for 

RADV appeal must specify one of the 

following: 

(A) Whether the MA organization 

requests medical record review 

determination appeal, the issues with 

which the MA organization disagrees, 

and the reasons for the disagreements. 

(B) Whether the MA organization 

requests RADV payment error 

calculation appeal, the issues with 

which the MA organization disagrees, 

and the reasons for the disagreements. 

(C) Whether the MA organization 

requests both medical record review 

determination appeal and RADV 

payment error calculation appeal, the 

issues with which the MA organization 

disagrees, and the reasons for the 

disagreements. 

(iii) For MA organizations that appeal 

both medical record review 

determination appeal and RADV 

payment error calculation appeal: 

(A) The Secretary adjudicates the 

request for RADV payment error 

calculation following conclusion of 

reconsideration of the MA 

organization’s request for medical 

record review determination appeal. 

(B) MA organizations may not appeal 

their RADV payment error calculation 

until appeals of RADV medical record 

review determinations filed by the MA 

organization have been completed and 

the decisions are final. 

(6) Reconsideration stage. (i) Written 

request for medical record review 

reconsideration. A MA organization’s 

written request for medical record 

review determination reconsideration 

must specify the following: 

(A) The audited HCC that the 

Secretary identified as being in error 

that the MA organization wishes to 

appeal. 

(B) A justification in support of the 

audited HCC chosen for appeal. 

(ii) Written request for payment error 

calculation. The MA organization’s 

written request for payment error 

calculation reconsideration— 

(A) Must include the MA 

organization’s own RADV payment error 

calculation that clearly specifies where 

the Secretary’s RADV payment error 

calculation was erroneous; and 

(B) May include additional 

documentary evidence pertaining to the 

calculation of the payment error that the 

MA organization wishes the 

reconsideration official to consider. 

(iii) Conduct of the reconsideration. 

(A) For medical record review 

determination reconsideration, a 

medical record review professional who 

was not involved in the initial medical 

record review determination of the 

disputed audited HCCs does the 

following: 

(1) Reviews the medical record and 

accompanying dispute justification. 

(2) Reconsiders the initial audited 

medical record review determination. 

(B) For payment error calculation 

reconsideration, CMS ensures that a 

third party not involved in the initial 

RADV payment error calculation does 

the following: 

(1) Reviews the Secretary’s RADV 

payment error calculation. 

(2) Reviews the MA organization’s 

RADV payment error calculation; 

(3) Recalculates the payment error in 

accordance with CMS’s RADV payment 

error calculation procedures. 

(iv) Effect of the reconsideration 

official’s decision. (A) The 

reconsideration official issues a written 

reconsideration decision to the MA 

organization. 

(B) The reconsideration official’s 

decision is final unless the MA 

organization disagrees with the 

reconsideration official’s decision. 

(C) If the MA organization disagrees 

with the reconsideration official’s 

decision, they may request a hearing in 

accordance with paragraph (c)(8) of this 

section. 

(7) Hearing stage. (i) Errors eligible for 

hearing. At the time the reconsideration 

official issues his or her reconsideration 

determination to the MA organization, 

the reconsideration official notifies the 

MA organization of any RADV HCC 

errors or payment error-calculations that 

are eligible for RADV hearing. 

(ii) General hearing rules. A MA 

organization that requests a RADV 

hearing must do so in writing in 

accordance with procedures established 

by CMS. 

(iii) Written request for hearing. The 

written request for a hearing must be 

filed with the Hearing Officer within 30 

days of the date the MA organization 

receives the reconsideration officer’s 

written reconsideration decision. 

(A) If the MA organization appeals 

medical record review reconsideration 

determination, the written request for 

RADV hearing must— 

(1) Include a copy of the written 

decision of the reconsideration official; 

(2) Specify the audited HCCs that the 

reconsideration official confirmed as 

being in error; and 

(3) Specify a justification why the MA 

organization disputes the 

reconsideration official’s determination. 

(B) If the MA organization appeals the 

RADV payment error calculation, the 

written request for RADV hearing must 

include the following: 

(1) A copy of the written decision of 

the reconsideration official. 

(2) The MA organization’s own RADV 

payment error calculation that clearly 

specifies where the Secretary’s payment 

error calculation was erroneous. 

(iv) Designation of hearing officer. A 

hearing officer will conduct the RADV 

hearing. 

(v) Disqualification of the hearing 

officer. (A) A hearing officer may not 

conduct a hearing in a case in which he 

or she is prejudiced or partial to any 

party or has any interest in the matter 

pending for decision. 

(B) A party to the hearing who objects 

to the designated hearing officer must 

notify that officer in writing at the 

earliest opportunity. 

(C) The hearing officer must consider 

the objections, and may, at his or her 

discretion, either proceed with the 

hearing or withdraw. 

(D) If the hearing officer withdraws, 

another hearing officer conducts the 

hearing. 

(E) If the hearing officer does not 

withdraw, the objecting party may, after 

the hearing, present objections and 

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request that the officer’s decision be 

revised or a new hearing be held before 

another hearing officer. The objections 

must be submitted in writing to the 

Secretary. 

(vi) Hearing Officer review. The 

hearing officer reviews the following: 

(A) For medical record review 

determination appeal all of the 

following: 

(1) The RADV-reviewed medical 

record and any accompanying 

attestation that the MA organization 

selected for review. 

(2) The reconsideration official’s 

written determination. 

(3) The written brief submitted by the 

MA organization or the Secretary in 

response to the reconsideration official’s 

determination. 

(B) For payment error calculation 

appeal all of the following: 

(1) A copy of the written decision of 

the reconsideration official that clearly 

specifies whether the Secretary’s 

payment error calculation was 

erroneous. 

(2) Briefs addressing the 

reconsideration decision. 

(vii) Hearing procedures. (A) 

Authority of the Hearing Officer. The 

hearing officer has full power to make 

rules and establish procedures, 

consistent with the law, regulations, and 

the Secretary rulings. These powers 

include the authority to dismiss the 

appeal with prejudice and take any 

other action which the hearing officer 

considers appropriate, including for 

failure to comply with such rules and 

procedures. 

(B) The hearing is on the record. (1) 

Except as specified in paragraph 

(c)(viii)(B)(2), the hearing officer is 

limited to the review of the record. 

(2)(i) Subject to the hearing officer’s 

full discretion, the parties may request 

a live or telephonic hearing regarding 

some or all of the disputed medical 

records. 

(ii) The hearing officer may, on his or 

her own-motion, schedule a live or 

telephonic hearing. 

(3) The record is comprised of the 

following: 

(i) Documents described at paragraphs 

(c)(6)(iv) and (7)(vi) of this section. 

(ii) Written briefs from the MA 

organization explaining why they 

believe the reconsideration official’s 

determination was incorrect. 

(iii) The Secretary’s optional brief that 

responds to the MA organization’s 

brief— 

(4) The hearing officer neither 

receives testimony nor accepts any new 

evidence that is not part of the record. 

(5) Either the MA organization or the 

Secretary may ask the hearing officer to 

rule on a motion for summary judgment. 

(viii) Hearing Officer decision. The 

hearing officer decides whether to 

uphold or overturn the reconsideration 

official’s decision, and sends a written 

determination to CMS and the MA 

organization, explaining the basis for 

the decision. 

(ix) Computations based on hearing 

decision. (A) Once the hearing officer’s 

decision is considered final pursuant to 

subsection (x), a third party not 

involved in the initial RADV payment 

error calculation recalculates the MA 

organization’s RADV payment error and 

issues a new RADV audit report to the 

appellant MA organization and CMS. 

(B) For MA organizations appealing 

the RADV error calculation only, a third 

party not involved in the initial RADV 

payment error calculation recalculates 

the MA organization’s RADV payment 

error and issues a new RADV audit 

report to the appellant MA organization 

and CMS. 

(x) Effect of the Hearing Officer’s 

decision. The hearing officer’s decision 

is final unless the decision is reversed 

or modified by the CMS Administrator. 

(8) CMS Administrator review stage. 

(i) A request for CMS Administrator 

review must be made in writing and 

filed with the CMS Administrator. 

(ii) CMS or a MA organization that 

has received a hearing officer’s decision 

and requests review by the CMS 

Administrator must do so within 30 

days of receipt of the hearing officer’s 

decision. 

(iii) After receiving a request for 

review, the CMS Administrator has the 

discretion to elect to review the hearing 

officer’s decision or to decline to review 

the hearing officer’s decision. 

(iv) If the CMS Administrator elects to 

review the hearing decision— 

(A) The CMS Administrator 

acknowledges the decision to review the 

hearing decision in writing and notifies 

CMS and the MA organization of their 

right to submit comments within 15 

days of the date of the notification; and 

(B) The CMS Administrator is limited 

to the review of the record. The record 

is comprised of the following: 

(1) The record is comprised of 

documents described at paragraphs 

(c)(6)(iv), (7)(vii), and (7)(ix) of this 

section. 

(2) The hearing record. 

(3) Written arguments from the MA 

organization or CMS explaining why 

either or both parties believe the hearing 

officer’s determination was correct or 

incorrect. 

(C) The CMS Administrator reviews 

the record and determines whether the 

hearing officer’s determination should 

be upheld, reversed, or modified. 

(v) The CMS Administrator renders 

his or her final decision in writing to the 

parties within 60 days of acknowledging 

his or her decision to review the hearing 

officer’s decision. 

(vi) The decision of the hearing officer 

is final if the CMS Administrator— 

(A) Declines to review the hearing 

officer’s decision; or 

(B) Does not make a decision within 

60 days. 

■ 26. Section 422.326 is added to 

subpart G to read as follows: 

§ 422.326 Reporting and returning of 

overpayments. 

(a) Terminology. For purposes of this 

section— 

Applicable reconciliation occurs on 

the date of the annual final deadline for 

risk adjustment data submission 

described at § 422.310(g), which is 

announced by CMS each year. 

Funds means any payment that an 

MA organization has received that is 

based on data submitted by the MA 

organization to CMS for payment 

purposes, including § 422.308(f) and 

§ 422.310. 

Overpayment means any funds that 

an MA organization has received or 

retained under title XVIII of the Act to 

which the MA organization, after 

applicable reconciliation, is not entitled 

under such title. 

(b) General rule. If an MA 

organization has identified that it has 

received an overpayment, the MA 

organization must report and return that 

overpayment in the form and manner 

set forth in this section. 

(c) Identified overpayment. The MA 

organization has identified an 

overpayment if it has actual knowledge 

of the existence of the overpayment or 

acts in reckless disregard or deliberate 

ignorance of the existence of the 

overpayment. An MA organization must 

exercise reasonable diligence to 

determine the accuracy of information it 

receives that an overpayment may exist. 

(d) Reporting and returning of an 

overpayment. An MA organization must 

report and return any overpayment it 

received no later than 60 days after the 

date on which it identified it received 

an overpayment. 

(1) Reporting. An MA organization 

must notify CMS, of the amount and 

reason for the overpayment, using a 

notification process determined by 

CMS. 

(2) Returning. An MA organization 

must return identified overpayments in 

a manner specified by CMS. 

(3) Enforcement. Any overpayment 

retained by an MA organization after the 

60-day deadline for reporting and 

returning is an obligation under 31 

U.S.C. 3729(b)(3). 

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(e) Look-back period. An MA 

organization must report and return any 

overpayment identified for the 6 most 

recent completed payment years. 

Overpayments resulting from fraud are 

not subject to this limitation of the lookback period. 

§ 422.502 [Amended] 

■ 27. Section 422.502(b)(3) is amended 

by removing the phrase ‘‘CMS may deny 

an application based on the applicant’s’’ 

and adding in its place the phrase ‘‘CMS 

may deny an application for a new 

contract or service are expansion based 

on the applicant’s’’. 

■ 28. Section 422.503 is amended by— 

■ A. Adding paragraph (b)(4)(vi)(C)(3). 

■ B. Adding and reserving paragraph 

(b)(4)(vi)(G)(4). 

■ C. Revising paragraph (b)(4)(vi)(G)(5). 

■ D. In paragraph (d)(2) introductory 

text, removing the phrase ‘‘has the right 

to:’’ and adding in its place the phrase 

‘‘has the right to timely do all of the 

following:’’. 

■ E. In paragraph (d)(2)(i), removing the 

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

■ F. In paragraph (d)(2)(ii), removing the 

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

■ G. Adding paragraph (d)(2)(iv). 

The revisions and additions are as 

follows: 

§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) * * * 

(C) * * * 

(3) An MA organization must require 

all of its first tier, downstream and 

related entities to take the CMS training 

and accept the certificate of completion 

of the CMS training as satisfaction of 

this requirement. MA organizations are 

prohibited from developing and 

implementing their own training or 

providing supplemental training 

materials to fulfill this requirement. 

* * * * * 

(G) * * * 

(5) Not accept, or share a corporate 

parent organization with an entity that 

accepts, new enrollees under a section 

1876 reasonable cost contract in any 

area in which it seeks to offer an MA 

plan. 

(d) * * * 

(2) * * * 

(iv) CMS may require that the MA 

organization hire an independent 

auditor to conduct full or partial 

program audits or to provide CMS with 

information to determine if deficiencies 

found during an audit or inspection 

have been corrected and are not likely 

to recur. The independent auditor must 

work in accordance with CMS 

specifications and must be willing to 

attest that a complete and full 

independent review has been 

performed. 

* * * * * 

■ 29. Amend § 422.504 by: 

■ A. Adding paragraphs (a)(3)(iv) and 

(a)(19). 

■ B. Redesignating paragraph (i)(2)(ii) as 

(i)(2)(iii). 

■ C. Adding new paragraph (i)(2)(ii) and 

paragraphs (1)(5) and (o). 

§ 422.504 Contract provisions. 

* * * * * 

(a) * * * 

(3) * * * 

(iv) Such benefits and access in a 

manner that provides good quality 

health care demonstrated by scores of 

three or higher on CMS performance 

standards for patient outcomes, 

intermediate outcomes, process, patient 

experience, and patient access to care. 

* * * * * 

(19) That it will not submit a bid for 

the same type of MA plan that is nonrenewed under § 522.506(b)(1)(iv) in the 

service area of the non-renewed plan for 

2 years. 

* * * * * 

(i) * * * 

(2) * * * 

(ii) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records under (i)(2)(i) of this section 

directly from any first tier, downstream, 

or related entity. 

* * * * * 

(l) * * * 

(5) Certification of accuracy of data 

for overpayments. The CEO, CFO, or 

COO must certify (based on best 

knowledge, information, and belief) that 

the information provided for purposes 

of reporting and returning of 

overpayments under § 422.326 is 

accurate, complete, and truthful. 

* * * * * 

(o) Business continuity. (1) The MA 

organization agrees to develop, 

maintain, and implement a business 

continuity plan containing policies and 

procedures to ensure the continuation of 

business operations during disruptions 

to business operations which would 

include natural or man-made disasters, 

system failures, emergencies, and other 

similar circumstances and the threat of 

such occurrences. To meet the 

requirement, the business continuity 

plan must, at a minimum, include the 

following: 

(i) Risk assessment. Identify threats 

and vulnerabilities that might affect 

business operations. 

(ii) Mitigation strategy. Design 

strategies to mitigate hazards. Identify 

essential functions in addition to those 

specified in paragraph (o)(2) of this 

section and prioritize the order in which 

to restore all other functions to normal 

operations. At a minimum, each MA 

organization must do the following: 

(A) Identify specific events that will 

activate the business continuity plan. 

(B) Develop a contingency plan to 

maintain, during any business 

disruption, the availability and, as 

applicable, confidentiality of 

communication systems and essential 

records in all forms (including 

electronic and paper copies). The 

contingency plan must do the following: 

(1) Ensure that during any business 

disruption the following systems will 

operate continuously or, should they 

fail, be restored to operational capacity 

on a timely basis: 

(i) Information technology (IT) 

systems including those supporting 

claims processing at point of service. 

(ii) Provider and enrollee 

communication systems including 

telephone, Web site, and email. 

(2) With respect to electronic 

protected health information, comply 

with the contingency plan requirements 

of the Health Insurance Portability and 

Accountability Act of 1996 Security 

Regulations at 45 CFR 160 and 164, 

Subparts A and C. 

(C) Establish a chain of command. 

(D) Establish a business 

communication plan that includes 

emergency capabilities and procedures 

to contact and communicate with the 

following: 

(1) Employees. 

(2) First tier, downstream, and related 

entities. 

(3) Other third parties (including 

pharmacies, providers, suppliers, and 

government and emergency 

management officials). 

(E) Establish employee and facility 

management plans to ensure that 

essential operations and job 

responsibilities can be assumed by other 

employees or moved to alternate sites as 

necessary. 

(F) Establish a restoration plan 

including procedures to transition to 

normal operations. 

(G) Comply with all applicable 

Federal, State, and local laws. 

(iii) Testing and revision. On at least 

an annual basis, test and update the 

business operations continuity plan to 

ensure the following: 

(A) That it can be implemented in 

emergency situations. 

(B) That employees understand how it 

is to be executed. 

(iv) Training. On at least an annual 

basis, educate all employees, including 

contract staff about the business 

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continuity plan and their own 

respective roles. 

(v) Records. (A) Develop and maintain 

records documenting the elements of 

the business continuity plan described 

in paragraphs (o)(1)(i) through (iv) of 

this section. 

(B) Make the information specified in 

paragraph (o)(1)(v)(A) of this section 

available to CMS upon request. 

(2) Restoration of essential functions. 

Every MA organization must restore 

essential functions within 24 hours after 

any of the essential functions fail or 

otherwise stop functioning as usual. In 

addition to any essential functions that 

the MA organization identifies under 

paragraph (o)(1)(ii) of this section, for 

purposes of this paragraph (o)(2) of the 

section essential functions include, at a 

minimum, the following: 

(i) Benefit authorization (if not 

waived), adjudication, and processing of 

health care claims for services furnished 

at a hospital, clinic, provider office or 

other place of service. 

(ii) Operation of an enrollee 

exceptions and appeals process 

including coverage determinations. 

(iii) Operation of call center customer 

services. 

■ 30. Section 422.506 by revising 

paragraphs (a)(4) and (b)(1)(iv) to read as 

follows: 

§ 422.506 Nonrenewal of contract. 

(a) * * * 

(4) If an MA organization does not 

renew a contract under this paragraph 

(a) of this section, CMS may deny an 

application for a new contract or a 

service area expansion from the MA 

organization for 2 years unless there are 

special circumstances that warrant 

special consideration, as determined by 

CMS. This prohibition may apply 

regardless of the product type, contract 

type or service area of the previous 

contract. 

* * * * * 

(b) * * * 

(1) * * * 

(iv) The contract must be nonrenewed as to an individual MA plan if 

that plan does not have a sufficient 

number of enrollees to establish that it 

is a viable independent plan option. 

* * * * * 

■ 31. Section 422.508 is amended by 

revising paragraphs (c) and (d) 

introductory text to read as follows: 

§ 422.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(c) Agreement to limit new MA 

applications. As a condition of the 

consent to a mutual termination CMS 

requires, as a provision of the 

termination agreement, language 

prohibiting the MA organization from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. This prohibition may 

apply regardless of the product type, 

contract type or service area of the 

previous contract. 

(d) Prohibition against Part C program 

participation by organizations whose 

owners, directors, or management 

employees served in a similar capacity 

with another organization that mutually 

terminated its Medicare contract within 

the previous 2 years. During the same 2- 

year period, CMS does not contract with 

an organization whose covered persons 

also served as covered persons for the 

mutually terminating sponsor. This 

prohibition may apply regardless of the 

product type, contract type or service 

area of the previous contract. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

* * * * * 

■ 32. Amend § 422.510 as follows; 

■ A. By redesigating paragraphs (a)(4) 

through (15) as paragraphs (a)(4)(i) 

through (xii). 

■ B. By adding new paragraph (a)(4) 

introductory text. 

■ C. In newly redesignated paragraphs 

(a)(4)(ii), (v), (vi), and (viii) by removing 

the term ‘‘fails’’ and adding in its place 

the term ‘‘failed’’. 

■ D. In newly redesignated paragraphs 

(a)(4)(iii), (iv), (vii), (ix), and (x), by 

removing the term ‘‘Fails’’ and adding 

in its place the term ‘‘Failed’’. 

■ E. By revising newly redesignated 

paragraphs (a)(4)(xi) and (xii). 

■ F. In paragraph (b)(1)(i), by removing 

the phrase ‘‘90 days’’ and adding in its 

place the phrase ‘‘at least 45 calendar 

days’’. 

■ G. By revising paragraph (b)(1)(iii) and 

the heading for paragraph (b)(2). 

■ H. In paragraph (b)(2)(i)(C), by 

removing the cross-reference ‘‘(a)(4) of 

this section’’ and adding in its place the 

cross reference ‘‘(a)(4)(i) of this section’’. 

■ I. In paragraph (c)(2)(iii), by removing 

the cross reference ‘‘(a)(4) of this 

section’’ and adding in its place the 

cross reference ‘‘(a)(4)(i) of this section’’. 

The additions and revisions read as 

follows: 

§ 422.510 Termination of Contract by CMS. 

* * * * * 

(a) * * * 

(3) * * * 

(4) CMS may make a determination 

under paragraph (a)(1), (2), or (3) of this 

section if the MA organization has had 

one or more of the following occur: 

* * * * * 

(xi) Achieves a Part C summary plan 

rating of less than 3 stars for 3 

consecutive contract years. Plan ratings 

issued by CMS before September 1, 

2012, are not included in the calculation 

of the 3–year period. 

(A) Holds a MA contract that does not 

include a Part D addendum and 

achieves a Part C summary plan rating 

of less than 3 stars for 3 consecutive 

contract years. 

(B) Holds a MA contract that includes 

a Part D addendum and fails for three 

consecutive years to achieve both Part C 

and D summary ratings of 3 or more 

stars in the same year. 

(xii) Has failed to report MLR data in 

a timely and accurate manner in 

accordance with § 422.2460 or that any 

MLR data required by this subpart is 

found to be materially incorrect or 

fraudulent. 

* * * * * 

(b) * * * 

(1) * * * 

(i) CMS notifies the MA organization 

in writing at least 45 calendar days 

before the intended date of the 

termination. 

(ii) The MA organization notifies its 

Medicare enrollees of the termination by 

mail at least 30 calendar days before the 

effective date of the termination. 

(iii) The MA organization notifies the 

general public of the termination at least 

30 calendar days before the effective 

date of the termination by releasing a 

press statement to news media serving 

the affected community or county and 

posting the press statement prominently 

on the organization’s Web site. 

(2) Immediate termination of contract 

by CMS. 

* * * * * 

■ 33. Section 422.512 is amended by 

revising paragraph (e)(1) to read as 

follows: 

§ 422.512 Termination of contract by the 

MA organization. 

* * * * * 

(e) * * * 

(1) CMS may deny an application for 

a new contract or a service area 

expansion from an MA organization that 

has terminated its contract within the 

preceding 2 years unless there are 

circumstances that warrant special 

consideration, as determined by CMS. 

This prohibition may apply regardless 

of the contract type, product type, or 

service area of the previous contract. 

* * * * * 

■ 34. Amend § 422.566 by revising 

paragraphs (b) introductory text, and 

(b)(1) through (3) and adding paragraph 

(b)(6) to read as follows: 

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§ 422.566 Organization determinations. 

* * * * * 

(b) Actions that are organization 

determinations. The following actions 

by an MA organization are organization 

determinations: 

(1) Any determination with respect to 

payment for temporarily out of the area 

renal dialysis services, emergency 

services, post-stabilization care, or 

urgently needed services. 

(2) Any determination with respect to 

payment for any other health services 

furnished by a provider other than the 

MA 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 MA 

organization. 

(3) Any determination by the MA 

organization not to provide or pay for 

services, in whole or in part, including 

the type, level or duration of services, 

that the enrollee believes should be 

furnished or arranged for by the MA 

organization. 

* * * * * 

(6) Any determination by the MA 

organization to provide or pay for an 

item or service, including the initial or 

continued provision of an item or 

service by a contract provider of the MA 

organization. 

* * * * * 

■ 35. Section 422.568 is amended by 

revising paragraph (b) to read as follows: 

§ 422.568 Standard timeframes and notice 

requirements for organization 

determinations. 

* * * * * 

(b) Timeframe for requests for service. 

Except as provided in paragraph (b)(1) 

of this section, when a party has made 

a request for a service, the MA 

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. 

(1) Extensions. The MA organization 

may extend the timeframe by up to 14 

calendar days if— 

(i) The enrollee requests the 

extension; 

(ii) The extension is justified and in 

the enrollee’s interest due to the need 

for additional medical evidence from a 

noncontract provider that may change 

an MA organization’s decision to deny 

an item or service; or 

(iii) The extension is justified due to 

extraordinary, exigent, or other nonroutine circumstances and is in the 

enrollee’s interest. 

(2) Notice of extension. When the MA 

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 an expedited 

grievance if he or she disagrees with the 

MA organization’s decision to grant an 

extension. The MA 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. 

* * * * * 

■ 36. Section 422.572 is amended by 

revising paragraph (b) to read as follows: 

§ 422.572 Timeframes and notice 

requirements for expedited organization 

determinations. 

* * * * * 

(b) Extensions. (1) The MA 

organization may extend the 72-hour 

deadline by up to 14 calendar days if— 

(i) The enrollee requests the 

extension; 

(ii) The extension is justified and in 

the enrollee’s interest due to the need 

for additional medical evidence from a 

noncontract provider that may change 

an MA organization’s decision to deny 

an item or service; or 

(iii) The extension is justified due to 

extraordinary, exigent, or other nonroutine circumstances and is in the 

enrollee’s interest. 

(2) Notice of extension. When the MA 

organization extends the deadline, it 

must notify the enrollee in writing of 

the reasons for the delay and inform the 

enrollee of the right to file an expedited 

grievance if he or she disagrees with the 

MA organization’s decision to grant an 

extension. The MA 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. 

* * * * * 

■ 37. Section 422.590 is amended as 

follows: 

■ A. By revising paragraph (a)(1). 

■ B. In paragraph (d)(1), by removing 

the cross reference ‘‘(d)(2)’’ and adding 

in its place the cross-reference ‘‘(e)’’. 

■ C. By removing paragraph (d)(2). 

■ D. By redesignating paragraphs (d)(3) 

through (5) as paragraphs (d)(2) through 

(4), respectively. 

■ E. By redesignating paragraphs (e) 

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

respectively; 

■ F. By adding new paragraph (e). 

The additions and revisions read as 

follows: 

§ 422.590 Timeframes and responsibility 

for reconsiderations. 

(a) * * * 

(1) Except as provided in paragraph 

(e) of this section, if the MA 

organization makes a reconsidered 

determination that is completely 

favorable to the enrollee, the MA 

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. 

* * * * * 

(e) Extensions. (1) As described in 

paragraphs (e)(1)(i) through (e)(1)(iii) of 

this section, the MA organization may 

extend the standard or expedited 

reconsideration deadline by up to 14 

calendar days if— 

(i) The enrollee requests the 

extension; or 

(ii) The extension is justified and in 

the enrollee’s interest due to the need 

for additional medical evidence from a 

noncontract provider that may change 

an MA organization’s decision to deny 

an item or service; or 

(iii) The extension is justified due to 

extraordinary, exigent or other nonroutine circumstances and is in the 

enrollee’s interest. 

(2) Notice of extension. When the MA 

organization extends the deadline, it 

must notify the enrollee in writing of 

the reasons for the delay and inform the 

enrollee of the right to file an expedited 

grievance if he or she disagrees with the 

MA organization’s decision to grant an 

extension. The MA 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. 

* * * * * 

§ 422.618 [Amended] 

■ 38. In paragraph (a), removing the 

cross-reference ‘‘§ 422.590(a)(1)’’ and 

adding in its place the cross-reference 

‘‘§ 422.590(e)’’. 

§ 422.619 [Amended] 

■ 39. In paragraph (a), removing the 

cross-reference ‘‘§ 422.590(d)(2)’’ and 

adding in its place the cross-reference 

‘‘§ 422.590(e)’’. 

■ 40. Amend § 422.641 by revising 

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

§ 422.641 Contract determinations. 

* * * * * 

(b) A determination not to authorize 

a renewal of a contract with an MA 

organization in accordance with 

§ 422.506(b). 

(c) A determination to terminate a 

contract with an MA organization in 

accordance with § 422.510(a). 

* * * * * 

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■ 41. Amend § 422.644 by revising 

paragraphs (a), (b)(1), and (c)(1) to read 

as follows: 

§ 422.644 Notice of contract determination. 

* * * * * 

(a) When CMS makes a contract 

determination under § 422.641, it gives 

the MA organization written notice. 

(b) * * * 

(1) Reasons for the determination; and 

* * * * * 

(c) * * * 

(1) General rule. Except as provided 

in (c)(2) of this section, CMS mails 

notice to the MA organization 45 

calendar days before the anticipated 

effective date of the termination. 

* * * * * 

■ 42. Amend § 422.660 by revising 

paragraphs (a)(2), (a)(3), and (b)(4) to 

read as follows: 

§ 422.660 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

* * * * * 

(a) * * * 

(2) An MA organization whose 

contract has been terminated in 

accordance with § 422.510. 

(3) An MA organization whose 

contract has not been renewed in 

accordance with § 422.506. 

(b) * * * 

(4) During a hearing to review the 

imposition of an intermediate sanction 

as described at § 422.750, the MA 

organization has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.752(a) 

and (b). 

* * * * * 

■ 43. Amend § 422.752 by adding 

paragraphs (a)(9) through (12) and 

revising paragraphs (c)(1) and (c)(2)(ii) 

to read as follows: 

§ 422.752 Basis for imposing intermediate 

sanctions and civil money penalties 

(a) * * * 

(9) Except as provided under § 423.34 

of this chapter, enrolls an individual in 

any plan under this part without the 

prior consent of the individual or the 

designee of the individual. 

(10) Transfers an individual enrolled 

under this part from one plan to another 

without the prior consent of the 

individual or the designee of the 

individual or solely for the purpose of 

earning a commission. 

(11) Fails to comply with marketing 

restrictions described in subpart V or 

applicable implementing guidance. 

(12) Employs or contracts with any 

individual, agent, provider, supplier or 

entity who engages in the conduct 

described in paragraphs (a)(1) through 

(11) of this section. 

* * * * * 

(c) * * * 

(1) CMS. In addition to, or in place of, 

any intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in the following: 

(i) Section 422.760(b) for any of the 

determinations at § 422.510(a), except 

§ 422.510(a)(4)(i). 

(ii) Section 422.760(c) for any of the 

determinations at § 422.752(a) except 

§ 422.752(a)(5). 

(2) * * * 

(ii) Determinations made under 

§ 422.510(a)(4)(i). 

■ 44. Amend § 422.756 by revising 

paragraphs (a)(2), (b)(4), and (d) to read 

as follows: 

§ 422.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(a) * * * 

(2) Opportunity to respond. CMS 

allows the MA organization 10 calendar 

days after receipt of the notice to 

provide a written rebuttal. CMS 

considers receipt of the notice as the 

day after the notice is sent by fax, email, 

or submitted for overnight mail. 

(b) * * * 

(4) The MA organization must follow 

the right to a hearing procedure as 

specified in subpart N of this part. 

* * * * * 

(d) Non-renewal or termination by 

CMS. In addition to or as an alternative 

to the sanctions described in § 422.750, 

CMS may— 

(1) Decline to authorize the renewal of 

an organization’s contract in accordance 

with § 422.506(b); or 

(2) Terminate the contract in 

accordance with § 422.510. 

* * * * * 

■ 45. Amend 422.760 by revising 

paragraph (a)(3) and the heading of 

paragraph (b) and adding paragraph (c) 

to read as follows: 

§ 422.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) * * * 

(3) The adverse effect to enrollees 

which resulted or could have resulted 

from the conduct of MA organization; 

(b) Amount of penalty imposed by 

CMS. * * * 

* * * * * 

(c) Amount of penalty imposed by 

CMS or OIG. CMS or the OIG may 

impose civil money penalties in the 

following amounts for a determination 

made under § 422.752(a): 

(1) Civil money penalties of not more 

than $25,000 for each determination 

made. 

(2) With respect to a determination 

made under § 422.752(a)(4) or (a)(5)(i), 

not more than $100,000 for each such 

determination, except with respect to a 

determination made under 

§ 422.752(a)(5), an assessment of not 

more than the amount claimed by such 

plan or MA organization based upon the 

misrepresentation or falsified 

information involved. 

(3) Plus with respect to a 

determination made under 

§ 422.752(a)(2), double the excess 

amount charged in violation of such 

paragraph (and the excess amount 

charged must be deducted from the 

penalty and returned to the individual 

concerned). 

(4) Plus with respect to a 

determination made under 

§ 422.752(a)(4), $15,000 for each 

individual not enrolled as a result of the 

practice involved. 

■ 46. Amend § 422.1016 by revising the 

first sentence of paragraph (b)(1) to read 

as follows: 

§ 422.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

* * * * * 

(b) * * * 

(1) The other party will have 20 

calendar days from the date of mailing 

or in person filing to submit any rebuttal 

statement or additional evidence. * * * 

* * * * * 

■ 47. Amend § 422.1020 by revising 

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

§ 422.1020 Request for hearing. 

(a) * * * 

(2) The MA organization or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days after 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

* * * * * 

■ 48. Amend § 422.2262 by adding 

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

§ 422.2262 Review and Distribution of 

marketing materials. 

(a) * * * 

(2) If CMS does not approve or 

disapprove marketing materials within 

the specified review timeframe, the 

materials will be deemed approved. 

Deemed approved means that the MA 

organization may use the material. 

* * * * * 

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2060 Federal Register / Vol. 79, No. 7 / Friday, January 10, 2014 / Proposed Rules 

§ 422.2266 [Removed and Reserved] 

■ 49. Section 422.2266 is removed and 

reserved. 

■ 50. Amend § 422.2274 by: 

■ A. Revising the introductory text. 

■ B. Redesignating paragraphs (a) 

through (f) as (b) through (g). 

■ C. Adding new paragraph (a). 

■ D. Revising newly redesignated 

paragraphs (b) through (d). 

■ E. Adding paragraph (h). 

The revisions and addition read as 

follows: 

§ 422.2274 Broker and agent requirements. 

If an MA organization uses agents and 

brokers to sell its Medicare plans, the 

following requirements in this section 

are applicable: 

(a) Definitions. For purposes of this 

section, the following definitions are 

applicable: 

Compensation (1) Includes monetary 

or non-monetary remuneration of any 

kind relating to the sale or renewal of a 

policy including, but not limited to— 

(i) Commissions; 

(ii) Bonuses; 

(iii) Gifts; 

(iv) Prizes or Awards; or 

(v) Referral or Finder fees. 

(2) Does not include— 

(i) Payment of fees to comply with 

State appointment laws, training, 

certification, and testing costs; 

(ii) Reimbursement for mileage to, and 

from, appointments with beneficiaries; 

or 

(iii) Reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. 

Like plan type means one of the 

following: 

(1) PDP replaced with another PDP. 

(2) MA or MA–PD replaced with 

another MA or MA–PD. 

(3) Cost plan replaced with another 

cost plan. 

Unlike plan type means one of the 

following: 

(1) PDP replaced with a MA–PD or a 

MA–PD replaced with a PDP. 

(2) PDP replaced with a cost plan or 

a cost plan replaced with a PDP. 

(3) MA–PD replaced with a cost plan 

or a cost plan replaced with a MA–PD. 

Plan year means the year beginning 

January 1 and ending December 31. 

Renewal year means all years 

following the initial enrollment year in 

a like plan type. 

(b) Compensation rules. A MA 

organization must compensate 

independent brokers and agents, if 

compensation is paid, only according to 

the following rules in this section. 

(1) Compensation amounts. (i) For an 

initial year enrollment of a Medicare 

beneficiary into an MA plan, the 

compensation must be at or below the 

fair market value of such services, 

published annually as a cut-off amount 

by CMS. 

(ii) For renewal years, compensation 

may be up to 35 percent of the current 

fair market value cut-off amounts 

published annually by CMS. 

(2) Aggregate compensation. (i) An 

entity must not provide aggregate 

compensation to its agents or brokers 

greater than the renewal compensation 

payable by the replacing plan on 

renewal policies if an existing policy is 

replaced with a like plan at any time. 

(ii) An agent or broker must not 

receive aggregate compensation greater 

than the renewal compensation payable 

by the replacing plan on renewal 

policies if an existing policy is replaced 

with a like plan type at any time. 

(iii) The initial compensation is paid 

for replacements between unlike plan 

types. 

(3) Compensation payment and 

payment recovery. (i) Compensation 

may only be paid for the enrollee’s 

months of enrollment during a plan 

year. 

(ii)(A) Subject to paragraph (b)(3)(iii) 

of this section, compensation payments 

may be made at one time for the entire 

current plan year or in installments 

throughout the year. 

(B) Compensation may not be paid 

until January 1 of the compensation year 

and, if paid at all, must be paid in full 

by December 31 of the compensation 

year. 

(iii) When a beneficiary disenrolls 

from an MA plan, compensation paid to 

agents and brokers must be recovered 

for those months of the plan year for 

which the beneficiary is not enrolled. 

For disenrollments occurring within the 

first 3 months, the entire compensation 

must be recovered when the 

disenrollment was the result of agent or 

broker behavior. 

(4) Compensation structure. (i) The 

MA organization must establish a 

compensation structure for new and 

replacement enrollments and renewals 

effective in a given plan year. 

Compensation structures must be in 

place by the beginning of the plan 

marketing period, October 1. 

(ii) Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

(c) Annual training. The MA 

organization must ensure that all agents 

and brokers selling Medicare products 

are trained annually on the following: 

(1) Medicare rules and regulations. 

(2) Details specific to the plan 

products they intend to sell. 

(d) Annual testing. It must ensure that 

all agents and brokers selling Medicare 

products are tested annually, to ensure 

the following: 

(1) Appropriate knowledge and 

understanding of Medicare rules and 

regulations. 

(2) Details specific to the plan 

products they intend to sell. 

* * * * * 

(h) Finder’s (referral) fees. Finder’s 

(referral) fees paid to all agents and 

brokers— 

(1) May not exceed an amount CMS 

determines could reasonably be 

expected to affect enrollee behavior 

while not exceeding the value of the 

health-related service or activity itself; 

and 

(2) Must be included in the total 

compensation not to exceed the fair 

market value for that calendar year. 

Subpart Y—[Reserved] 

■ 51. Part 422 is amended by adding 

reserved subpart Y. 

■ 52. Part 422 is amended by adding 

subpart Z to read as follows: 

Subpart Z—Part C Recovery Audit 

Contractor Appeals Process 

Sec. 

422.2600 Payment appeals. 

422.2605 Request for reconsideration. 

422.2610 Hearing official review. 

422.2615 Review by the Administrator. 

Subpart Z—Part C Recovery Audit 

Contractor Appeals Process 

§ 422.2600 Payment appeals. 

If the Part C RAC did not apply its 

stated payment methodology correctly, 

an MA organization may appeal the 

findings of the applied methodology. 

The payment methodology itself is not 

subject to appeal. 

§ 422.2605 Request for reconsideration. 

(a) Time for filing a request. The 

request for reconsideration must be filed 

with the designated independent 

reviewer within 60 calendar days from 

the date of the demand letter received 

by the MA organization. 

(b) Content of request. (1) The request 

for reconsideration must be in writing 

and specify the findings or issues with 

which the MA organization disagrees. 

(2) The MA organization must include 

with its request all supporting 

documentary evidence it wishes the 

independent reviewer to consider. 

(i) This material must be submitted in 

the format requested by CMS. 

(ii) Documentation, evidence, or 

substantiation submitted after the filing 

of the reconsideration request will not 

be considered. 

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(c) CMS rebuttal. CMS may file a 

rebuttal to the MA organization’s 

reconsideration request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the review 

entity’s notification to CMS that it has 

received the MA organization’s 

reconsideration request. 

(2) CMS sends its rebuttal to the MA 

organization at the same time it is 

submitted to the independent reviewer. 

(d) Review entity. An independent 

reviewer conducts the reconsideration. 

The independent reviewer reviews the 

demand for repayment, the evidence 

and findings upon which it was based 

and any supporting documentation that 

the MA organization or CMS submitted 

in accordance with this section. 

(e) Notification of decision. The 

independent reviewer informs the CMS 

and the MA organization of its decision 

in writing. 

(f) Effect of decision. A 

reconsideration decision is final and 

binding unless the MA organization 

requests a hearing official review in 

accordance with § 422.2610. 

(g) Right to hearing official review. An 

MA organization that is dissatisfied 

with the independent reviewer’s 

reconsideration decision is entitled to a 

hearing official review as provided in 

§ 422.2610. 

§ 422.2610 Hearing official review. 

(a) Time for filing a request. A MA 

organization must file with CMS a 

request for a hearing official review 

within 15 calendar days from the date 

of the independent reviewer’s issuance 

of a reconsideration determination. 

(b) Content of the request. (1) The 

request must be in writing and must 

specify the findings or issues in the 

reconsideration decision with which the 

MA organization disagrees and the 

reasons for the disagreements. 

(2) The MA organization must submit 

with its request all supporting 

documentation, evidence, and 

substantiation that it wants to be 

considered. 

(3) No new evidence may be 

submitted. 

(4) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(c) CMS rebuttal. CMS may file a 

rebuttal to the MA organization’s 

hearing official review request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the MA 

organization’s submission of its hearing 

official review request. 

(2) CMS sends its rebuttal to the MA 

organization at the same time it is 

submitted to the hearing official. 

(d) Conducting a review. A CMSdesignated hearing official conducts the 

hearing on the record. 

(1) The hearing is not to be conducted 

live or via telephone unless the hearing 

official, in his or her sole discretion, 

requests a live or telephonic hearing. 

(2) In all cases, the hearing official’s 

review is limited to information that 

meets one or more of the following: 

(i) The Part C RAC used in making its 

determinations. 

(ii) The independent reviewer used in 

making its determinations. 

(iii) The MA organization submits 

with its hearing request. 

(iv) CMS submits in accordance with 

paragraph (c) of this section. 

(3) Neither the MA organization nor 

CMS may submit new evidence. 

(e) Hearing official decision. The CMS 

hearing official decides the case within 

60 days and sends a written decision to 

the MA organization and CMS, 

explaining the basis for the decision. 

(f) Effect of hearing official decision. 

The hearing official’s decision is final 

and binding, unless the decision is 

reversed or modified by the CMS 

Administrator in accordance with 

§ 422.2615. 

§ 422.2615 Review by the Administrator. 

(a) Request for review by 

Administrator. If an MA organization is 

dissatisfied with the hearing official’s 

decision, it may request that the CMS 

Administrator review the decision. 

(1) The request must be filed with the 

CMS Administrator within 15 calendar 

days of the date of the hearing official’s 

decision. 

(2) The request must provide evidence 

or reasons to substantiate the request. 

(b) Content of request. The MA 

organization must submit with its 

request all supporting documentation, 

evidence, and substantiation that it 

wants to be considered. 

(1) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(2) Neither the MA organization, nor 

CMS may submit new evidence. 

(c) Discretionary review. After 

receiving a request for review, the CMS 

Administrator has the discretion to 

review the hearing official’s decision in 

accordance with paragraph (e) of this 

section or to decline to review said 

decision. 

(d) Notification of decision whether to 

review. The Administrator notifies the 

MA organization within 45 days of 

receiving the MA organization’s hearing 

request of whether he or she intends to 

review the hearing official’s decision. 

(1) If the Administrator agrees to 

review the hearing official’s decision, 

CMS may file a rebuttal statement 

within 30 days of the Administrator’s 

notice to the plan that the request for 

review has been accepted. CMS sends 

its rebuttal statement to the plan at the 

same time it is submitted to the 

Administrator. 

(2) If the CMS Administrator declines 

to review the hearing official’s decision, 

the hearing official’s decision is final 

and binding. 

(e) CMS Administrator’s review. If the 

CMS Administrator agrees to review the 

hearing official’s decision, he or she 

determines, based upon this decision, 

the hearing record, and any arguments 

submitted by the MA organization or 

CMS in accordance with this section, 

whether the determination should be 

upheld, reversed, or modified. The 

Administrator furnishes a written 

decision, which is final and binding, to 

the MA organization and to CMS. 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

■ 53. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

Act (42 U.S.C. 1302, 1395w–101 through 

1395w–152, and 1395hh). 

■ 54. Amend § 423.1 by adding new 

references in numerical order to 

paragraph (a)(1) and by adding 

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

§ 423.1 Basis and scope. 

(a) * * * 

(1) * * * 

1128J(d). Reporting and Returning of 

Overpayments. 

* * * * * 

1860D–14A. Medicare coverage gap 

discount program. 

* * * * * 

1860D–43. Condition for coverage of 

drugs under this part. 

* * * * * 

(3) Section 8 of the United States 

Code regarding aliens who are not 

qualified aliens ineligible for Federal 

public benefits. 

* * * * * 

■ 55. Section 423.10 is added to subpart 

A to read as follows: 

§ 423.10 Prohibition on intervention in 

negotiations with manufacturers. 

(a) General rule. CMS promotes fair 

private market competition in the 

market for Part D drugs. 

(b) No interference in negotiations. (1) 

Except as necessary to enforce CMS 

requirements, CMS is not— 

(i) A party to discussions between 

drug manufacturers and pharmacies or 

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between prescription drug 

manufacturers and Part D sponsors; nor 

(ii) An arbiter of the meaning of or 

compliance with the terms and 

conditions of agreements reached 

between these parties. 

(2) Nothing in paragraph (b)(1) of this 

section limits CMS’s authority to— 

(i) Require documentation of and 

access to all agreements referenced in 

paragraph (b)(1)(ii) of this section; or 

(ii) Require inclusion of terms and 

conditions in such agreements when 

necessary to implement requirements 

under the Act. 

(c) No establishment of formulary 

drug product selection. CMS does not 

determine the specific drug products to 

be included on Part D sponsor 

formularies or any tier placement of 

such products, except as necessary to 

comply with § 423.120(b)(1)(v) or 

§ 423.272(b)(2). 

(d) No establishment of Part D drug 

price reimbursement methodologies. (1) 

CMS does not establish specific drug 

product pricing standards (as defined in 

§ 423.505(b)(21)) or the dollar amount of 

price concessions at any stage in the 

drug distribution channel for Part D 

drugs. 

(2) Nothing in this section limits CMS 

authority to require full disclosure or 

uniform treatment and reporting of drug 

costs, prices, or price concessions 

consistent with rules established by 

CMS. 

■ 56. Amend § 423.30 as follows: 

■ A. In paragraph (a)(1) introductory 

text, by removing the phrase ‘‘if he or 

she:’’ and adding in its place the phrase 

‘‘if he or she does all of the following:’’. 

■ B. In paragraph (a)(1)(i), by removing 

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

■ C. By adding paragraph (a)(1)(iii). 

The addition reads as follows: 

§ 423.30 Eligibility and enrollment. 

(a) * * * 

(1) * * * 

(iii) Is a United States citizen or 

qualified alien who is lawfully present 

in the United States as determined in 8 

CFR 1.3. 

* * * * * 

§ 423.44 [Amended] 

■ 57. Amend § 423.44 as follows: 

■ A. By adding paragraph (b)(2)(vi). 

■ B. In paragraph (d)(1)(vi), by removing 

the phrase ‘‘CMS may reinstate’’ and 

adding in its place the phrase ‘‘CMS (or 

its designee) may reinstate’’. 

■ C. By adding paragraph (d)(8). 

The additions read as follows: 

§ 423.44 Involuntary disenrollment from 

Part D coverage. 

* * * * * 

(b) * * * 

(2) * * * 

(vi) The individual loses qualified 

alien status or is no longer lawfully 

present in the United States. 

* * * * * 

(d) * * * 

(8) Loss of qualified alien status. 

Disenrollment is effective with the 

month following the last month of 

lawful presence or qualified alien status 

in the United States. 

* * * * * 

§ 423.100 [Amended] 

■ 58. Amend § 423.100 as follows: 

■ A. By revising the definition of ‘‘Daily 

cost-sharing rate’’. 

■ B. By revising the definition of 

‘‘Negotiated prices’’. 

■ C. By removing the definition of 

‘‘Non-preferred pharmacy’’. 

■ D. In the definition of ‘‘Part D drug’’— 

■ i. By revising paragraph (1) 

introductory text. 

■ ii. By adding paragraph (1)(vii). 

■ iii. In paragraph (2) introductory text, 

by removing the phrase ‘‘Does not 

include—’’ and adding in its place the 

phrase ‘‘Does not include any of the 

following:’’ 

■ iv. In paragraph (2)(i), by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ vi. By adding paragraph (2)(iii). 

■ E. By adding the definition of 

‘‘Preferred cost sharing’’. 

■ F. By removing the definition of 

‘‘Preferred pharmacy’’. 

The additions and revisions read as 

follows: 

§ 423.100 Definitions. 

* * * * * 

Daily cost-sharing rate means, as 

applicable, the established— 

(1) Monthly copayment under the 

enrollee’s Part D plan, divided by the 

number of days in the approved month’s 

supply for the drug dispensed and 

rounded to the nearest cent; or 

(2) Coinsurance percentage under the 

enrollee’s Part D plan. 

* * * * * 

Negotiated prices means prices for 

covered Part D drugs that meet all of the 

following: 

(1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug. 

(2) Are inclusive of all price 

concessions and any other fees charged 

to network pharmacies; and 

(3) Include any dispensing fees; but 

(4) May exclude additional contingent 

amounts, such as incentive fees, only if 

these amounts increase prices and 

cannot be predicted in advance. 

(5) May not be rebated back to the Part 

D sponsor (or other intermediary 

contracting organization) in full or in 

part. 

* * * * * 

Part D drug * * * 

(1) Unless excluded under paragraph 

(2) of this definition, any of the 

following, or any FDA-approved 

combinations of the following, if used 

for a medically accepted indication (as 

defined in section 1860D–2(e)(4) of the 

Act). 

* * * * * 

(vii) A combination product approved 

and regulated by the FDA as a drug, 

vaccine, or biologic (or any approved 

combinations of these) described in 

paragraphs (i), (ii), (iii), or (v) of the Part 

D drug definition. 

(2) Does not include any of the 

following: 

* * * * * 

(iii) Medical foods, defined as a food 

that is formulated to be consumed or 

administered enterally under the 

supervision of a physician and which is 

intended for the specific dietary 

management of a disease or condition 

for which distinctive nutritional 

requirements, based on recognized 

scientific principles, are established by 

medical evaluation, and that are not 

regulated as drugs under section 505 of 

the Federal Food, Drug, and Cosmetic 

Act. 

* * * * * 

Preferred cost sharing means lower 

cost sharing for certain covered Part D 

drugs at certain network pharmacies 

offered in accordance with the 

requirements of § 423.120(a)(9). 

* * * * * 

■ 59. Amend 423.120 by: 

■ A. Revising paragraphs (a)(3), (8), and 

(9). 

■ B. Redesignating paragraphs (b)(1)(iv) 

through (x) as (b)(1)(v) through (xi), 

respectively. 

■ C. Adding a new paragraph (b)(1)(iv). 

■ D. Revising paragraphs (b)(2)(v), 

(vi)(B), and (C). 

■ E. Adding new paragraphs 

(b)(2)(vi)(D) through (G) and (3)(vi). 

■ F. Redesignating paragraphs (c)(5)(i) 

through (v) as paragraphs (c)(5)(i)(A) 

through (E), respectively. 

■ G. Adding paragraph (c)(5)(i) 

introductory text. 

■ H. In newly resdesignated paragraphs 

(c)(5)(i)(A) and (B), removing the crossreference ‘‘(c)(5)(iii) of this section’’ and 

adding in its place the cross-reference 

‘‘(c)(5)(i)(C) of this section’’ 

■ I. In newly redesignated paragraph 

(c)(5)(i)(D), removing the cross-reference 

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‘‘(c)(5)(ii) and (iii) of this section’’ and 

adding in its place the cross-reference 

‘‘(c)(5)(i)(B) and (C) of this section’’. 

■ J. Adding a new paragraph (c)(5)(ii). 

■ K. Adding paragraph (c)(6). 

The revisions and additions read as 

follows: 

§ 423.120 Access to covered Part D drugs. 

* * * * * 

(a) * * * 

(3) Access to non-retail pharmacies. A 

part D sponsor’s contracted pharmacy 

network may be supplemented by nonretail pharmacies, including pharmacies 

offering home delivery via mail order 

and institutional pharmacies, provided 

the requirements of paragraph (a)(1) of 

this section are met. Sponsors that 

contract with mail order pharmacies, 

and pharmacies offering home delivery 

via mail order, must ensure that the 

pharmacies meet the following 

fulfillment standards: 

(i) For prescriptions adjudicated and 

filled without requiring additional 

review, the time of shipment must not 

be more than 3 business days from order 

receipt by the mail order pharmacy. 

(ii) For prescriptions requiring 

additional review before shipping, the 

time of shipment must not be more than 

5 business days from order receipt by 

the mail order pharmacy. 

* * * * * 

(8) Pharmacy network contracting 

requirements. In establishing its 

contracted pharmacy network, a Part D 

sponsor offering qualified prescription 

drug coverage must comply with all of 

the following requirements: 

(i) Must offer and publicly post 

standard terms and conditions for 

network participation for each type of 

pharmacy in the network, subject to 

paragraphs (a)(8)(ii) and (iii) of this 

section. 

(ii) May not require a pharmacy to 

accept insurance risk as a condition of 

participation in the Part D sponsor’s 

contracted pharmacy network. 

(iii) Must offer payment terms for 

every level of cost sharing offered under 

the sponsor’s plans consistent with CMS 

limitations on the number and type of 

cost sharing levels (preferred, standard, 

extended day), and for every type of 

similarly situated retail pharmacy. 

(iv) Must contract with any willing 

pharmacy able to meet one set of the 

terms and conditions offered by that 

plan for that type of pharmacy. 

(9) Preferred cost-sharing in network 

pharmacies. A Part D sponsor offering a 

Part D plan that provides coverage other 

than defined standard coverage may 

reduce copayments or coinsurance for 

covered Part D drugs obtained through 

a subset of network pharmacies, as long 

as such preferred cost sharing is offered 

in accordance with the requirements of 

§ 423.120(a)(8) and for Part D drugs with 

consistently lower negotiated prices 

than the same Part D drugs when 

obtained in the rest of the pharmacy 

network. 

* * * * * 

(b) * * * 

(1) * * * 

(iv) Clearly articulates and documents 

processes to determine that the 

requirements under paragraphs (b)(1)(i) 

through (iii) of this section have been 

met, including the determination by an 

objective party of whether disclosed 

financial interests are conflicts of 

interest and the management of any 

recusals due to such conflicts. 

* * * * * 

(2) * * * 

(v) Effective contract year 2015, 

except as provided in paragraph 

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

sponsor’s formulary must include 

without restriction at point of sale all 

Part D drugs in a category or class that 

CMS has determined for a typical 

individual with a disease or condition 

treated by the drugs in the category or 

class meets the all of the following 

criteria: 

(A) Hospitalization, persistent or 

significant disability or incapacity, or 

death will likely result if initial 

administration (including selfadministration) of a drug in the category 

or class does not occur within 7 days of 

the date the prescription for the drug 

was presented to the pharmacy to be 

filled. 

(B) More specific CMS formulary 

requirements will not suffice to meet the 

universe of clinical drug-and-diseasespecific applications due to the 

diversity of disease or condition 

manifestations and associated 

specificity or variability of drug 

therapies necessary to treat such 

manifestations. 

(vi) * * * 

(B) Drug products that are primarily 

covered under Medicare Part A or B. 

(C) Part D Compounds as described in 

§ 423.120(d). 

(D) Fixed combination dosage form 

prescription drugs other than 

antiretrovirals, including co-packaged 

drug products, as defined by 21 CFR 

300.50. 

(E) Certain types of Part D drugs, 

including the following: 

(1) Multisource brands of the identical 

molecular structure. 

(2) Extended-release products when 

the immediate-release product is 

included. 

(3) Products that have the same active 

ingredient or moiety. 

(4) Dosage forms that do not provide 

a unique route of administration (for 

example, tablets and capsules versus 

tablets and transdermals). 

(F) Point-of-sale utilization 

management safety edits consistent with 

the FDA approved label. 

(G) Prior authorization requirements 

used to verify a drug is being used for 

a medically accepted indication (as 

defined in § 423.100) or to verify a drug 

is not covered under Medicare Parts A 

or B as prescribed and dispensed or 

administered. 

(3) * * * 

(vi) A Part D sponsor must charge cost 

sharing for a temporary supply of drugs 

provided under its transition process 

such that the following conditions are 

met: 

(A) For low-income subsidy (LIS) 

enrollees, a sponsor must not charge 

higher cost sharing for transition 

supplies than the statutory maximum 

copayment amounts. 

(B) For non-LIS enrollees, a sponsor 

must charge— 

(1) The same cost sharing for nonformulary Part D drugs provided during 

the transition that would apply for nonformulary drugs approved through a 

formulary exception in accordance with 

§ 423.578(b); and 

(2) The same cost sharing for 

formulary drugs subject to utilization 

management edits provided during the 

transition that would apply once the 

utilization management criteria are met. 

* * * * * 

(c) * * * 

(5)(i) Before January 1, 2015— 

* * * * * 

(ii) Beginning January 1, 2015— 

(A) A Part D sponsor must deny or 

must require its PBM to deny a 

pharmacy claim for a Part D drug if an 

active and valid physician or eligible 

professional (as defined in section 

1848(k)(3)(B)(i) or (ii) of the Act) 

National Provider Identifier is not 

contained on the claim. 

(B) A Part D sponsor must deny or 

require its PBM to deny a pharmacy 

claim for a Part D drug if the physician 

or eligible professional— 

(1) Is not enrolled in the Medicare 

program in an approved status; and 

(2) Does not have a valid opt-out 

affidavit on file with an A/B MAC. 

(C) To receive payment for a drug, a 

beneficiary’s request for reimbursement 

from a Part D sponsor must be for a Part 

D drug that was dispensed in 

accordance with a prescription written 

by a physician or, when permitted 

under applicable State law, other 

eligible professional (as defined in 

section 1848(k)(3)(B)(i) or (ii) of the Act) 

who— 

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(1) Is identified by his or her legal 

name in the request; and 

(2)(i) Is enrolled in Medicare in an 

approved status; or 

(ii) Has a valid opt-out affidavit on file 

with an A/B MAC. 

* * * * * 

(6)(i) In order for a Part D sponsor to 

submit to CMS a prescription drug event 

record, the PDE must pertain to a claim 

for a Part D drug that was dispensed in 

accordance with a prescription written 

by a physician or, when permitted 

under applicable State law, an eligible 

professional (as defined in section 

1848(k)(3)(B)(i) or (ii) of the Act) who is 

either of the following: 

(A) Is enrolled in Medicare in an 

approved status. 

(B) Has a valid opt-out affidavit on file 

with an A/B MAC. 

(ii) To receive payment for a drug, a 

beneficiary’s request for reimbursement 

from a Part D sponsor must be for a Part 

D drug that was dispensed in 

accordance with a prescription written 

by a physician or, when permitted, 

other eligible professional (as defined in 

section 1848(k)(3)(B)(i) or (ii) of the Act) 

who— 

(A)(1) Is identified by his or her legal 

name in the request; and 

(2) Is enrolled in Medicare in an 

approved status; or 

(B) Has a valid opt-out affidavit on file 

with an A/B MAC. 

(iii) A Part D sponsor must deny or 

must require its PBM to deny the 

following: 

(A) A pharmacy claim for a drug, if 

the claim does not meet the 

requirements of paragraph (c)(6)(i) of 

this section. 

(B) A request for reimbursement from 

a Medicare beneficiary for a drug, if the 

request does not meet the requirements 

of paragraph (c)(6)(ii) of this section. 

* * * * * 

■ 60. Section 423.126 is added to read 

as follows: 

§ 423.126 Special access rules during 

disasters or emergencies. 

(a) Special access rules during 

disasters or emergencies. A Part D 

sponsor must relax ‘‘refill-too-soon’’ 

(RTS) edits to allow an enrollee to 

obtain one early refill of each covered 

Part D drug he or she is taking in the 

event of an anticipated or actual disaster 

or emergency, as evidenced by a 

declaration of a disaster or emergency 

issued by an appropriate Federal, State, 

or local official, and it is reasonable to 

conclude that such disaster or 

emergency or preparation therefore 

would make it difficult for beneficiaries 

to obtain refills of their medications 

because the disaster or emergency or 

anticipation thereof has affected, or will 

affect, their ability to have timely access 

to their usual pharmacies. 

(b) Duration of relaxed edits. A Part 

D sponsor must continue to relax the 

RTS edits as described in paragraph (a) 

of this section until the 30 days after the 

date of the triggering emergency or 

disaster declaration. 

■ 61. Amend § 423.128 by revising 

paragraph (a)(3) and adding paragraph 

(g) to read as follows: 

§ 423.128 Dissemination of Part D 

information. 

* * * * * 

(a) * * * 

(3) At the time of enrollment, and at 

least annually thereafter by December 

31 for the following contract year. 

* * * * * 

(g) Changes in rules. If a Part D 

sponsor intends to change its rules for 

a Part D plan, it must do all of the 

following: 

(1) Submit the changes for CMS 

review under the procedures of Subpart 

V of this part. 

(2) For changes that take effect on 

January 1, notify all enrollees at least 15 

days before the beginning of the Annual 

Coordinated Election Period as defined 

in section 1860D–1(b)(1)(B) of the Act. 

(3) Provide notice of all other changes 

in accordance with notice requirements 

as specified in Part 423. 

■ 62. Amend § 423.153 by revising 

paragraphs (b)(4), (d)(1)(v), and (d)(2)(i) 

through (iii) to read as follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs) 

* * * * * 

(b) * * * 

(4)(i) Daily cost sharing rate. Subject 

to paragraph (b)(4)(ii) of this section, 

establishes a daily cost-sharing rate (as 

defined in § 423.100) and applies it to 

a prescription presented to a network 

pharmacy for a covered Part D drug that 

is dispensed for a supply less than 30 

days, if the drug is in the form of a solid 

oral dose and may be dispensed for a 

supply less than 30 days under 

applicable law. 

(ii) Exceptions. The requirements of 

paragraph (b)(4)(i) of this section do not 

apply to either of the following: 

(A) Solid oral doses of antibiotics. 

(B) Solid oral doses that are dispensed 

in their original container as indicated 

in the Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance. 

(iii) Cost-sharing—(A) Copayments. In 

the case of a drug that would incur a 

copayment, the Part D sponsor must 

apply cost-sharing as calculated by 

multiplying the applicable daily costsharing rate by the days’ supply actually 

dispensed when the beneficiary receives 

less than a 30 days’ supply. 

(B) Coinsurance. In the case of a drug 

that would incur a coinsurance 

percentage, the Part D sponsor must 

apply the coinsurance percentage for the 

drug to the days’ supply actually 

dispensed. 

* * * * * 

(d) * * * 

(1) * * * 

(v) Must do both of the following: 

(A) Have an outreach strategy 

designed to effectively engage at-risk 

beneficiaries enrolled in the plan. 

(B) Enroll targeted beneficiaries using 

an opt-out method of enrollment only. 

* * * * * 

(2) * * * 

(i) Have two or more chronic diseases. 

At least one of the chronic diseases 

must be one from the following list of 

core chronic diseases: 

(A) Cardiovascular disease 

(B) Diabetes. 

(C) Dyslipidemia. 

(D) Respiratory disease. 

(E) Bone disease-arthritis. 

(F) Mental health. 

(G) Alzheimer’s disease. 

(H) End-stage renal disease. 

(ii) Are taking two or more covered 

Part D drugs. 

(iii) Are likely to incur annual costs 

for covered Part D drugs that are 

commensurate with the drug spending 

of beneficiaries with two or more 

chronic diseases that take two covered 

Part D drugs. 

* * * * * 

■ 62. Amend § 423.154 by: 

■ A. Revising paragraphs (a)(2) and (c). 

■ B. Removing paragraph (e). 

■ D. Redesignating paragraph (f) as (e). 

■ E. Adding a new paragraph (f). 

The revisions and addition read as 

follows: 

§ 423.154 Appropriate dispensing of 

prescription drugs in long-term care 

facilities under PDPs and MA–PD plans. 

(a) * * * 

(2) Collect and report information, in 

a form and manner specified by CMS, 

on the dispensing methodology used for 

each dispensing event described by 

paragraph (a)(1) of this section. 

* * * * * 

(c) Waivers. CMS waives the 

requirements under paragraph (a) of this 

section for any of the following: 

(1) Pharmacies when they service 

intermediate care facilities for the 

mentally retarded (ICFs/IID) and 

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institutes for mental disease (IMDs) as 

defined in § 435.1010 of this chapter. 

(2) I/T/U pharmacies (as defined in 

§ 423.100). 

(3)(i) Institutional pharmacies that— 

(A) Subject to paragraph (c)(3)(iii) of 

this section, exclusively use a 

dispensing technique that returns all 

unused medications to stock for reuse; 

(B) Issues full credit of the ingredient 

costs of unused medication to the Part 

D sponsor; and 

(C) For drugs that cannot be returned 

to stock for reuse under applicable law 

use a dispensing methodology that 

results in the delivery of no more than 

a 14 days’ supply of a drug at a time. 

(ii) The waiver in paragraph (c)(3)(i) 

of this section does not apply to a 

pharmacy organization that is 

contracted to use this dispensing 

technique at some of its pharmacies, but 

only to the qualifying pharmacies 

themselves. 

* * * * * 

(f) Prohibition on proration of 

dispensing fees. A Part D sponsor must 

not, or must require its intermediary 

contracting organization not to, do the 

following: 

(1) Not penalize long-term care 

facilities’ choice of more efficient 

uniform dispensing techniques 

described in paragraph (a)(1)(ii) of this 

section by prorating dispensing fees 

based on days’ supply or quantity 

dispensed. 

(2) Ensure that any difference in 

payment methodology among long-term 

care pharmacies incentivizes more 

efficient dispensing techniques. 

■ 64. Amend § 423.265 as follows: 

■ A. By redesignating paragraph (b)(3) 

as (b)(4). 

■ B. By adding a new paragraph (b)(3). 

■ C. In newly redesignated paragraph 

(b)(4), by adding a paragraph heading. 

The additions read as follows: 

§ 423.265 Submission of bids and related 

information. 

* * * * * 

(b) * * * 

(3) Number of bids. Starting with bids 

submitted during 2015 for plans to be 

offered during coverage year 2016, CMS 

will not accept more than two bids for 

a coverage year from a stand-alone PDP 

sponsor in each PDP region. 

(4) Declining a bid. * * * 

* * * * * 

■ 65. Section 423.294 is added to 

subpart F to read as follows: 

§ 423.294 Collections of premiums and 

cost sharing. 

(a) Refunds of incorrect collections— 

(1) Definitions. As used in this section 

the following definitions are applicable: 

Amounts incorrectly collected. (i) 

Means amounts that exceed the monthly 

beneficiary Part D premium limits under 

§ 423.286 or exceed permissible costsharing amounts as specified 

§ 423.104(d) through (f); and 

(ii) Includes amounts collected from 

an enrollee who was believed to be 

entitled to Medicare benefits but was 

later found not to be entitled. 

Other amounts due means amounts 

due for covered Part D drugs that were— 

(i) Accessed at an out-of-network 

pharmacy in accordance with the 

requirements at § 423.124; or 

(ii) Initially denied but, upon appeal, 

found to be covered Part D drugs the 

enrollee was entitled to have provided 

by the Part D plan. 

(2) General rule. A Part D plan must 

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 within the 

timeframe specified at § 423.466(a). 

(3) Refund methods—(i) Lump-sum 

payment. The Part D plan must use 

lump-sum payments for the following: 

(A) Amounts incorrectly collected 

that were not collected as premiums. 

(B) Other amounts due. 

(C) All amounts due if the Part D plan 

is going out of business or terminating 

its Part D contract for a prescription 

drug plan(s). 

(ii) Premium adjustment, lump-sum 

payment, or both. If the amounts 

incorrectly collected were in the form of 

premiums, or included premiums as 

well as other charges, the Part D plan 

may refund by adjustment of future 

premiums or by a combination of 

premium adjustment and lump-sum 

payments. 

(iii) Refund when enrollee has died or 

cannot be located. If an enrollee has 

died or cannot be located after 

reasonable effort, the Part D plan must 

make the refund in accordance with 

State law. 

(4) If the Part D plan does not make 

the refund required under this section 

within the timeframe specified at 

§ 423.466(a), the Part D plan may 

receive compliance notices from CMS 

or, depending on the significance of the 

non-compliance, be the subject of an 

intermediate sanction (for example, 

suspension of marketing and enrollment 

activities) in accordance with part 423, 

subpart O. 

(b) Retroactive collection of costsharing amounts—(1) General rule. A 

Part D plan must make a reasonable 

effort to collect cost sharing from a 

beneficiary or to bill cost sharing to 

another appropriate party. 

(2) Timeframe. Recovery efforts must 

be initiated in accordance with the 

timeframe specified at § 423.466(a). 

(c) Reduction or waiver of premiums 

and cost sharing—(1) General rule. Part 

D plans, directly, or indirectly through 

related entities as defined at § 423.501, 

are prohibited from reducing or waiving 

the collection of enrollee premiums or 

cost sharing or both. 

(2) Failure to collect premiums and 

cost sharing. Failure to collect 

premiums, collect cost sharing at the 

time the service is provided, or attempt 

to collect cost sharing from a beneficiary 

or to bill cost sharing to another 

appropriate party after the fact, is in 

violation of the uniform benefit 

provisions set forth in § 423.104(b). 

■ 66. Amend § 423.308 by revising the 

definition of ‘‘Actually paid’’ to read as 

follows: 

§ 423.308 Definitions and terminology. 

* * * * * 

Actually paid means that the costs 

must be actually incurred by the Part D 

sponsor and must be net of any direct 

or indirect remuneration (including 

discounts, incentive payments, charge 

backs or rebates, cash discounts, free 

goods contingent on a purchase 

agreement, up-front payments, goods in 

kind, free or reduced-price services, 

grants, or other price concessions or 

similar benefits offered to some or all 

purchasers) from any source other than 

pharmacies (including manufacturers, 

enrollees, or any other person) that 

would serve to decrease (or increase) the 

costs incurred under the Part D plan. 

(1) Direct and indirect remuneration 

includes discounts, incentive payments, 

chargebacks or rebates, cash discounts, 

free goods contingent on a purchase 

agreement, up-front payments, goods in 

kind, free or reduced-price services, 

grants, or other price concessions or 

similar benefits from manufacturers or 

similar entities obtained by an 

intermediary contracting organization 

with which the Part D plan sponsor has 

contracted, regardless of whether the 

intermediary contracting organization 

retains all or a portion of the direct and 

indirect remuneration or passes the 

entire direct and indirect remuneration 

to the Part D plan sponsor and 

regardless of the terms of the contract 

between the plan sponsor and the 

intermediary contracting organization. 

(2) Direct and indirect remuneration 

may include additional payments to 

pharmacies, such as for incentive 

payments, but may not include any 

other price concessions from 

pharmacies. 

* * * * * 

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■ 67. Amend § 423.322 by revising 

paragraph (b) to read as follows: 

§ 423.322 Requirement for disclosure of 

information. 

* * * * * 

(b) Restrictions on use of information. 

(1) Officers, employees, and contractors 

of the Department of Health and Human 

Services may use the information 

disclosed or obtained in accordance 

with the provisions of this subpart for 

the purposes of, and to the extent 

necessary— 

(i) In carrying out this subpart, 

including, but not limited to, 

determination of payments, and 

payment-related oversight and program 

integrity activities. 

(ii) In conducting oversight, 

evaluation, and enforcement under Title 

XVIII of the Act. 

(2) The United States Attorney 

General and the Comptroller General of 

the United States may use the 

information disclosed or obtained in 

accordance with the provisions of this 

subpart for purposes of, and to the 

extent necessary in, carrying out health 

oversight activities. 

(3) The restrictions described in 

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

do not limit either of the following: 

(i) OIG’s authority to fulfill the 

Inspector General’s responsibilities in 

accordance with applicable Federal law. 

(ii) CMS’ ability to use data regarding 

drug claims in accordance with section 

1848(m) of the Act. 

§ 423.329 [Amended] 

■ 68. Amend § 423.329 (d)(1), by 

removing the phrase ‘‘the amount 

described in § 423.782.’’ and adding in 

its place the phrase ‘‘the difference 

between the Part D cost-sharing for a 

non-low-income subsidy eligible 

beneficiary under the Part D plan and 

the statutory cost-sharing for a lowincome subsidy eligible beneficiary.’’ 

■ 69. Section 423.346 is amended by 

revising paragraphs (a) through (c) to 

read as follows: 

§ 423.346 Reopening. 

(a) CMS may reopen an initial final 

payment determination (including a 

determination on the final amount of 

direct subsidy described in 

§ 423.329(a)(1), final reinsurance 

payments described in § 423.329(c), the 

final amount of the low income subsidy 

described in § 423.329(d), or final risk 

corridor payments as described in 

§ 423.336) one time within 5 years after 

the date of the notice of the initial 

determination to the Part D sponsors. 

(b) CMS may reopen the Coverage Gap 

Discount Reconciliation (as described at 

§ 423.2320 (b), one time within 5 years 

after the date of the notice of the 

Coverage Gap Discount Reconciliation 

to the Part D sponsors. 

(c) CMS does not reopen as a result of 

a change in legal interpretation or 

administrative ruling upon which the 

final determination was made. 

* * * * * 

■ 70. Amend § 423.350 as follows: 

■ A. In paragraph (a)(1)(iii), by 

removing ‘‘; or’’ and adding in its place 

‘‘.’’. 

■ B. In paragraph (a)(1)(iv), by removing 

’’).’’ adding in its place ‘‘.’’. 

■ C. By adding paragraph (a)(1)(v). 

■ D. By revising paragraph (a)(2). 

■ E. By adding paragraph (b)(1)(iv). 

§ 423.350 Payment appeals. 

(a) * * * 

(1) * * * 

(v) The reconciled coverage gap 

discount payment under § 423.2320(b). 

(2) Payment information not subject 

to appeal. Payment information 

submitted to CMS under § 423.322 and 

reconciled under § 423.343 or submitted 

and reconciled under § 423.2320(b) is 

final and may not be appealed nor may 

the appeals process be used to submit 

new information after the submission of 

information necessary to determine 

retroactive adjustments and 

reconciliations. 

(b) * * * 

(1) * * * 

(iv) For the Coverage Gap Discount 

Program, the date of the final reconciled 

payment under § 423.2320(b). 

* * * * * 

■ 71. Section 423.360 is added to 

subpart G to read as follows: 

§ 423.360 Reporting and returning of 

overpayments. 

(a) Definitions. For the purposes of 

this section the following definitions are 

applicable: 

Applicable reconciliation means the 

later of either the annual deadline for 

submitting— 

(i) PDE data for the annual Part D 

payment reconciliations referred to in 

§ 423.343(c) and (d); or 

(ii) Direct and indirect remuneration 

data. 

Funds for purposes of this section, 

means any payment that a Part D 

sponsor has received that is based on 

data submitted by the Part D sponsor to 

CMS for payment purposes, including 

data submitted under § 423.329(b)(3), 

§ 423.336(c)(1), § 423.343, and data 

provided for purposes of supporting 

allowable costs as defined in § 423.308 

which includes data submitted to CMS 

regarding direct or indirect 

remuneration. 

Overpayment means funds that a Part 

D sponsor has received or retained 

under title XVIII of the Act to which the 

Part D sponsor, after applicable 

reconciliation, is not entitled under 

such title. 

(b) General rule. If a Part D sponsor 

has identified that it has received an 

overpayment, the Part D sponsor must 

report and return that overpayment in 

the form and manner set forth in this 

section. 

(c) Identified overpayment. A Part D 

sponsor has identified an overpayment 

if it has actual knowledge of the 

existence of the overpayment or acts in 

reckless disregard or deliberate 

ignorance of the existence of the 

overpayment. A Part D sponsor must 

exercise reasonable diligence to 

determine the accuracy of information it 

receives that an overpayment may exist. 

(d) Reporting and returning of an 

overpayment. A Part D sponsor must 

report and return any overpayment it 

received no later than 60 days after the 

date on which it identified it received 

an overpayment. 

(1) Reporting. A Part D sponsor must 

notify CMS of the amount and reason 

for the overpayment, using the 

notification process determined by 

CMS. 

(2) Returning. A Part D sponsor must 

return identified overpayments in a 

manner specified by CMS. 

(3) Enforcement. Any overpayment 

retained by a Part D sponsor after the 

60-day deadline for reporting and 

returning is an obligation under 31 

U.S.C. 3729(b)(3). 

(e) Look-back period. A Part D 

sponsor must report and return any 

overpayment identified within the 6 

most recent completed payment years. 

Overpayments resulting from fraud 

would not be subject to this limitation. 

■ 72. Amend § 423.464 as follows: 

■ A. In paragraph (f)(2)(i) introductory 

text, by removing the phrase ‘‘a Part D 

plan must—’’ and adding in its place ‘‘a 

Part D plan must do all of the 

following:’’. 

■ B. In paragraph (f)(2)(i)(A), by 

removing ‘‘; and’’ and adding in its 

place ‘‘.’’. 

■ C. By adding paragraph (f)(2)(i)(C). 

The addition reads as follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

* * * * * 

(f) * * * 

(2) * * * 

(i) * * * 

(C) Report, accept and apply benefit 

accumulator data in a timeframe and 

manner determined by CMS. 

* * * * * 

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§ 423.466 [Amended] 

■ 73. Amend § 423.466(b) by removing 

the phrase ‘‘a period not to exceed 3 

years’’ and adding in its place the 

phrase ‘‘a period of 3 years’’. 

■ 74. Amend § 423.501 by a adding a 

definition for ‘‘prescription drug pricing 

standard’’ to read as follows: 

§ 423.501 Definitions. 

* * * * * 

Prescription drug pricing standard 

means any methodology or formula for 

varying the pricing of a drug or drugs 

during the term of a pharmacy 

reimbursement contract that is based on 

the cost of a drug, which includes, but 

is not limited to, drug pricing references 

and amounts based on any of the 

following: 

(1) Average wholesale price. 

(2) Wholesale average cost. 

(3) Average manufacturer price. 

(4) Average sales price. 

(5) Maximum allowable cost. 

(6) Other cost, whether publicly 

available or not. 

* * * * * 

■ 75. Amend § 423.503 by revising 

paragraph (a)(1) and adding paragraphs 

(a)(3), (c)(4), and (d) to read as follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

(a) * * * 

(1) With the exception of evaluations 

conducted under paragraph (b) of this 

section, CMS evaluates an entity’s 

application solely on the basis of 

information contained in the 

application itself and any additional 

information that CMS obtains through 

on-site visits and an essential operations 

test. 

* * * * * 

(3) CMS may not approve an 

application when it would result in the 

applicant’s parent organization, directly 

or through its subsidiaries, holding 

more than one PDP sponsor contract in 

the PDP Region for which the applicant 

is seeking qualification as a PDP 

sponsor. A parent organization is an 

entity that exercises a controlling 

interest in the applicant. 

* * * * * 

(c) * * * 

(4) Nullification of approval of 

application. If CMS discovers through 

any means that an applicant is not 

qualified to contract based on 

information gained subsequent to 

application approval (for example, 

failure of an essential operations test, 

absence of required employees), CMS 

gives the applicant written notice 

indicating that the approval issued 

under § 423.503(c)(1) is nullified and 

the applicant no longer qualifies to 

contract as a Part D plan sponsor. 

(i) This determination is not subject to 

the appeals provisions in subpart N of 

this part. 

(ii) This provision only applies to 

applicants that have not previously 

entered into a Part D contract with CMS 

and neither it, nor another subsidiary of 

the applicant’s parent organization, is 

offering Part D benefits during the 

current year. 

(d) Withdrawal of application and bid 

in a previous year. An applicant that 

withdraws its application and 

corresponding bid after the release of 

the low income subsidy benchmark is 

not eligible to be approved as a Part D 

plan sponsor for the 2 succeeding 

annual contracting cycles. 

■ 76. Amend § 423.504 as follows: 

■ A. By adding paragraphs 

(b)(4)(vi)(C)(4) and (b)(8) through (10). 

■ B. In paragraph (d)(2) introductory 

text, by removing the phrase ‘‘has the 

right to—’’ and adding in its place the 

phrase ‘‘has the right to timely do all of 

the following:’’. 

■ C. In paragraph (d)(2)(i), by removing 

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

■ D. In paragraph (d)(2)(ii), by removing 

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

■ E. By adding paragraph (d)(2)(iv). 

The additions read as follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) * * * 

(C) * * * 

(4) A Part D plan sponsor must 

require all of its first tier, downstream 

and related entities to take the CMS 

training and accept the certificate of 

completion of the CMS training as 

satisfaction of this requirement. Part D 

plan sponsors are prohibited from 

developing and implementing their own 

training or providing supplemental 

training materials to fulfill this 

requirement. 

* * * * * 

(8) If neither the applicant, nor its 

parent or another subsidiary of the same 

parent, holds a Part D sponsor contract 

that has been in effect for at least 1 year 

at the time it submits an application, the 

applicant must have arrangements in 

place such that the applicant and its 

contracted first tier, downstream, or 

related entities, in combination, have at 

least 1 full-benefit year of experience 

within the 2 years preceding the 

application submission performing at a 

minimum all of the following functions 

in support of the operation of another 

Part D contract: 

(i) Authorization, adjudication, and 

processing of prescription drug claims 

at the point of sale. 

(ii) Administration and tracking of 

enrollees’ drug benefits in real time, 

including automated coordination of 

benefits with other payers. 

(iii) Operation of an enrollee appeals 

and grievance process. 

(9) For organizations applying to offer 

stand-alone prescription drug plans, the 

organization, its parent, or a subsidiary 

of the organization or its parent, must 

have either of the following: 

(i) For 2 continuous years 

immediately prior to submitting an 

application, actively offered health 

insurance or health benefits coverage, 

including prescription drug coverage, as 

a risk-bearing entity in at least one State. 

(ii) For 5 continuous years 

immediately prior to submitting an 

application, actively managed 

prescription drug benefits for an 

organization that offers health insurance 

or health benefits coverage, including at 

a minimum, all of the services listed in 

paragraph (b)(8) of this section. 

(10) Effective contract year 2015, pass 

an essential operations test prior to the 

start of the benefit year. This provision 

only applies to new sponsors that have 

not previously entered into a Part D 

contract with CMS when neither it, nor 

another subsidiary of the applicant’s 

parent organization, is offering Part D 

benefits during the current year. 

* * * * * 

(d) * * * 

(2) * * * 

(iv) CMS may require that the Part D 

Plan sponsor hire an independent 

auditor to conduct full or partial 

program audits or to provide CMS with 

information to determine if deficiencies 

found during an audit or inspection 

have been corrected and are not likely 

to recur. The independent auditor must 

work in accordance with CMS 

specifications and must be willing to 

attest that a complete and full 

independent review has been 

performed. 

* * * * * 

■ 77. Amend § 423.505 as follows: 

■ A. By revising paragraphs (b)(18) and 

(21). 

■ B. By adding paragraphs (b)(27) and 

(28). 

■ C. In paragraph (f)(3)(v), by removing 

‘‘,’’ and adding in its place ‘‘.’’. 

■ D. In paragraph (f)(3)(vi), by removing 

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

■ E. By adding paragraph (f)(3)(viii). 

■ F. In paragraph (i)(2)(i), by removing 

the phrase ‘‘audit, evaluate and inspect’’ 

and adding in its place ‘‘audit, evaluate, 

collect, and inspect’’. 

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■ G. By redesignating paragraph (i)(2)(ii) 

as paragraph (i)(2)(iii). 

■ H. By adding a new paragraph 

(i)(2)(ii). 

■ I. By revising paragraph (i)(3)(viii). 

■ J. By adding paragraph (k)(7). 

■ K. By adding a paragraph (m) subject 

heading. 

■ L. By revising paragraphs (m)(1)(iii) 

introductory text, (m)(1)(iii)(A) and 

(B). 

■ M. By removing paragraph 

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

■ N. By redesignating (m)(1)(iii)(D) as 

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

■ O. By revising newly redesignated 

(m)(1)(iii)(C)(1) and (3). 

■ P. By revising paragraph (m)(3). 

■ Q. By adding paragraph (p). 

The revisions and additions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(18) To agree to have standard 

contracts that meet the requirements 

described in § 423.120(a)(8) with 

reasonable and relevant terms and 

conditions of participation for each type 

of pharmacy in its network whereby any 

willing pharmacy may access all 

relevant contract(s) to participate as a 

network pharmacy. 

* * * 

(21)(i) Update any prescription drug 

pricing standard (as defined in 

§ 423.501) based on the cost of the drug 

used for reimbursement of network 

pharmacies by the Part D sponsor on 

January 1 of each contract year and not 

less frequently than once every 7 days 

thereafter; 

(ii) Indicate the source used for 

making any such updates; and 

(iii) Disclose all individual drug 

prices to be updated to the applicable 

pharmacies in advance of their use for 

reimbursement of claims, if the source 

for any prescription drug pricing 

standard is not publicly available. 

* * * * * 

(27) A Part D sponsor is required to 

administer a Part D Benefit that 

provides good quality health care 

demonstrated by scores of three or 

higher on CMS performance standards 

for patient outcomes, intermediate 

outcomes, process, patient experience, 

and patient access to care. 

(28) Effective contract year 2015, pass 

an essential operations test prior to the 

start of the benefit year. This provision 

only applies to new sponsors that have 

not previously entered into a Part D 

contract with CMS and neither it, nor 

another subsidiary of the applicant’s 

parent organization, is offering Part D 

benefits during the current year. 

* * * * * 

(f) * * * 

(3) * * * 

(viii) Supporting program integrity 

purposes, including coordination with 

the States. 

* * * * * 

(i) * * * 

(2) * * * 

(ii) HHS, the Comptroller General or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records under (i)(2)(i) directly from any 

first tier, downstream, or related entity. 

* * * * * 

(3) * * * 

(viii) If applicable, provisions 

addressing the drug pricing standard 

requirements of § 423.505(b)(21). 

* * * * * 

(k) * * * 

(7) Certification of accuracy of data 

for overpayments. The CEO, CFO, or 

COO must certify (based on best 

knowledge, information, and belief) that 

the information provided for purposes 

of reporting and returning of 

overpayments under § 423.360 is 

accurate, complete, and truthful. 

* * * * * 

(m) Release of data. 

(1) * * * 

(iii) Subject, in certain cases, to 

encryption of beneficiary identifiers and 

aggregation of cost data to protect 

beneficiary confidentiality and 

commercially sensitive data of Part D 

sponsors, in accordance with all of the 

following principles: 

(A) Subject to the restrictions in this 

paragraph, all elements on the claim are 

available to HHS, other executive 

branch agencies, and the States. 

(B) Cost data elements on the claim 

generally are aggregated for releases to 

other executive branch agencies, States, 

and external entities. Upon request, 

CMS excludes sales tax from the 

aggregation at the individual level if 

necessary for the project. 

(C) * * * 

(1) Beneficiary identifier elements on 

the claim generally are encrypted for 

release, except in limited circumstances, 

such as the following: 

(i) If needed, in the case of release to 

other HHS entities, Congressional 

oversight agencies, non-HHS executive 

agencies and the States. 

(ii) If needed to link to another 

dataset, in the case of release to external 

entities. Public disclosure of research 

results will not include beneficiary 

identifying information. 

* * * * * 

(3)(i) CMS must make available to 

Congressional support agencies (the 

Congressional Budget Office, the 

Government Accountability Office, the 

Medicare Payment Advisory 

Commission, and the Congressional 

Research Service when it is acting on 

behalf of a Congressional committee in 

accordance with 2 U.S.C. 166(d)(1)), all 

information collected under paragraph 

(f)(3) of this section for the purposes of 

conducting congressional oversight, 

monitoring, making recommendations, 

and analysis of the Medicare program. 

(ii) The Congressional Research 

Service is considered an external entity 

when it is not acting on behalf of a 

Congressional committee in accordance 

with 2 U.S.C. 166(d)(1) for the purposes 

of paragraph (m)(1) of this section. 

* * * * * 

(p) Business continuity. (1) The Part D 

sponsor agrees to develop, maintain, 

and implement a business continuity 

plan containing policies and procedures 

to ensure the continuation of business 

operations during disruptions to 

business operations which would 

include natural or man-made disasters, 

system failures, emergencies, and other 

similar circumstances and the threat of 

such occurrences. To meet the 

requirement, the business continuity 

plan must, at a minimum, include the 

following: 

(i) Risk assessment. Identify threats 

and vulnerabilities that might affect 

business operations. 

(ii) Mitigation strategy. Design 

strategies to mitigate hazards. Identify 

essential functions in addition to those 

specified in paragraph (p)(2) of this 

section and prioritize the order in which 

to restore all other functions to normal 

operations. At a minimum, each Part D 

sponsor must do the following: 

(A) Identify specific events that will 

activate the business continuity plan. 

(B) Develop a contingency plan to 

maintain, during any business 

disruption, the availability and, as 

applicable, confidentiality of 

communication systems and essential 

records in all forms (including 

electronic and paper copies). The 

contingency plan must do the following: 

(1) Ensure that during any business 

disruption the following systems will 

operate continuously or, should they 

fail, be restored to operational capacity 

on a timely basis: 

(i) Information technology IT systems 

including those supporting claims 

processing at point of service. 

(ii) Provider and enrollee 

communication systems including 

telephone, Web site, and email. 

(2) With respect to electronic 

protected health information, comply 

with the contingency plan requirements 

of the Health Insurance Portability and 

Accountability Act of 1996 Security 

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Regulations at 45 CFR 160 and 164, 

Subparts A and C. 

(C) Establish a chain of command. 

(D) Establish a business 

communication plan that includes 

emergency capabilities and procedures 

to contact and communicate with the 

following: 

(1) Employees. 

(2) First tier, downstream, and related 

entities. 

(3) Other third parties (including 

pharmacies, providers, suppliers, and 

government and emergency 

management officials). 

(E) Establish employee and facility 

management plans to ensure that 

essential operations and job 

responsibilities can be assumed by other 

employees or moved to alternate sites as 

necessary or both. 

(F) Establish a restoration plan 

including procedures to transition to 

normal operations. 

(G) Comply with all applicable 

Federal, State, and local laws. 

(iii) Testing and revision. On at least 

an annual basis, test and update the 

business operations continuity plan to 

ensure the following: 

(A) That it can be implemented in 

emergency situations. 

(B) That employees understand how it 

is to be executed. 

(iv) Training. On at least an annual 

basis, educate all new and existing 

employees about the business 

continuity plan and their own 

respective roles. 

(v) Records. (A) Develop and maintain 

records documenting the elements of 

the business continuity plan described 

in paragraph (p)(1)(i) through (p)(1)(iv) 

of this section. 

(B) Make the information specified in 

paragraph (p)(1)(v)(A) of this section 

available to CMS upon request. 

(2) Restoration of essential functions. 

Every Part D sponsor must restore 

essential functions within 24 hours after 

any of the essential functions fail or 

otherwise stop functioning as usual. In 

addition to any essential functions that 

the Part D sponsor identifies under 

paragraph (p)(1)(ii) of this section, for 

purposes of this paragraph (p)(2) of this 

section essential functions include at a 

minimum, the following: 

(i) Benefit authorization (if not 

waived), adjudication, and processing of 

prescription drug claims at the point of 

sale. 

(ii) Administration and tracking of 

enrollees’ drug benefits in real time, 

including automated coordination of 

benefits with other payers. 

(iii) Provision of pharmacy technical 

assistance. 

(iv) Operation of an enrollee 

exceptions and appeals process 

including coverage determinations. 

(v) Operation of call center customer 

services. 

■ 78. Amend § 423.509 as follows: 

■ A. By redesignating paragraphs (a)(4) 

through (a)(14) as paragraphs (a)(4)(i) 

through (a)(4)(xi). 

■ B. By adding paragraph (a)(4) 

introductory text. 

■ C. In newly redesignated paragraphs 

(a)(4)(ii), (iv), (v) introductory text, (vi), 

and (vii), by removing the term ‘‘fails’’ 

and adding in its place the term 

‘‘failed’’. 

■ D. In newly redesignated paragraphs 

(a)(4)(iii), (viii), and (ix), by removing 

the term ‘‘fails’’ and adding in its place 

the term ‘‘failed’’. 

■ E. By revising newly redesignated 

paragraphs (a)(4)(x) and (xi). 

■ F. By adding paragraph (a)(4)(xii). 

■ G. By revising paragraphs (b)(1)(i) 

through (iv) and (b)(2)(i)(C). 

■ H. In paragraph (b)(2)(ii), by removing 

the phrase ‘‘MA organization’’ and 

adding in its place the phrase ‘‘Part D 

plan sponsor’’. 

■ I. In paragraph (c)(2)(iii), by removing 

the cross-reference ‘‘(a)(4) of this 

section’’ and adding in its place the 

cross-reference ‘‘(a)(4)(i) of this section’’. 

■ J. In paragraph (d), by removing the 

cross-reference ‘‘§ 423.642’’ and adding 

in its place the cross-reference ‘‘subpart 

N of this part’’. 

The additions and revisions read as 

follows: 

§ 423.509 Termination of a contract by 

CMS. 

(a) * * * 

(4) CMS may make a determination 

under paragraph (a)(1), (2) or (3) of this 

section if the Part D Plan sponsor has 

had one or more of the following occur: 

* * * * * 

(x) Achieves a Part D summary plan 

rating of less than 3 stars for 3 

consecutive contract years. Plan ratings 

issued by CMS before September 1, 

2012 are not included in the calculation 

of the 3-year period. 

(xi)(A) Has failed to report MLR data 

in a timely and accurate manner in 

accordance with § 423.2460; or 

(B) That any MLR data required by 

this subpart is found to be materially 

incorrect or fraudulent. 

(xii) Failure of an essential operations 

test before the start of the benefit year 

by an organization that has entered into 

a Part D contract with CMS when 

neither it, nor another subsidiary of the 

organization’s parent organization, is 

offering Part D benefits during the 

current year. 

* * * * * 

(b) * * * 

(1) * * * 

(i) CMS notifies the Part D plan 

sponsor in writing at least 45 calendar 

days before the intended date of the 

termination. 

(ii) The Part D plan sponsor notifies 

its Medicare enrollees of the termination 

by mail at least 30 calendar days before 

the effective date of the termination. 

(iii) The Part D plan sponsor notifies 

the general public of the termination at 

least 30 calendar days before the 

effective date of the termination by 

releasing a press statement to news 

media serving the affected community 

or county and posting the press 

statement prominently on the 

organization’s Web site. 

(iv) CMS notifies the general public of 

the termination no later than 30 

calendar days after notifying the plan of 

CMS’s decision to terminate the Part D 

plan sponsor’s contract by releasing a 

press statement. 

(2) * * * 

(i) * * * 

(C) The contract is being terminated 

based on the grounds specified in 

paragraphs (a)(4)(i) and (xii) of this 

section. 

* * * * * 

§ 423.562 [Amended] 

■ 79. Amend § 423.562(a)(3) by 

removing the phrase ‘‘request an 

exception if they disagree with the 

information provided by the 

pharmacist.’’ and adding in its place the 

phrase ‘‘request an exception.’’. 

§ 423.642 [Amended] 

■ 80. Amend § 423.642(c)(1) by 

removing the phrase ‘‘90 calendar days’’ 

and adding in its place ‘‘45 calendar 

days’’. 

§ 423.650 [Amended] 

■ 81. Amend § 423.650 as follows: 

■ A. In paragraph (a)(2), by removing 

the term ‘‘under’’ and adding in its 

place the phrase ‘‘in accordance with’’. 

■ B. In paragraph (a)(4), by removing the 

cross-reference ‘‘§ 423.752(a) and (b)’’ 

and adding in its place the crossreference ‘‘§ 423.752(a) and (b)’’. 

■ 82. Amend § 423.752 as follows: 

■ A. By adding paragraphs (a)(7) 

through (10). 

■ B. By revising paragraph (c)(1). 

■ C. In paragraph (c)(2)(ii), by removing 

the phrase ‘‘pursuant to 423.509(a)(4)’’ 

and adding in its place the phrase 

‘‘pursuant to § 422.510(a)(4)(i)’’. 

The additions and revision read as 

follows: 

§ 423.752 Basis for imposing intermediate 

sanctions and civil money penalties 

* * * * * 

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(a) * * * 

(7) Except as provided under § 423.34, 

enrolls an individual in any plan under 

this part without the prior consent of 

the individual or the designee of the 

individual. 

(8) Transfers an individual enrolled 

under this part from one plan to another 

without the prior consent of the 

individual or the designee of the 

individual or solely for the purpose of 

earning a commission. 

(9) Fails to comply with marketing 

restrictions described in subpart V or 

applicable implementing guidance. 

(10) Employs or contracts with any 

individual, agent, provider, supplier or 

entity who engages in the conduct 

described in paragraphs (a)(1) through 

(9) of this section. 

* * * * * 

(c) * * * 

(1) CMS. In addition to, or in place of, 

any intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in either of the 

following: 

(i) Section 423.760(b) for any of the 

determinations at § 423.509(a), except 

§ 423.509(a)(4)(i). 

(ii) Section 423.760(c) for any of the 

determinations in paragraph (a) of this 

section except § 422.752(a)(5). 

* * * * * 

■ 83. Amend § 423.756 as follows: 

■ A. In paragraph (a)(2), by removing 

the phrase ‘‘days from receipt’’ and 

adding in its place ‘‘days after receipt’’. 

■ B. In paragraph (b)(4), by removing the 

cross-reference ‘‘§ 423.650 through 

§ 423.662 of this part.’’ and adding in its 

place ‘‘Subpart N of this part.’’. 

■ C. In paragraph (c)(3)(ii) introductory 

text, by removing the phrase ‘‘In 

instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed,’’ and 

adding in its place the phrase ‘‘In 

instances where intermediate sanctions 

have been imposed,’’. 

■ D. Adding paragraph (c)(3)(ii)(C). 

■ E. Revising paragraph (d). 

The addition and revision read as 

follows: 

§ 423.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) * * * 

(C) During the limited time period, 

sanctioned Part D plan sponsors under 

the benchmark that would normally 

participate in the annual and monthly 

auto enrollment process for enrollees 

receiving the low income subsidy will 

not be allowed to receive or process 

these types of enrollments. 

(d) Non-renewal or termination by 

CMS. In addition to or as an alternative 

to the sanctions described in § 423.750, 

CMS may decline to authorize the 

renewal of an organization’s contract in 

accordance with § 423.507(b), or 

terminate the contract in accordance 

with § 423.509. 

* * * * * 

■ 84. Amend § 423.760 as follows: 

■ A. In paragraph (a) introductory text, 

by removing the phrase ‘‘under 

423.752(c)(1), CMS will consider as 

appropriate:’’ and adding in its place the 

phrase ‘‘under § 423.752(c)(1), CMS 

considers the following as 

appropriate:’’. 

■ B. In paragraphs (a)(1) and (2), by 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. Revising paragraph (a)(3). 

■ D. In paragraph (a)(4) by removing ‘‘;’’ 

and adding in its place ‘‘.’’. 

■ E. In paragraph (a)(5), by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ F. Adding paragraph (c). 

The revision and addition read as 

follows: 

§ 423.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) * * * 

(3) The adverse effect to enrollees 

which resulted or could have resulted 

from the conduct of the Part D sponsor. 

* * * * * 

(c) Amount of penalty imposed by 

CMS or OIG. CMS or the OIG may 

impose civil money penalties in the 

following amounts for a determination 

made under § 423.752(a): 

(1) Civil money penalties of not more 

than $25,000 for each determination 

made. 

(2) With respect to a determination 

made under § 423.752(a)(4) or 

423.752(a)(5)(i), not more than $100,000 

for each such determination except with 

respect to a determination made under 

§ 423.752(a)(5), an assessment of not 

more than the amount claimed by such 

plan or PDP sponsor based upon the 

misrepresentation or falsified 

information involved. 

(3) Plus with respect to a 

determination made under 

§ 423.752(a)(2), double the excess 

amount charged in violation of such 

paragraph (and the excess amount 

charged must be deducted from the 

penalty and returned to the individual 

concerned). 

(4) Plus with respect to a 

determination made under 

§ 423.752(a)(4), $15,000 for each 

individual not enrolled as a result of the 

practice involved. 

■ 85. Amend § 423.882 by revising the 

definition of ‘‘Actually paid’’ to read as 

follows: 

§ 423.882 Definitions. 

* * * * * 

Actually paid means that the costs 

must be actually incurred by the 

qualified retiree prescription drug plan 

and must be net of any direct or indirect 

remuneration (including discounts, 

charge backs or rebates, cash discounts, 

free goods contingent on a purchase 

agreement, up-front payments, goods in 

kind, free or reduced-price services, 

grants, or other price concessions or 

similar benefits offered to some or all 

purchasers) from any manufacturer or 

similar entity that would serve to 

decrease the costs incurred under the 

qualified retiree prescription drug plan. 

* * * * * 

■ 86. Amend § 423.1016 by revising the 

first sentence in paragraph (b)(1) to read 

as follows: 

§ 423.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

* * * * * 

(b) * * * 

(1) The other party will have 20 

calendar days from the date of mailing 

or in person filing to submit any rebuttal 

statement or additional evidence. * * * 

* * * * * 

■ 87. Amend § 423.1020 by revising 

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

§ 423.1020 Request for hearing. 

(a) * * * 

(2) The Part D sponsor or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days after 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

* * * * * 

■ 88. Amend § 423.2262 by adding 

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

§ 423.2262 Review and distribution of 

marketing materials. 

(a) * * * 

(2) If CMS does not approve or does 

not disapprove marketing materials 

within the specified review timeframe, 

the materials are deemed approved and 

the Part D sponsor may use the material. 

* * * * * 

§ 423.2266 [Removed and Reserved] 

■ 89. Section 423.2266 is removed and 

reserved. 

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■ 90. Amend § 423.2274 by: 

■ A. Revising the introductory text. 

■ B. Redesignating paragraphs (a) 

through (f) as (b) through (g). 

■ C. Adding new paragraph (a). 

■ D. Revising newly redesignated 

paragraphs (b) through (d). 

■ E. Adding paragraph (h). 

The revisions and additions read as 

follows: 

§ 423.2274 Broker and agent requirements. 

If a Part D sponsor uses agents and 

brokers to sell its Part D plans, the 

following requirements in this section 

are applicable. 

(a) Definitions. For purposes of this 

section, the following definitions are 

applicable: 

Compensation (1) Includes monetary 

or non-monetary remuneration of any 

kind relating to the sale or renewal of a 

policy including, but not limited to— 

(i) Commissions; 

(ii) Bonuses; 

(iii) Gifts; 

(iv) Prizes or Awards; or 

(v) Referral or Finder fees. 

(2) Does not include— 

(i) Payment of fees to comply with 

State appointment laws, training, 

certification, and testing costs; 

(ii) Reimbursement for mileage to, and 

from, appointments with beneficiaries; 

or 

(iii) Reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. 

Like plan type means one of the 

following: 

(1) PDP replaced with another PDP. 

(2) MA or MA–PD replaced with 

another MA or MA–PD. 

(3) Cost plan replaced with another 

cost plan. 

Unlike plan type means one of the 

following: 

(1) PDP replaced with a MA–PD or a 

MA–PD replaced with a PDP 

(2) PDP replaced with a cost plan or 

a cost plan replaced with a PDP 

(3) MA–PD replaced with a cost plan 

or a cost plan replaced with a MA–PD 

Plan year means the year beginning 

January 1 and ending December 31. 

Renewal year means all years 

following the initial enrollment year in 

a like plan type. 

(b) Compensation rules. An Part D 

sponsor must compensate independent 

brokers and agents, if compensation is 

paid, only according to the following 

rules in this section. 

(1) Compensation amounts. (i) For an 

initial year enrollment of a Medicare 

beneficiary into a Part D plan, the 

compensation must be at or below the 

fair market value of such services, 

published annually as a cut-off amount 

by CMS. 

(ii) For renewal years, compensation 

may be up to 35 percent of the current 

fair market value cut-off amounts 

published annually by CMS. 

(2) Aggregate compensation. (i) An 

entity must not provide aggregate 

compensation to its agents or brokers 

greater than the renewal compensation 

payable by the replacing plan on 

renewal policies if an existing policy is 

replaced with a like plan at any time. 

(ii) An agent or broker must not 

receive aggregate compensation greater 

than the renewal compensation payable 

by the replacing plan on renewal 

policies if an existing policy is replaced 

with a like plan type at any time. 

(iii) The initial compensation is paid 

for replacements between unlike plan 

types. 

(3) Compensation payment and 

payment recovery. (i) Compensation 

may only be paid for the enrollee’s 

months of enrollment during a plan 

year. 

(ii)(A) Subject to paragraph (b)(3)(iii) 

of this section, compensation payments 

may be made at one time for the entire 

current plan year or in installments 

throughout the year. 

(B) Compensation may not be paid 

until January 1 of the compensation year 

and, if paid at all, must be paid in full 

by December 31 of the compensation 

year. 

(iii) When a beneficiary disenrolls 

from an MA plan, compensation paid to 

agents and brokers must be recovered 

for those months of the plan year for 

which the beneficiary is not enrolled. 

For disenrollments occurring within the 

first 3 months, the entire compensation 

must be recovered when the 

disenrollment was the result of agent or 

broker behavior. 

(4) Compensation structure. (i) A Part 

D sponsor must establish a 

compensation structure for new and 

replacement enrollments and renewals 

effective in a given plan year. 

Compensation structures must be in 

place by the beginning of the plan 

marketing period, October 1. 

(ii) Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

(c) Annual training. The Part D 

sponsor must ensure that all agents and 

brokers selling Medicare products are 

trained annually on the following: 

(1) Medicare rules and regulations. 

(2) Details specific to the plan 

products they intend to sell. 

(d) Annual testing. The Part D sponsor 

must ensure that all agents and brokers 

selling Medicare products are tested 

annually, to ensure the following: 

(1) Appropriate knowledge and 

understanding of Medicare rules and 

regulations. 

(2) Details specific to the plan 

products they intend to sell. 

* * * * * 

(h) Finder’s (referral) fees. Finder’s 

(referral) fees paid to all agents and 

brokers— 

(1) May not exceed an amount CMS 

determines could reasonably be 

expected to affect enrollee behavior 

while not exceeding the value of the 

health-related service or activity itself; 

and 

(2) Must be included in the total 

compensation not to exceed the fair 

market value for that calendar year. 

■ 91. Amend § 423.2320 by adding 

paragraph (c) to read as follows: 

§ 423.2320 Payment processes for Part D 

sponsors. 

* * * * * 

(c) In the event that a manufacturer 

declares bankruptcy, as described in 

Title 11 of the United States Code and, 

as a result of the bankruptcy, does not 

pay the quarterly invoices described in 

§ 423.2315(b)(10) by the time of the 

Coverage Gap Discount Reconciliation 

described in paragraph (b) of this 

section, CMS adjusts the Coverage Gap 

Discount Reconciliation amount of each 

of the affected Part D sponsors to 

account for the total unpaid quarterly 

invoiced amount owed to each of the 

Part D sponsors in the contract year 

being reconciled. 

■ 92. Amend § 423.2325 by adding 

paragraph (h) to read as follows: 

§ 423.2325 Provision of applicable 

discounts. 

* * * * * 

(h) Treatment of employer group 

waiver plans. (1) Beginning 2014, Part D 

sponsors offering employer group 

waiver plans must provide applicable 

discounts to employer group waiver 

plan enrollees as determined consistent 

with the defined standard benefit. 

(2)(i) Part D sponsors offering 

employer group waiver plans must 

report to each employer or union group 

client projected and actual aggregate 

manufacturer payments attributable to 

the EGWPs enrollees, at least annually 

or upon request. 

(ii) CMS may request documentation 

that notice as described in paragraph 

(h)(2)(i) of this section has been 

provided by the Part D sponsor and 

received by the employer or union 

group. 

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Subpart Y [Reserved] 

■ 93. Part 423 is amended by adding 

reserved subpart Y. 

■ 94. Part 423 is amended by adding 

subpart Z to read as follows: 

Subpart Z—Recovery Audit Contractor Part 

C Appeals Process 

Sec. 

423.2600 Payment appeals. 

423.2605 Request for reconsideration. 

423.2610 Hearing official review. 

423.2615 Review by the Administrator. 

Subpart Z—Recovery Audit Contractor 

Part C Appeals Process 

§ 423.2600 Payment appeals. 

If the Part D RAC did not apply its 

stated payment methodology correctly, a 

Part D plan sponsor may appeal the 

findings of the applied methodology. 

The payment methodology itself is not 

subject to appeal. 

§ 423.2605 Request for reconsideration. 

(a) Time for filing a request. The 

request for reconsideration must be filed 

with the designated independent 

reviewer within 60 calendar days from 

the date of the demand letter received 

by the Part D plan sponsor. 

(b) Content of request. (1) The request 

for reconsideration must be in writing 

and specify the findings or issues with 

which the Part D plan sponsor 

disagrees. 

(2) The Part D plan sponsor must 

include with its request all supporting 

documentary evidence it wishes the 

independent reviewer to consider. 

(i) This material must be submitted in 

the format requested by CMS. 

(ii) Documentation, evidence, or 

substantiation submitted after the filing 

of the reconsideration request will not 

be considered. 

(c) CMS Rebuttal. CMS may file a 

rebuttal to the Part D plan sponsor’s 

reconsideration request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the review 

entity’s notification to CMS that it has 

received the Part D plan sponsor’s 

reconsideration request. 

(2) CMS sends its rebuttal to the Part 

D plan sponsor at the same time it is 

submitted to the independent reviewer. 

(d) Review entity. An independent 

reviewer conducts the reconsideration. 

The independent reviewer reviews the 

demand for repayment, the evidence 

and findings upon which it was based, 

and any evidence that the Part D plan 

sponsor or CMS submitted in 

accordance with this section. 

(e) Notification of decision. The 

independent reviewer informs CMS and 

the Part D plan sponsor of its decision 

in writing. 

(f) Effect of decision. A 

reconsideration decision is final and 

binding unless the Part D plan sponsor 

requests a hearing official review in 

accordance with § 423.2610. 

(g) Right to hearing official review. A 

Part D plan sponsor that is dissatisfied 

with the independent reviewer’s 

reconsideration decision is entitled to a 

hearing official review as provided in 

§ 423.2610. 

§ 423.2610 Hearing official review. 

(a) Time for filing a request. A Part D 

plan sponsor must file with CMS a 

request for a hearing official review 

within 15 calendar days from the date 

of the independent reviewer’s issuance 

of a determination. 

(b) Content of the request. (1) The 

request must be in writing and must 

provide evidence or reasons or both to 

substantiate the request. 

(2) The Part D plan sponsor must 

submit with its request all supporting 

documentation, evidence, and 

substantiation that it wants to be 

considered. 

(3) No new evidence may be 

submitted. 

(4) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(c) CMS rebuttal. CMS may file a 

rebuttal to the Part D plan sponsor’s 

hearing official review request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the Part D 

plan sponsor’s submission of its hearing 

official review request. 

(2) CMS sends its rebuttal to the Part 

D plan sponsor at the same time it is 

submitted to the hearing official. 

(d) Conducting a review. A CMSdesignated hearing official conducts the 

hearing on the record. 

(1) The hearing is not to be conducted 

live or via telephone unless the hearing 

official, in his or her sole discretion, 

requests a live or telephonic hearing. 

(2) In all cases, the hearing official’s 

review is limited to information that 

meets one or more of the following: 

(i) The Part D RAC used in making its 

determinations. 

(ii) The independent reviewer used in 

making its determinations. 

(iii) The Part D plan sponsor submits 

with its hearing request. 

(iv) CMS submits in accordance with 

paragraph (c) of this section. 

(3) Neither the Part D plan sponsor 

nor CMS may submit new evidence. 

(e) Hearing official decision. The CMS 

hearing official decides the case within 

60 days and sends a written decision to 

the Part D plan sponsor and CMS, 

explaining the basis for the decision. 

(f) Effect of hearing official decision. 

The hearing official’s decision is final 

and binding, unless the decision is 

reversed or modified by the CMS 

Administrator in accordance with 

§ 423.2610. 

§ 423.2615 Review by the Administrator. 

(a) Request for review by 

Administrator. If a Part D plan sponsor 

is dissatisfied with the hearing official’s 

decision, it may request that the CMS 

Administrator review the decision. 

(1) The request must be filed with the 

CMS Administrator within 15 calendar 

days of the date of the hearing official’s 

decision. 

(2) The request must provide evidence 

or reasons to substantiate the request. 

(b) Content of request. The Part D plan 

sponsor must submit with its request all 

supporting documentation, evidence, 

and substantiation that it wants to be 

considered. 

(1) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(2) Neither the Part D plan sponsor 

nor CMS may submit new evidence. 

(c) Discretionary review. After 

receiving a request for review, the CMS 

Administrator has the discretion to 

review the hearing official’s decision in 

accordance with paragraph (e) of this 

section or to decline to review said 

decision. 

(d) Notification of decision whether to 

review. The CMS Administrator notifies 

the Part D plan sponsor within 45 days 

of receiving the Part D plan sponsor’s 

hearing request of whether he or she 

intends to review the hearing official’s 

decision. If the Administrator agrees to 

review the hearing official’s decision, 

CMS may file a rebuttal statement 

within 30 days of the Administrator’s 

notice to the plan sponsor that the 

request for review has been accepted. 

CMS sends its rebuttal statement to the 

plan sponsor at the same time it is 

submitted to the Administrator. If the 

CMS Administrator declines to review 

the hearing official’s decision, the 

hearing official’s decision is final and 

binding. 

(e) Administrator review. If the CMS 

Administrator agrees to review the 

hearing official’s decision, he or she 

determines, based upon this decision, 

the hearing record, and any arguments 

submitted by the Part D plan sponsor or 

CMS in accordance with this section, 

whether the determination should be 

upheld, reversed, or modified. The CMS 

Administrator furnishes a written 

decision, which is final and binding, to 

the Part D plan sponsor and to CMS. 

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Federal Register / Vol. 79, No. 7 / Friday, January 10, 2014 / Proposed Rules 2073 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

■ 95. The authority citation for part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

■ 96. Amend § 424.530 by adding 

paragraph (a)(11) to read as follows: 

§ 424.530 Denial of enrollment in the 

Medicare program. 

(a) * * * 

(11) Prescribing authority. (i) A 

physician or eligible professional’s Drug 

Enforcement Administration (DEA) 

Certificate of Registration to dispense a 

controlled substance is currently 

suspended or revoked; or 

(ii) The applicable licensing or 

administrative body for any State in 

which a physician or eligible 

professional practices has suspended or 

revoked the physician or eligible 

professional’s ability to prescribe drugs, 

and such suspension or revocation is in 

effect on the date physician or eligible 

professional submits his or her 

enrollment application to the Medicare 

contractor. 

* * * * * 

■ 97. Amend § 424.535 by revising the 

section heading and adding paragraphs 

(a)(13) and (14) to read as follows: 

§ 424.535 Revocation of enrollment in the 

Medicare program. 

(a) * * * 

(13) Prescribing authority. (i) The 

physician or eligible professional’s Drug 

Enforcement Administration (DEA) 

Certificate of Registration is suspended 

or revoked; or 

(ii) The applicable licensing or 

administrative body for any state in 

which the physician or eligible 

professional practices suspends or 

revokes the physician or eligible 

professional’s ability to prescribe drugs. 

(14) Improper prescribing practices. 

CMS determines that the physician or 

eligible professional has a pattern or 

practice of prescribing Part D drugs that 

falls into one of the following categories: 

(i) The pattern or practice is abusive 

and represents a threat to the health and 

safety of Medicare beneficiaries. In 

making this determination, CMS 

considers the following factors: 

(A) Whether there are diagnoses to 

support the indications for which the 

drugs were prescribed. 

(B) Whether there are instances when 

the necessary evaluation of the patient 

for whom the drug was prescribed could 

not have occurred (for example, the 

patient was deceased or out of state at 

the time of the alleged office visit). 

(C) Whether the physician or eligible 

professional has prescribed controlled 

substances in excessive dosages that are 

linked to patient overdoses. 

(D) The number and type(s) of 

disciplinary actions taken against the 

physician or eligible professional by the 

licensing body or medical board for the 

State or States in which he or she 

practices, and the reason(s) for the 

action(s). 

(E) Whether the physician or eligible 

professional has any history of ‘‘final 

adverse actions’’ (as that term is defined 

in § 424.502). 

(F) The number and type(s) of 

malpractice suits that have been filed 

against the physician or eligible 

professional related to prescribing that 

have resulted in a final judgment against 

the physician or eligible professional or 

in which the physician or nonphysician practitioner has paid a 

settlement to the plaintiff(s) (to the 

extent this can be determined). 

(G) Whether any State Medicaid 

program or any other public or private 

health insurance program has restricted, 

suspended, revoked, or terminated the 

physician or eligible professional’s 

ability to prescribe medications, and the 

reason(s) for any such restriction, 

suspension, revocation, or termination. 

(H) Any other relevant information 

provided to CMS. 

(ii) The pattern or practice of 

prescribing fails to meet Medicare 

requirements. In making this 

determination, CMS considers the 

following factors: 

(A) Whether the physician or eligible 

professional has a pattern or practice of 

prescribing without valid prescribing 

authority. 

(B) Whether the physician or eligible 

professional has a pattern or practice of 

prescribing for controlled substances 

outside the scope of the prescriber’s 

DEA registration. 

(C) Whether the physician or eligible 

professional has a pattern or practice of 

prescribing drugs for indications that 

were not medically accepted—that is, 

for indications neither approved by the 

FDA nor medically accepted under 

section 1860D–2(e)(4) of the Act— and 

whether there is evidence that the 

physician or eligible professional acted 

in reckless disregard for the health and 

safety of the patient. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: October 21, 2013. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: December 11, 2013. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2013–31497 Filed 1–6–14; 4:15 pm] 

BILLING CODE 4120–01–P 

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