Vol. 80 Thursday, 

No. 29 February 12, 2015 

Part II 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 417, 422, and 423 

Medicare Program; Contract Year 2016 Policy and Technical Changes to 

the Medicare Advantage and the Medicare Prescription Drug Benefit 

Programs; Final Rule 


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7912 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

Department of Health and Human 

Services 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, and 423 

[CMS–4159–F2] 

RIN 0938–AS20 

Medicare Program; Contract Year 2016 

Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule amends the 

Medicare Advantage (MA) program (Part 

C) regulations and Medicare 

Prescription Drug Benefit Program (Part 

D) regulations to implement statutory 

requirements; improve program 

efficiencies; strengthen beneficiary 

protections; clarify program 

requirements; improve payment 

accuracy; and make various technical 

changes. Additionally, this rule finalizes 

two technical changes that reinstate 

previously approved but erroneously 

removed regulation text sections. 

DATES: This rule is effective March 16, 

2015, except amendments to § 423.154, 

which are effective January 1, 2016. 

Applicability Dates: Except as 

specified in Table 1, the applicability 

date of these provisions is January 1, 

2016. In the Supplemental section of 

this final rule, we provide a table (Table 

1) that lists changes in this final rule 

that have either an effective date other 

than March 16, 2015 or an applicability 

date other than January 1, 2016, for 

Contract Year 2016. 

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. Joscelyn 

Lissone, (410) 786–5116, Part C and D 

compliance issues. 

SUPPLEMENTARY INFORMATION: The 

majority of the provisions listed in this 

rule are intended for implementation for 

contract year 2016. Changes in the Code 

of Federal Regulations (CFR) will be 

consistent with the effective date of the 

applicable provision. Table 1 lists those 

provisions with effective dates other 

than 30 days after the date of 

publication of this final rule or 

applicability dates other than January 1, 

2016 for contract year 2016. The 

applicability and effective dates are 

discussed in the preamble for each of 

these items. 

TABLE 1—APPLICABILITY AND EFFECTIVE DATES OF SELECT PROVISIONS OF THE FINAL RULE

Preamble 

section Section title Effective date Applicability date 

II.A.2. ............. 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).

............................. June 1, 2015. 

II.A.5. ............. Efficient Dispensing in Long-Term Care Facilities and Other Changes (§ 423.154) ....... January 1, 2016.

Table of Contents 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

2. Summary of the Major Provisions 

a. Changes To Audit and Inspection 

Authority (§§ 422.503(d)(2), 

423.504(d)(2)) 

b. 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, 423.44) 

c. Business Continuity for MA 

Organizations & PDP Sponsors 

(§§ 422.504(o) and 423.505(p)) 

d. Efficient Dispensing in Long Term Care 

Facilities and Other Changes (§ 423.154) 

3. Summary of Costs and Benefits 

B. Background 

1. General Overview and Regulatory 

History 

2. Issuance of the Proposed Rule 

3. Public Comments Received in Response 

to the Contract Year 2015 Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs 

Proposed Rule 

II. Provisions of the Proposed Regulations 

A. Clarifying Various Program 

Participation Requirements 

1. Changes to Audit & Inspection Authority 

(§§ 422.503(d)(2), 423.504(d)(2)) 

2. 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, 423.44) 

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

4. Business Continuity for MA 

Organizations & PDP Sponsors 

(§§ 422.504(o), 423.505(p)) 

5. Efficient Dispensing in Long Term Care 

Facilities and Other Changes (§ 423.154) 

6. Medicare Coverage Gap Discount 

Program and Employer Group Waiver 

Plans (§ 423.2325) 

7. Transfer of TrOOP Between PDP 

Sponsors Due To Enrollment Changes 

During the Coverage Year (§ 423.464) 

8. Expand Quality Improvement Program 

Regulations (§ 422.152) 

B. Improving Payment Accuracy 

1. Determination of Payments (§ 423.329) 

2. Reopening (§ 423.346) 

3. Payment Appeals (§ 423.350) 

4. Payment Processes for Part D Sponsors 

(§ 423.2320) 

5. Risk Adjustment Data Requirements— 

Proposal Regarding Annual Deadline for 

MAO Submission of Final Risk 

Adjustment Data (§ 422.310 (g)(2)(ii)) 

C. Strengthening Beneficiary Protections 

1. MA–PD Coordination Requirements for 

Drugs Covered Under Parts A, B, and D 

(§ 422.112) 

2. Good Cause Processes (§§ 417.460, 

422.74, 423.44) 

3. MA Organizations’ Extension of 

Adjudication Timeframes for 

Organization Determinations and 

Reconsiderations (§§ 422.568, 422.572, 

422.590, 422.618, 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, § 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), 

§ 423.509) 

E. Implementing Other Technical Changes 

1. Requirements for Urgently Needed 

Services (§ 422.113) 

2. Agent and Broker Training and Testing 

Requirements (§§ 422.2274, 423.2274) 

3. Deemed Approval of Marketing 

Materials (§§ 422.2262, 422.2266, 

423.2262, 423.2266) 

4. Cross-Reference Change in the Part C 

Disclosure Requirements (§ 422.111) 

5. Managing Disclosure and Recusal in P&T 

Conflicts of Interest (§ 423.120(b)(1)) 

6. Thirty-Six Month Coordination of 

Benefits (COB) Limit (§ 423.466(b)) 

7. Application and Calculation of Daily 

Cost-Sharing Rates (§ 423.153) 

8. Technical Change To Align Regulatory 

Requirements for Delivery of 

Standardized Pharmacy Notice 

(§ 423.562) 


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9. MA Organization Responsibilities in 

Disasters and Emergencies (§ 422.100) 

10. Technical Changes To Align Part C and 

Part D Contract Determination Appeal 

Provisions (§§ 422.641, 422.644) 

11. Technical Changes To Align Parts C 

and D Appeal Provisions (§§ 422.660, 

423.650) 

12. Technical Change to the Restrictions on 

Use of Information Under Part D 

(§ 423.322) 

13. Technical Changes to Regulation Text 

at § 423.104—Requirements Related to 

Qualified Prescription Drug Coverage 

14. Technical Changes to Regulation Text 

at § 423.100—Definition of Supplemental 

Benefits 

III. 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 Good Cause Processes 

(§§ 417.460, 422.74, 423.44) 

C. ICRs Related To Expanding Quality 

Improvement Program Regulations 

(§ 422.152) 

D. ICRs Related To Changes to Audit and 

Inspection Authority (§§ 422.503(d)(2) 

and 423.504(d)(2)) 

E. ICRs Related to Business Continuity for 

MA Organizations and PDP Sponsors 

(§§ 422.504(o) and 423.505(p)) 

F. Submission of PRA-Related Comments 

IV. Regulatory Impact Statement 

Regulations Text 

Acronyms 

ADS Automatic Dispensing System 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service-Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ANOC Annual Notice of Change 

AO Accrediting Organization 

ALR Assisted Living Residence 

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 

BLS Bureau of Labor Statistics 

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 

CGDP Coverage Gap Discount Program 

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 

DEA Drug Enforcement Administration 

DIR Direct and Indirect Remuneration 

DHS Department of Homeland Security 

DME Durable Medical Equipment 

DMEPOS Durable Medical Equipment, 

Prosthetic, Orthotics, and Supplies 

D-SNPs Dual Eligible SNPs 

DOL U.S. Department of Labor 

DUR Drug Utilization Review 

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 

FDR First-tier, Downstream, and Related 

Entities 

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 

ICFs/IID Intermediate care facilities for the 

mentally retarded 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

ID Identification 

IMD Institutes for mental disease 

IT Information Technology 

I/T/U Pharmacies Indian Health Service, 

Tribes and Tribal organizations, and urban 

Indian organizations (collectively referred 

to as ‘‘I/T/U’’). 

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 

MCO Managed Care Organization 

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 of Insurance 

Commissioners 

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 

OES Occupational Employment Statistics 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

OTC Over the Counter 

PACE Programs of the All-Inclusive Care for 

the Elderly 

Part C Medicare Advantage 

Part D Medicare Prescription Drug Benefit 

Program 

Part D IRMAA Part D Income Related 

Monthly Adjustment Amount 

PBM Pharmacy Benefit Manager 

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 

QRS Quality Review Study 

PACE Programs of All Inclusive Care for the 

Elderly 

PRWORA Personal Responsibility and 

Work Opportunity Reconciliation Act of 

1996 

RADV Risk Adjustment Data Validation 

RAC Recovery Audit Contractor 

RAPS Risk Adjustment Payment System 

RPPO Regional Preferred Provider 

Organization 

RTO Return to Operations/Recovery Time 

Objective 

SBA Small Business Association 

SCORM Sharable Content Object Reference 

Model 

SEP Special Enrollment Period 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SNP MOC Special Needs Plan Model of 

Care 

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 


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7914 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

USP U.S. Pharmacopoeia 

ZPIC Zone Program Integrity Contractor 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose 

The purpose of this final rule is to 

revise the Medicare Advantage (MA) 

program (Part C) regulations and 

Medicare Prescription Drug Benefit 

Program (Part D) regulations to 

implement statutory requirements, 

improve program efficiencies, 

strengthen beneficiary protections, 

clarify program requirements, improve 

payment accuracy, and make various 

technical changes for contract year 

2016. 

2. Summary of the Major Provisions 

a. Changes to Audit and Inspection 

Authority (§§ 422.503(d)(2), 

423.504(d)(2)) 

We proposed three changes to our 

audit and inspection authority. Due to 

significant concerns raised during the 

public comment period, we are 

finalizing only two of those three 

proposals. 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’’ inspection and audit. 

We are revising both §§ 422.503(d)(2) 

and 423.504(d)(2) to insert the word 

‘‘timely’’ at the end of both of the 

introductory paragraphs. 

We are also adding 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 

validate if the deficiencies that were 

found during a CMS full or partial 

program audit have been corrected and 

provide CMS with a copy of the audit 

findings. 

The proposal to require MA 

organizations and Part D plan sponsors 

to hire an independent auditor to 

conduct full or partial program audits 

will not be finalized. 

b. 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, 423.44) 

After consideration of the public 

comments, we are finalizing the policies 

mostly as proposed, with the exception 

of changes to the regulation text at 

§§ 417.422, 417.460, 422.50, 423.1, 

423.3 and 423.44 to clarify that any 

individual not lawfully present is no 

longer eligible to remain enrolled in a 

cost, MA, or Part D plan, to establish the 

disenrollment effective date to be the 

first of the month following notice by 

CMS of ineligibility, and to delete the 

term ‘‘qualified alien.’’ Further, we are 

redesignating the current text at 

§ 417.460(b)(2)(iv) as paragraph (b)(2)(v) 

and finalizing the provision establishing 

a lack of lawful presence as a basis for 

disenrollment from a cost plan at 

paragraph (b)(2)(iv). This provision is 

consistent with the Personal 

Responsibility and Work Opportunity 

Reconciliation Act of 1996 (PRWORA) 

and with recommendations made by the 

Office of the Inspector General (OIG) in 

its January 2013 and October 2013 

reports. 

c. Business Continuity for MA 

Organizations & PDP Sponsors 

(§§ 422.504(o) and 423.505(p)) 

To respond to concerns raised during 

the comment period, we revised the 

regulation text by providing a 72, rather 

than 24 hour, restoration time period for 

MA organizations and Part D sponsors 

after a systems failure. We also revised 

text as necessary to make clear that we 

require MA organizations and sponsors 

to ‘‘plan to’’ restore essential functions 

within the 72-hour time period, rather 

than guarantee complete restoration 

within the timeframe. Some 

commenters thought our intent was to 

require continuous operations under all 

conditions, and we revised language 

from the proposed regulation to make 

clear that that was not the case in our 

final rule. Lastly commenters 

distinguished between Part C and D 

operations and noted, for instance, that 

provider payments are not a 24-hour 

critical function for MA plans since 

payment is allowed to be made within 

30 days and that health and safety 

would not be put at risk by failure of 

Part C claims processing and appeals 

processing. We removed language 

related to that requirement for MA 

plans. 

d. Efficient Dispensing in Long Term 

Care Facilities and Other Changes 

(§ 423.154) 

We are finalizing changes to the rule 

requiring efficient dispensing to 

Medicare Part D enrollees in long term 

care (LTC) facilities. Some Part D 

sponsors (or their pharmacy benefit 

managers) implemented the short-cycle 

dispensing requirement by pro-rating 

monthly dispensing fees, which 

penalize the offering and adoption of 

more efficient LTC dispensing 

techniques compared to less efficient 

LTC dispensing techniques. This is 

because when a medication is 

discontinued before a month’s supply 

has been dispensed, a pharmacy that 

dispenses the maximum amount of the 

medication at a time permitted under 

§ 423.154 (which is 14 days’ supplies), 

collects more in dispensing fees than a 

pharmacy that utilizes dispensing 

techniques that result in less than 

maximum quantities being dispensed at 

a time. In other words, a less efficient 

pharmacy collects more in dispensing 

fees than a more efficient pharmacy. 

This is contrary to the Congress’ intent 

in enacting section 3310 of the 

Affordable Care Act, which is to reduce 

medication waste. Therefore, we have 

finalized a prohibition on payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques by prorating 

dispensing fees based on days’ supply 

or quantity dispensed. We have also 

finalized a requirement to ensure that 

any difference in payment methodology 

among LTC pharmacies incentivizes 

more efficient dispensing techniques. 

Other changes to the rule requiring 

efficient dispensing to Medicare Part D 

enrollees in LTC facilities are 

eliminating language that has been 

misinterpreted as requiring the 

proration of dispensing fees and making 

a technical change to the requirement 

that Part D sponsors report on the nature 

and quantity of unused brand and 

generic drugs. We are not finalizing an 

additional waiver for LTC pharmacies 

using restock and reuse dispensing 

methodologies under certain conditions 

at this time. 

3. Summary of Costs and Benefits 


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TABLE 2—SUMMARY OF COSTS AND BENEFITS

Provision Total costs Transfers 

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

an annual cost of $2 million for the time 

and effort for all MA organizations or Part D 

sponsors with audit results that reveal noncompliance with CMS requirements to hire 

independent auditors to validate that correction has occurred. The total cost for 2015– 

2019 is estimated to be $10 million.

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). 

Business Continuity Operations ......................... We estimate that this change would require a 

first year cost of $8 million in 2015, for the 

time and effort for affected organizations to 

comply with the business continuity requirements. In subsequent years, 2016–2019, 

the cost for maintaining the business continuity is estimated to be $4 million. The 

total cost over the period 2015–2019 is estimated to be $24 million.

B. Background 

1. General Overview and Regulatory 

History 

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 

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 (Part D), 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, in 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 on 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), as amended by the 

Health Care and Education 

Reconciliation Act (Pub. L. 111–152) 

(collectively the Affordable Care Act or 

ACA) added a number of new Medicare 

provisions and modified many existing 

provisions. 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 


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7916 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

programs required by statute, including 

the Affordable Care Act, and 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. 

2. Issuance of the Proposed Rule 

In the proposed rule titled ‘‘Contract 

Year 2015 Policy and Technical 

Changes to the Medicare Advantage and 

the Medicare Prescription Drug Benefit 

Programs,’’ which appeared in the 

January 10, 2014 Federal Register (79 

FR 1918), we proposed to revise the MA 

program (Part C) regulations and 

Medicare Prescription Drug Benefit 

Program (Part D) regulations to 

implement statutory requirements; 

strengthen beneficiary protections; 

improve program efficiencies; and 

clarify program requirements. The 

proposed rule also included several 

provisions designed to improve 

payment accuracy. 

3. Public Comments Received in 

Response to the Contract Year 2015 

Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs 

Proposed Rule 

We received approximately 7,600 

timely pieces of correspondence 

containing multiple comments on the 

CY 2015 proposed rule. The majority of 

correspondence received was in 

reference to provisions that were either 

finalized in the final rule that appeared 

in the Federal Register on May 23, 2014 

(79 FR 29844) (May 2014 final rule) or 

that will not be finalized. While we are 

finalizing in whole or in part 

approximately 30 of the provisions from 

the proposed rule in this final rule, 

there remain a small number of 

provisions from the proposed rule that 

were not finalized in the May 2014 final 

rule and that we are not finalizing in 

this rule. These provisions are listed 

later in this section in Table 2. 

Public comments on the provisions 

finalized in this rule were submitted 

between January 10, 2014 and March 7, 

2014. We note that some of the public 

comments were outside of the scope of 

the proposed rule provisions that we are 

finalizing here. These out-of-scope 

public comments are not addressed in 

this final rule. Summaries of the public 

comments that are within the scope of 

the proposed rule and our responses to 

those public comments are set forth in 

the various sections of this final rule 

under the appropriate heading. 

However, we note that in this final rule 

we are not addressing comments 

received with respect to the provisions 

of the proposed rule that we are not 

finalizing. 

TABLE 2—PROVISIONS NOT BEING FINALIZED

Proposed Rule 

January 10, 2014 

Federal Register 

(79 FR 1918), 

section 

Topic 

Clarifying Various Program Participation Requirements 

III.A.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)). 

III.A.9 ....................... Collections of Premiums and Cost Sharing (§ 423.294). 

III.A.12 ..................... Separating the Annual Notice of Change (ANOC) from the Evidence of Coverage (EOC) (§ 422.111(a)(3) and 

423.128(a)(3)). 

III.A.14 ..................... Exceptions to Drug Categories or Classes of Clinical Concern (§ 423.120(b)(2)(vi)). 

III.A.15 ..................... Medication Therapy Management Program (MTMP) under Part D (§ 423.153(d)(1)(v)(A))—outreach strategies. 

III.A.23 ..................... Medicare Coverage Gap Discount Program and Employer Group Waiver Plans (§ 423.2325)—disclosure requirement for 

Part D sponsors. 

III.A.26 ..................... Payments to PDP Plan Sponsors For Qualified Prescription Drug Coverage (§ 423.308) and Payments to Sponsors of Retiree Prescription Drug Plans (§ 423.882). 

III.A.38 ..................... Authorization of Expansion of Automatic or Passive Enrollment Non-Renewing Dual Eligible SNPs (D-SNPs) to another 

D-SNP to Support Alignment Procedures (§ 422.60). 

Strengthening Beneficiary Protections 

III.C.1 ...................... Providing High Quality Health Care (§ 422.504(a)(3) and § 423.505(b)(27)). 

III.C.4 ...................... Definition of Organization Determination (§ 422.566). 

Strengthening our Ability To Distinguish Stronger Applicants for Part C and D Program Participation and To Remove Consistently Poor 

Performers 

III.D.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). 

Implementing Other Technical Changes 

III.E.2 ....................... Skilled Nursing Facility Stays (§§ 422.101 and 422.102). 


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II. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

A. Clarifying Various Program 

Participation Requirements 

1. Changes to Audit and Inspection 

Authority (§§ 422.503(d)(2), 

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 proposed 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’’ inspection and audit. 

We proposed to revise both 

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

reflect this change. Specifically, we 

proposed to insert the word ‘‘timely’’ at 

the end of both of the introductory 

paragraphs for §§ 422.503(d)(2) and 

423.504(d)(2). 

We also proposed to add language to 

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

will allow us to require an MA 

organization or Part D plan sponsor to 

hire an independent auditor, working in 

accordance with CMS specifications, to 

perform full or partial program audits to 

determine compliance with CMS 

requirements and provide to CMS an 

attestation affirming that the audit has 

been completed as required. 

Lastly, we proposed to add language 

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

that would allow us to require that a 

sponsoring organization hire an 

independent auditor, working in 

accordance with CMS specifications, to 

validate if the deficiencies that were 

found during a CMS full or partial 

program audit have been corrected and 

provide CMS with a copy of the audit 

findings. 

We received the following comments 

and our responses follow: 

Comment: Some commenters 

requested that CMS define ‘‘timely’’ as 

it is being added to § 422.503(d)(2) and 

§ 423.504(d)(2) and that CMS define the 

existing language from paragraph (2) in 

that same section, specifically: ‘‘when 

there is reasonable evidence for some 

need for such inspection.’’ 

Response: We are following the exact 

working of the statute in adding the 

word ‘‘timely’’ to our current audit and 

inspection authority. We believe that 

the Congress recognized that what 

would be considered ‘‘timely’’ is based 

on a reasonableness standard that may 

change based on the specific 

circumstances leading up to the audit. 

For example, we currently give sponsors 

4-weeks notice prior to the start of a 

routine program audit and we do not 

envision this change altering that 

practice. However, if we were to become 

aware of a situation where beneficiaries’ 

health or safety may be at risk based on 

a plan’s poor performance, we will 

reserve the right to request records or 

any needed documentation in an 

expedited fashion. Therefore, we will 

not put restrictions on the broadly 

stated statutory language and believe 

that this is in line with the spirit and 

intent of the statutory change. Similarly, 

the language in paragraph (2) in that 

same section is not a change, but 

existing language from our regulations. 

Again, we believe that the wording is 

appropriate and does not require 

additional definition or explanation. 

Comment: One commenter suggested 

we utilize the NCPDP audit standard as 

a means of standardizing audit 

communications. 

Response: We appreciate the 

commenter’s suggestion and believe this 

would be a more appropriate approach 

if our audits largely focused on claim 

level audits between MA and Part D 

organizations and the providers or 

entities they pay. However, program 

audits cover a wide range of our 

program areas and corresponding 

programmatic requirements, many of 

which go well beyond claim 

determinations. We have received 

positive feedback from MA and Part D 

organizations in the past regarding the 

level of detail and useful information 

and feedback in our audit reports, 

which sponsors rely upon as they work 

towards implementing any necessary 

corrective actions. By limiting the 

communication to the codes and 

auditing standards used by NCPDP, we 

believe that—(1) many of our findings 

would not be adequately covered by 

these standards; and (2) they would not 

provide enough detail in many cases to 

allow for an organization to undertake 

meaningful correction. 

Comment: A commenter suggested 

that CMS specify that the same 

organization that performed the audit 

also perform the validation in order to 

ensure consistency in interpretation and 

try to keep costs down, or at the very 

least require at least one member from 

the original audit team be a member of 

the validation team. 

Response: We will not be finalizing 

the proposal requiring organizations to 

hire an independent auditor to conduct 

full or partial program audits, but we are 

finalizing the proposal that we may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. We will 

consider the recommendation to include 

a member from the original audit team 

in any validation activities whether they 

be performed by CMS internally or by 

an independent auditor hired by the MA 

or Part D organization at CMS’ request. 

Comment: Some commenters’ 

requested if CMS would set a time limit 

in which audits must be completed or 

conducted. 

Response: We will not be finalizing 

the proposal requiring organizations to 

hire an independent auditor to conduct 

full or partial program audits, but we are 

finalizing our proposal that we may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. We will 

establish a timeframe in subregulatory 

guidance based on our current internal 

validation audit timeline. However, we 

recognize that some correction activities 

require more time than others, we will 

reserve the right to alter those timelines 

for deficiencies that we believe—(1) a 

more immediate correction is warranted 

due to the potential for beneficiary 

harm; or (2) require a longer correction 

timeline due to the technical or difficult 

nature of correction (for example, 

rebuilding or completely restructuring 

systems infrastructure). 

Comment: A commenter requested if 

CMS would pay for the cost to hire an 

independent auditor. 

Response: Our proposal was that an 

MA or Part D organization would retain 

the independent auditing firm to 

conduct the audit, but that the plan 

could account for the costs in their bid. 

However, we will not be finalizing the 

proposal requiring organizations to hire 

an independent auditor to conduct full 

or partial program audits, but we are 

finalizing our proposal that we may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. 

Comment: Some commenters 

requested that CMS cap fees that 

independent audit firms would charge 

MA and Part D organizations to perform 

program audits. 

Response: If we decide to pursue this 

proposal in the future, we will explore 

our ability to cap the costs of performing 

these audit activities. 

Comment: Many commenters 

suggested that instead of requiring MA 

and Part D organizations to hire 

independent auditors to expand the 

number of audits conducted each year 

that we look to the various other 

compliance and monitoring activities 

the Agency engages in, which could be 

used to better target audits or results 

could be utilized in lieu of audit 

activities. 


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Response: We do utilize the data and 

information obtained about sponsor 

performance to target our audit efforts as 

part of the overall risk assessment used 

to select sponsors for audit. We have 

also utilized data and information from 

our various monitoring efforts to assist 

in determining if certain deficiencies 

discovered during an audit may have 

been corrected (for example, if a sponsor 

had multiple deficiencies in a program 

area that will at a later date be the 

subject of a monitoring activity, we may 

use passing results from that monitoring 

activity as proof of correction). 

Comment: A commenter requested 

that CMS release the data driven 

elements of the risk assessment and 

define a sponsor who is high risk. 

Response: We believe that this 

comment is outside the scope of this 

final rule. However, we use a variety of 

existing data points from Medicare Star 

ratings, past performance and plan 

reported data, as a few examples, to 

develop our risk assessment. We focus 

on metrics that have the potential to 

affect beneficiary access to medications 

and services, and also look for 

operational metrics that program 

experience has demonstrated can cause 

contracting organizations to develop 

performance problems in core program 

areas (that is, large increases in 

enrollment over a short period of time). 

We do not release our risk assessment 

in its entirety, but these are the areas we 

focus on when conducting the analysis. 

Organizations should note that it is our 

goal to audit all organizations in the MA 

and Part D program, and the risk 

assessment is one way plans are 

selected for audit. 

Comment: Some commenters raised 

concerns over their available recourse if 

they disagreed with an independent 

auditor’s findings, given the impact on 

Medicare Star ratings and past 

performance. 

Response: We will not be finalizing 

the proposal requiring organizations to 

hire an independent auditor to conduct 

full or partial program audits, but we are 

finalizing the proposal that we may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. 

Validation results have no impact on 

Medicare Star ratings or past 

performance. However, we stated in the 

proposal that organizations would have 

an opportunity to rebut audit findings, 

this would include during validation 

efforts, and CMS would be reviewing 

both draft and final reports from the 

independent auditor. Therefore, we 

would give organizations an avenue to 

dispute findings or policy 

interpretations that organizations 

believed to be erroneous, even in the 

more limited use of an independent 

auditor to validate correction of 

deficiencies. 

Comment: A commenter stated that 

our proposal did not clarify how 

organizations hiring an independent 

auditor to conduct full or partial 

program audits would affect or involve 

the Zone Program Integrity Contractors 

(ZPICs) or the Recovery Audit 

Contractors (RACs). 

Response: The proposal to utilize an 

independent auditor to conduct full or 

partial program audits or validations has 

no impact on ZPICs or RACs, which is 

why they are not mentioned in our 

proposal. 

Comment: Several commenters 

suggested that CMS develop a core set 

of SNP auditors regardless of whether or 

not we implement our independent 

auditor proposal, given what the 

industry perceives as inexperienced or 

inconsistent SNP findings amongst 

auditors, which many SNPs believed 

would be aggravated if organizations 

were required to retain an independent 

audit firm. Some suggested that SNP 

auditors should be accredited by NCQA 

prior to being allowed to conduct SNP 

audits. 

Response: We believe that this is 

outside the scope of this proposal, but 

we thank the commenter for their 

suggestion to continue to strengthen the 

CMS MA and Part D audit program. We 

have conducted additional training and 

continue to welcome feedback on all of 

our audit processes and protocols. After 

the piloting of the SNP MOC protocols 

in 2013, we conducted specialized 

feedback sessions with organizations 

subject to SNP MOC audits and made 

changes to our protocols, methods of 

evaluation and training of auditors 

based on the industry’s feedback. We 

welcome additional feedback and hope 

that organizations will see continual 

improvements in our audit processes in 

2014 and future years. 

Comment: A commenter inquired if 

the independent auditor proposals 

applied to PACE organizations. 

Response: No, these proposals do not 

apply to PACE organizations. These 

regulatory provisions do not apply to 

PACE plans because we are only 

proposing changes to Parts 422 and 423 

which govern MA, other Managed care 

plans, and Part D organizations. PACE 

plans are governed by the regulations in 

part 460. With respect to this change 

applying to cost plans, we select 

sponsors for audit at their parent 

organization level, and if they have an 

1876 cost plan, that contract would be 

included in our audit. Therefore, the 

parent organization may be requested to 

hire an independent auditor to validate 

the correction of their audit 

deficiencies. However, if an 

organization was a standalone cost plan, 

with no MA or Part D contracts under 

parts 422 or 423, this requirement 

would not apply to those organizations, 

as cost plans are governed by part 417. 

Comment: A commenter suggested 

that CMS develop and implement a 

robust annual or biannual training 

program for independent auditors to 

ensure that they were competent to 

perform program audits properly. 

Response: We will not be finalizing 

the proposal requiring organizations to 

hire an independent auditor to conduct 

full or partial program audits, but we are 

finalizing the proposal that CMS may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. We will 

consider this suggestion if we repropose 

the larger full scale use of independent 

auditors to conduct full or partial 

program audits in the future. We will 

also share whatever materials we have 

developed and can provide technical 

assistance if we request an organization 

to retain an independent auditor to 

validate correction of audit deficiencies. 

Comment: A commenter suggested 

that instead of requiring plans to hire an 

independent auditor we require plans to 

conduct a robust internal audit and 

share the results with CMS. 

Response: We will not be finalizing 

the proposal requiring organizations to 

hire an independent auditor to conduct 

full or partial program audits, but we are 

finalizing the proposal that CMS may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. We 

currently require organizations to 

conduct internal auditing and 

monitoring as part of having an effective 

compliance program, which we believe 

for purposes of a healthy and robust 

compliance program, such activities are 

appropriate. 

Comment: A commenter 

recommended that much like CMS’ use 

of independent auditors to conduct data 

validation audits, CMS should set 

criteria regarding who can conduct 

program audits. For example, the 

commenter suggested CMS clarify that 

organizations that currently assist plans 

with operations, compliance or 

consulting are disqualified from 

performing as independent auditors. 

Response: We will not be finalizing 

the proposal requiring organizations to 

hire an independent auditor to conduct 

full or partial program audits, but we are 

finalizing the proposal that CMS may 

require an organization to hire an 

independent auditor to validate 


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Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 7919 

1This includes qualified aliens. 

correction of audit deficiencies. We 

thank the commenter for their 

suggestion with respect to whom a 

contracting organization may retain to 

perform validation of correction of audit 

deficiencies. We will consider including 

any key criteria regarding who can 

perform these validations in subsequent 

subregulatory guidance. 

Comment: A few commenters 

questioned whether CMS has the 

statutory authority to require 

contracting organizations to retain an 

independent auditor to conduct full or 

partial program audits. These 

commenters raised many related issues, 

such as CMS trying to inappropriately 

expand their appropriation by requiring 

contracting organizations to bear the 

cost of hiring an audit firm to perform 

a function that the Congress has tasked 

CMS with performing. Other 

commenters stated that to the extent 

these funds expended by plans were 

later reimbursed by CMS through the 

bid process, it could implicate the AntiDeficiency Act. 

Response: We will not finalize the 

proposal requiring organizations to hire 

an independent auditor to conduct full 

or partial program audits, but we are 

finalizing the proposal that we may 

require an organization to hire an 

independent auditor to validate 

correction of audit deficiencies. We do 

not agree that our proposal allowing us 

the option to request a plan sponsor to 

retain an independent auditor to verify 

that deficiencies that we determined 

existed during our audit have been 

corrected implicates the concerns that 

organizations previously raised 

regarding our current appropriation or 

statutory authority. The proposal simply 

mirrors our current authority where we 

may require organizations under 

sanction to retain an independent 

auditor to perform an independent 

review to validate that the deficiencies 

upon which the sanction was based 

have been corrected and are not likely 

to recur. 

After consideration of all of the 

comments received, we are finalizing 

our proposal to revise both 

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

insert the word ‘‘timely’’ at the end of 

both of the introductory paragraphs for 

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

our proposal to have the option to 

require contracting organizations who 

were found to have deficiencies during 

a CMS program audit to hire an 

independent auditor to validate 

correction of those deficiencies. 

However, based on the strong 

opposition and valid concerns raised by 

contracting organizations, we have 

decided at this time not to finalize our 

proposal to require plan sponsors to hire 

an independent auditor no less than 

every 3 years to conduct full or partial 

program audits. 

2. 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 Medicare Part A without a 

premium under sections 226 or 226A of 

the Act. Individuals must have Part B 

(under section 1836 of the Act) and 

must also meet citizenship or alien 

status requirements in order to purchase 

Part A hospital insurance under section 

1818 of the Act; individuals covered 

under section 1836 of the Act must meet 

citizenship or alien status requirements, 

in addition to other requirements, in 

order to enroll in Part B if they are not 

entitled to premium-free Medicare 

under sections 226 or 226A. 

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. To be eligible for 

MA, Part D, or cost plan coverage, 

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 PRWORA, 

amended by section 5561 of the 

Balanced Budget Act, limits the 

eligibility of individuals who are not 

qualified aliens to receive benefits 

under certain federal programs, 

including benefits under Title XVIII of 

the Act (Medicare); these provisions are 

codified at 8 U.S.C. 1611 and 1641. In 

general pursuant to 8 U.S.C. 1611(a), an 

alien who is not a qualified alien is not 

eligible to receive any federal public 

benefit. The Congress has established 

some exceptions to this general rule. 

One exception, at 8 U.S.C. 1611(b)(3), 

permits certain aliens to obtain 

Medicare benefits and applies to an 

alien who is: (1) Lawfully present in the 

United States, as determined by the 

Attorney General and (2) was authorized 

to be employed with respect to wages 

attributable to employment, which were 

counted for the purpose of determining 

Medicare entitlement under Part A 1. An 

alien who is eligible under this 

exception is able to receive any benefit 

payable under Medicare. In contrast, an 

alien that is not lawfully present in the 

United States is not eligible to receive 

benefits under Medicare. 

As a result, individuals 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 PRWORA they are 

not eligible to receive the Social 

Security benefits they have earned for as 

long as they remain unlawfully present. 

When they are again lawfully present in 

the United States, or live outside the 

United States, they would regain 

eligibility to receive Social Security 

payments. 

Similarly, when those not lawfully 

present become eligible for Medicare 

based on age or disability under the Act, 

they would also automatically be 

entitled under the Act to premium free 

Part A benefits and be eligible under the 

Act to enroll in Part B during a valid 

enrollment period. Furthermore, if these 

same individuals were receiving Social 

Security retirement benefits 4 months 

prior to turning 65, or are in their 21st 

month of receiving Social Security 

disability benefits, they would 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. However, 

again under the PRWORA limitations 

previously discussed, payments for 

Medicare benefits cannot be made on 

behalf of these individuals as long as 

they are not lawfully present in the 

United States. Only upon becoming 

lawfully present would they become 


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7920 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

2Medicare Improperly Paid Providers Millions of 

Dollars for Unlawfully Present Beneficiaries Who 

Received Services During 2009 Through 2011 (A– 

07–12–01116), available at http://oig.hhs.gov/oas/

reports/region7/71201116.asp. 

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. Similarly, individuals who 

are entitled to Part A and enrolled in 

Part B based on eligibility for Social 

Security benefits currently may be 

enrolled in Medicare even if they are 

not lawfully present in the United 

States. However, as previously outlined, 

Medicare benefits are not payable for 

individuals who are not lawfully 

present even if such individuals are 

enrolled in Medicare. Thus, there is a 

distinction between being ‘‘entitled to 

Part A’’ or ‘‘enrolled in Part B’’ as 

provided for in the Act and being 

eligible to receive the Part A and Part B 

benefits that ordinarily flow from such 

entitlement and enrollment. 

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 benefits are not 

incorrectly paid for individuals who are 

present in the United States unlawfully, 

the Social Security Administration 

(SSA) established internal policies and 

procedures to suspend Social Security 

benefits during periods in which 

individuals are not lawfully present in 

the United States. Because Medicare 

entitlement flows from entitlement to 

Social Security retirement and disability 

benefits, Medicare has also 

implemented this provision through its 

own payment exclusion process. 

Under Medicare’s payment exclusion 

process, data on lawful presence are 

transmitted to CMS from the 

Department of Homeland Security 

(DHS) via regular data exchanges with 

SSA. Once the data are received by 

CMS, lawful presence status is noted on 

an individual’s record and is retained in 

the FFS claims processing systems. As 

a result, payment of Part A and Part B 

claims for non-citizens is denied where 

lawful presence is not established on 

their record, and continues to be denied 

until these individuals regain lawful 

presence status. Although payment is 

being denied for claims, individuals 

who are entitled to Medicare per section 

226 of the Act, maintain Part A 

entitlement and remain enrolled in Part 

B on Medicare’s records as long as Part 

B premiums are paid. Similarly, 

individuals who are enrolled in 

premium Part A or Part B or both under 

sections 1818 and 1836 of the Act, 

maintain their enrollment status as long 

as premiums are paid. 

We proposed to align eligibility for 

enrollment in MA, Part D, and cost 

plans (and resulting Medicare payments 

to plans and by plans that would violate 

PRWORA) with the FFS payment 

exclusion policy to ensure that 

Medicare is only paying for benefits and 

services rendered to individuals who 

are eligible to receive them. These steps 

align with the recommendations made 

by the Office of Inspector General (OIG) 

in its January 2013 report (A–07–12– 

01116) 2 regarding the need for CMS to 

maintain adequate controls to detect 

and prevent improper payments for 

Medicare services rendered to 

beneficiaries who are not lawfully 

present. Accordingly, we proposed 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 proposed 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. Under our proposal, 

disenrollments would have been 

effective the first of the month following 

the loss of lawful presence status, and 

the disenrollment process would follow 

the process currently set forth in the 

regulations for an individual who is no 

longer eligible to be enrolled in a plan. 

Such disenrolled individuals would 

continue to be considered entitled to 

Medicare Part A and (if enrolled) 

enrolled in Part B coverage, provided 

they continue to pay premiums, as 

applicable, but as noted payment of FFS 

claims would be denied based on 

unlawfully present status. 

These proposed regulatory changes 

were intended to prevent an individual 

known not to be lawfully present in the 

United States from enrolling in a Part C, 

Part D, or cost plan and/or remaining 

enrolled in such a plan, meaning that 

payments would not be made to plans 

or by plans with respect to such 

individuals during that period. This 

policy was intended to facilitate 

compliance with 8 U.S.C. 1611. We 

proposed the following changes in the 

regulations to refine the eligibility 

requirements for the MA and Part D 

programs and give MA and Part D plans 

the ability to disenroll individuals who 

are 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. 

• Sections 417.460, 422.74, and 

423.44 would be amended to require the 

involuntary disenrollment of 

individuals from cost, MA or Part D 

plans if 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, from 8 

U.S.C. 1611 (Aliens who are not 

qualified aliens ineligible for federal 

public benefits). 

We received the following comments 

on our proposals: 

Comment: Overall we received 

general support for our proposal. Many 

commenters requested clarification 

about who would be responsible for 

verifying eligibility based on lawful 

presence. A few of these commenters 

stated specifically that CMS should 

verify this aspect of eligibility and that 

plans should not be expected or 

permitted to request proof of lawful 

presence from individuals. A 

commenter, who did not agree with the 

proposed change, expressed concern 

that plans do not have access to data to 

validate residency/lawful status for 

Medicare beneficiaries and requested 

what source would be used for status 

changes. 

Response: We appreciate the support 

expressed by most commenters. We 

agree that CMS would have to provide 

lawful presence information to plans. In 

most cases, the DHS determines 

citizenship and lawful presence status 

and that information is passed to SSA. 

SSA also has mechanisms to address 

changes in lawful presence status 

reported by beneficiaries themselves or 

other third parties. CMS receives the 

lawful presence information from SSA 

after it completes its processes related to 

such changes in status. Then, we will 

notify the plan if an individual is not 

eligible for MA, Part D or cost plan 

enrollment based on lawful presence 

and the plan must either deny the 

enrollment request or process the 

involuntary disenrollment. Plans are not 

expected to independently determine 

lawful presence when processing the 

enrollment request, nor should they 

request proof of citizenship from the 

beneficiary or include lawful presence 

as an element on the enrollment form. 

We will notify plans of ineligibility due 

to unlawful presence, through the same 

administrative mechanisms currently 

utilized to notify plans about other 


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Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 7921 

3Social Security Administration Program 

Operations Manual System (POMS) RS 00204.010 

Lawful Presence Payment Provisions and RS 

00204.080 Postentitlement Suspension—Alien is no 

Longer Lawfully Present. 

4Notices are required from the plans in cases of 

certain disenrollments. See 42 CFR.417.430, 

422.74(c), and 423.44(c). 

5Notices are required from the plans in cases of 

enrollment denials. See 42 CFR 417.430(b)(3), 

422.50(e)(3), and 423.32(d). 

6Medicare Improperly Paid Providers Millions of 

Dollars for Prescription Drugs Provided to 

Unlawfully Present Beneficiaries During 2009 

Through 2011 (A–07–12–006038) (http://

oig.hhs.gov/oas/reports/region7/71206038.pdf). 

involuntary disenrollments. 

Additionally, we will be providing more 

detailed information about the 

necessary processes and procedures in 

subregulatory guidance. 

Comment: A few commenters 

suggested that we amend the regulations 

to require a notice for the beneficiaries 

if they are disenrolled for absence or 

loss of lawful presence status. Other 

commenters suggested revisions for the 

content of a disenrollment notice, 

specifically suggesting that it contain 

pertinent information regarding loss of 

eligibility for enrollment and related 

impacts to unlawfully present 

individuals. 

Response: Under existing processes at 

SSA, individuals are notified of their 

potential change to lawful presence 

status and are provided an opportunity 

to be heard in advance of any final 

changes in status in SSA records (that 

is, before the information is transmitted 

to us 3). We believe that this process by 

SSA provides adequate notification to 

the beneficiary and, at this time, CMS 

will not require an additional notice 

from the plan at the time of 

disenrollment. This policy on 

notification from the plan is similar to 

CMS processes and regulations for other 

involuntary disenrollments based on 

information from CMS,4 but we will 

take into consideration the possibility of 

requiring notice in future rulemaking. 

In our existing subregulatory 

guidance, MA, Part D and cost plans are 

strongly encouraged to send 

confirmation of disenrollment to 

members even when it is not required. 

We agree that a notice regarding the 

reason for involuntary disenrollment 

and the impact unlawful presence status 

has on the payment of Medicare services 

would reinforce the messages already 

provided by SSA, and CMS encourages 

plans to send such notices in this 

situation. Sending a confirmation of 

disenrollment would ensure that these 

beneficiaries understand the restrictions 

of their Medicare coverage as they 

transfer to the FFS program. We 

appreciate the suggested notice language 

provided by the commenters and will 

consider it as we establish a model 

notice in Chapter 2 and Chapter 17- 

Subchapter D of the Medicare Managed 

Care Manual and Chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual. 

Further, for instances where an 

unlawfully present individual is denied 

enrollment into a MA, Part D, or cost 

plan due to ineligibility, we currently 

require that the plan provide written 

notice of the denial.5 We will consider 

the suggested language as we modify the 

existing model denial notices in these 

subregulatory chapters. 

Comment: Several commenters 

expressed concern about the effective 

date of disenrollment if it is based on 

the date of loss of lawful presence 

status. Specifically, commenters 

suggested that involuntary 

disenrollments be prospective because 

the plan provides coverage on the 

reasonable assumption of eligibility to 

receive services. Further, commenters 

were concerned about the recoupment 

of capitation payments as a result of 

these retroactive disenrollments. 

Response: In the proposed rule, we 

proposed that disenrollments would be 

effective the first of the month following 

the loss of eligibility to receive federal 

benefits because this is in line with the 

statutory requirement that individuals 

not receive federal benefits when they 

are not lawfully present in the United 

States. Operationally, we did not believe 

it was feasible to maintain enrollment in 

a Part C, Part D or cost plan for a period 

for which we would be required to 

recoup capitations retroactively. 

Therefore, we proposed a procedural 

mechanism to default enrollment for 

such individuals to Original Medicare, 

where the FFS payment exclusion 

policy would be applied. Any 

retroactive disenrollments would under 

our proposed approach result in 

recoupment of payments, as supported 

by existing regulations in 

§§ 417.464(a)(1), 422.308(f)(1), 

423.315(f) and 423.343(a), which require 

CMS to retroactively adjust plan 

payments due to changes in enrollment 

status. At the time we made this 

proposal, it was consistent with the 

approach adopted under FFS Medicare, 

which also made retroactive 

recoupments in cases in which someone 

receiving Medicare benefits is 

determined not to have been eligible for 

them. 

While we believed that this approach 

was the best way to implement our 

obligation to comply with PRWORA, in 

considering comments received on the 

proposal, we are reconsidering the issue 

of retroactive disenrollment. First, while 

our proposal was consistent at the time 

it was made with FFS policy on 

retroactive recoupments, we have 

revised that policy, based on section 

1870 of the Act, and are now denying 

payments only prospectively. We are 

also aware of due process arguments 

that may apply to retroactive 

recoupment. Because, under our 

systems, retroactive disenrollment 

would automatically result in 

retroactive recoupment, and we are 

reconsidering the issue of whether such 

retroactive recoupment in the case of 

Part C, Part D and cost plans is 

appropriate, we are not finalizing the 

retroactive aspect of our proposal on 

disenrollment, and at this time are 

finalizing only the prospective period of 

disenrollment provided for in the 

proposed rule. We are moving forward 

with finalizing prospective 

disenrollment while reconsidering the 

issue of retroactive enrollment because 

we believe that prospective 

disenrollment should be put in place as 

soon as possible, both to implement the 

prohibition on benefit payments to 

individuals who are unlawfully present 

in the United States, and minimize the 

period of any potential retroactive 

recoupment in the event we decide at a 

future point to proceed with our original 

proposal to disenroll individuals 

retroactively. 

Therefore, we are finalizing text 

different from our original proposal to 

make all disenrollments effective the 

first of the month following the loss of 

eligibility to receive federal benefits 

(that is, retroactively), and instead at 

this time will revise §§ 417.460(j), 

422.74(d)(8), and 423.44(d)(8) to provide 

that disenrollments are effective the first 

of the month following notice by CMS 

that the individual is ineligible. This 

adjustment will ensure that CMS 

establishes the required mechanisms to 

permit prospective enrollment into MA, 

Part D and cost plans only for 

individuals eligible to receive Medicare 

benefits, and prospectively disenroll 

beneficiaries currently enrolled in plans 

as of this provision’s applicability date. 

As discussed in the proposed rule, the 

OIG noted in a January 2013 report that 

CMS needed to increase efforts to detect 

and prevent improper payments for 

Medicare services rendered to 

unlawfully present beneficiaries. In a 

subsequent report published in October 

2013 6, the OIG specifically 

recommended that CMS develop and 

implement controls to ensure that 

Medicare does not pay for prescription 

drugs for unlawfully present 

beneficiaries and that CMS do so by 


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7922 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

7Social Security Administration, Policy and 

Operations Manual System (POMS): RS 00204.010. 

Lawful Presence Payment Provisions, GN 03001.005 

Notice Requirements for Title II Due Process 

Actions, and GN 03001.015 Notices Required Before 

And After Taking a Title II Adverse Action. 

preventing enrollment of unlawfully 

present beneficiaries, disenrolling any 

currently enrolled unlawfully present 

beneficiaries, and automatically 

rejecting PDE records submitted by 

sponsors for prescription drugs 

provided to this population. We believe 

that prospective disenrollments address 

these recommendations, and serve as an 

initial step in ensuring that payment is 

made for only individuals eligible to 

receive services. As we move forward 

with implementation, we will carefully 

consider enrollment retroactivity and 

resulting recoupments, and if 

determined appropriate, propose 

changes or additional regulations 

through future rulemaking. 

Lastly, we believe it is important to 

note while CMS is dependent upon the 

data received by the DHS through SSA, 

we ensure that the data are passed to the 

plans within 24 hours of receipt via the 

Daily Transaction Reply Report. In 

addition, we will work with these 

agencies to explore options for receiving 

these data in the most efficient and 

timely means possible. 

Comment: A few commenters 

suggested that beneficiaries who are 

involuntarily disenrolled due to 

unlawful presence should be entitled to 

appeal their disenrollment. 

Response: We thank these 

commenters for their suggestion to 

ensure that affected individuals have 

the opportunity to appeal the reason for 

their disenrollment from their plan. 

Currently, there is no right of appeal 

associated with MA, Part D or cost plans 

eligibility or enrollment, because 

enrollment in such plans is voluntary 

and involuntary disenrollments are not 

considered initial determinations as 

outlined in § 405.924(a). We reiterate 

that individuals disenrolled from MA, 

cost or Part D plans are defaulted to 

coverage under FFS Medicare unless 

Parts A and B entitlement and 

enrollment ends under 42 CFR part 406, 

subpart B and §§ 406.28 and 407.27. 

However, individuals who are subject to 

involuntary disenrollment from these 

plans due to lawful presence status are 

provided with due process prior to any 

change in their status by SSA and 

exchange of any data to CMS and loss 

of MA, Part D, or cost coverage (or 

denial of claims for an individual 

enrolled in the FFS program). 

These individuals are provided with 

advance notification in writing of the 

possible status change and an 

opportunity to respond or submit the 

necessary documentation to maintain a 

lawful presence status under existing 

SSA processes.7 Following a status 

change to lawful presence status by 

SSA, individuals are also provided an 

opportunity to appeal the determination 

as outlined in 20 CFR 404.902. SSA has 

existing processes to accept and review 

evidence from individuals who believe 

that they are lawfully present and to 

update SSA’s records. These 

individuals, based on the date of 

regaining lawful presence status, would 

then have the opportunity to re-enroll 

and, in certain cases of government 

error, be reinstated into their former 

plans. As we prepare for 

implementation of this rule, we intend 

to consider these issues carefully to 

ensure beneficiaries are notified of the 

consequences to Medicare coverage that 

flow from changes in lawful presence 

status. 

Comment: A few commenters 

requested that CMS put in place a 

special enrollment period (SEP) for 

individuals who are disenrolled from 

their MA or Part D plan based on 

unlawful presence and then later regain 

lawful presence status and wish to reenroll in a Part D or MA plan. In 

addition, commenters requested that if 

an individual is involuntarily 

disenrolled from a Part D plan due to 

unlawful presence, and that individual 

later regains lawful presence status, the 

individual should not be subject to a 

late enrollment penalty (LEP) for the 

period of time they did not have Part D 

(or other creditable) coverage. 

Response: We appreciate the concern 

expressed by the commenters about 

ensuring access to Medicare coverage 

and limiting financial consequences 

after a beneficiary gains, or regains, 

lawful presence status. Medicare 

beneficiaries may incur an LEP for Part 

D if there is a continuous period of 63 

days or more at any time after the end 

of the individual’s Part D initial 

enrollment period (IEP) during which 

they were eligible for, but did not enroll 

in, a Medicare Part D plan and were not 

covered under any creditable 

prescription drug coverage. If an 

individual is disenrolled from a Part D 

plan because of loss of lawful presence 

status, this is not considered a break in 

creditable prescription drug coverage 

because the individual is not eligible for 

Part D benefits during this time. 

Therefore, an LEP would not apply for 

that period of time. If an individual 

regains lawful presence status and, as a 

result, also regains Part C and/or Part D 

eligibility, the individual does not get a 

new IEP, but we acknowledge that an 

SEP is warranted to allow these 

individuals to enroll in an MA or Part 

D plan, including a cost plan’s optional 

supplemental Part D benefit, under 

§§ 422.62(b)(4) and 423.36(c)(8)(ii) if the 

individual is not otherwise eligible for 

an SEP. The change in lawful presence 

status of an individual necessary to 

trigger a change in eligibility under 

these rules is extraordinary enough to 

justify the provision of a SEP under the 

existing authority of §§ 422.62(b)(4) and 

423.36(c)(8)(ii), even without the 

additional concern that late enrollment 

penalties could be incurred by 

beneficiaries who are not able to enroll 

following their regained eligibility for 

Part D coverage. The parameters of this 

SEP will be outlined in subregulatory 

guidance. However, we note that in this 

scenario if the newly eligible individual 

does not take advantage of the SEP to 

enroll in a plan providing Part D 

coverage and has no other creditable 

prescription drug coverage, the 

individual may be subject to an LEP for 

any future Part D enrollment. 

Comment: A few commenters 

provided feedback regarding the 

proposed use of the term ‘‘qualified 

alien’’ in the proposed text at 

§§ 417.422, 417.460, 422.50, 423.1, 

423.3, and 423.44. Commenters 

suggested changing it to more accurately 

reflect the lawful presence eligibility 

requirements for Medicare benefits 

outlined in 8 CFR 1.3 so that we are not 

restricting eligibility to only qualified 

noncitizens to enroll in or maintain 

their benefits. The broader term 

‘‘lawfully present’’ for this purpose 

includes ‘‘qualified aliens’’ as well as 

several other categories of non-citizens, 

whereas the proposed terminology only 

included ‘‘qualified aliens’’ which is 

one of the subcategories included in 

those lawfully present. 

Response: We agree with the concern 

raised by commenters and are finalizing 

the regulatory language at §§ 417.422(h), 

417.460(b)(2)(iv), 417.460(j), 

422.50(a)(7), 422.74(b)(2)(v), 

422.74(d)(8), 423.1(a)(3), 

423.30(a)(1)(iii), 423.44(b)(2)(iv), and 

423.44(d)(8) without references to 

qualified aliens; the final regulatory 

language encompasses all individuals 

who are lawfully present consistent 

with 8 CFR 1.3. 

After consideration of the public 

comments received, we are finalizing 

the policies and regulations text as 

proposed, with the following 

exceptions: 

• At §§ 417.422, 417.460, 422.50, 

423.1, 423.3 and 423.44, we are deleting 

the term ‘‘qualified alien.’’ 


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• At §§ 417.460(j), 422.74(d)(8), and 

423.44(d)(8), we are modifying the 

effective date of the involuntary 

disenrollment to be the first of the 

month following notification by CMS. 

• At § 417.460, we are redesignating 

paragraph (b)(2)(iv) as paragraph 

(b)(2)(v) and finalizing the provision 

establishing a lack of lawful presence as 

a basis for disenrollment from a cost 

plan at paragraph (b)(2)(iv). 

3. 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).) 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 

proposed to require, for Part D, delivery 

of an ANOC. 

Specifically, we proposed to adopt in 

Part D, with modifications, the language 

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

with the MA 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, we proposed at 

§ 423.128(g)(3) that Part D sponsors 

remain subject to all other notice 

requirements specified elsewhere in the 

Part D regulations. Our proposal 

reflected 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 was 

not intended to disrupt or change those 

existing notice requirements. 

In the proposed rule, we also took the 

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 that 

enrollees must pay for each drug 

belonging to a specific tier. As has been 

articulated in guidance for several years, 

we expect that sponsors will provide 

notice of such changes to all enrollees, 

including enrollees moved to a 

consolidated plan. Generally, sponsors 

compare information such as cost 

sharing for the same plan from one year 

to the next in the ANOC. However, 

comparing information 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. 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 expect that enrollees will receive 

ANOCs that clearly compare the nonrenewed and consolidated plans’ 

copayments or coinsurance for all drugs 

within each tier. 

We received the following comments 

on this proposal and our response 

follows: 

Comment: Commenters supported 

this proposal for informing beneficiaries 

about their coverage options. Several 

pointed out that it was important and 

appropriate for CMS to communicate 

cost-sharing changes through the Part D 

ANOC in addition to formulary 

information. One commenter urged us 

to perform ongoing monitoring of 

formulary changes including cost 

sharing to ensure they are justified and 

appropriately communicated to 

beneficiaries. 

Response: We thank the commenters 

for the support. While we appreciate the 

concerns about monitoring, we did not 

propose any changes with respect to 

monitoring of formulary changes, and 

we decline to address that issue in this 

final rule. 

Comment: Several commenters 

observed that, while many Part D 

sponsors already provide this annual 

notice under CMS guidance, they 

thought it important that this 

requirement be made explicit through 

rulemaking. In contrast, a commenter 

noted that developing a Part D ANOC 

was not necessary because of 

information provided through other 

material. Another commenter suggested 

that, if possible, Part D information 

should be incorporated into the Part C 

ANOC to avoid the potential for 

confusion, missing information, and 

duplicate costs. 

Response: We thank the commenters 

for the support and can confirm that our 

goal in revising § 423.128(g) is to codify 

existing guidance. Our existing model 

ANOC includes sections on both Parts C 

and D, and CMS produces nine 

standardized model ANOCs and EOCs 

for all plan types. 

Comment: A commenter requested 

that CMS confirm that this provision 

would merely codify existing guidance 

and would not necessitate any changes 

in practice for Part D sponsors that 

already deliver ANOCs that address 

plan changes consistent with existing 

CMS guidance. 

Response: Section 423.128(g) will not 

affect current practice for Part D 

sponsors that that already deliver 

ANOCs consistent with our model 

notices. 

Comment: A few commenters pointed 

out that finalizing this revision would 

add costs due to increased printing and 

administration requirements, with one 

commenter noting premiums could 

possibly increase. 

Response: We disagree. Because we 

did not propose here to change existing 

practices, but rather only to codify 

existing guidance, we do not believe the 

revision to § 423.128(g) will increase 

costs. 

Comment: A commenter suggested 

that MA organizations and Part D 

sponsors be required to share ANOCs 

with LTC providers in plan networks to 

enable them to better coordinate and 

support the beneficiaries in making 

informed decisions when their health 


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7924 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

conditions limit their ability to 

effectively communicate about their 

coverage. Another commenter suggested 

that we add language to the Part D 

ANOC advising beneficiaries for the 

future that it was important to review 

the new contract year formulary. 

Response: We appreciate these 

suggestions and will take them into 

consideration for the future for our 

guidance on the model notices. 

However we decline to accept the 

commenter’s suggestion to add this to 

the regulation text because, as 

previously noted, our proposal was 

intended to codify existing guidance. 

After review of the public comments 

received, we are finalizing this 

provision as proposed without 

modification. 

4. 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 that MA organizations 

and Part D sponsors have a plan 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 Programs of 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. 

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, we have a goal of 

consistent disaster response for plans 

within the scope of our proposal. 

Therefore, we proposed that all MA 

organizations and Part D sponsors limit 

the impact on beneficiaries of 

unavoidable disruptions and establish a 

plan to ensure rapid restoration of 

operations. The scope of our proposal 

included section 1876 cost contract and 

PACE organizations that provide 

qualified prescription drug coverage 

under Part D. We also proposed 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 implement policies and 

procedures to reduce interference with 

business operations. Our proposal was 

based on a belief that such planning is 

appropriate and necessary to better 

ensure that Medicare beneficiaries have 

access to the care and coverage 

contemplated by the statute. 

The proposed provisions, in 

§§ 422.504(o)(1) and 423.505(p)(1), 

would 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 proposed that the business 

continuity plan assess risks posed to 

critical business operations by disasters 

and other disruptions to business as 

usual; in the preamble, we clarified that 

our proposal would apply regardless 

whether the risks, disasters or 

disruptions be natural, human, or 

environmental. In paragraph (1)(ii) of 

§§ 422.504(o) and 423.505(p), we 

proposed to require MA organizations 

and Part D sponsors to mitigate those 

risks through a variety of strategies, at 

a minimum by: (1) Identifying events 

(triggers) that would activate the 

business continuity plan; (2) developing 

contingency 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; (3) 

establishing a chain of command, which 

would better ensure that employees 

know the rules of succession; (4) 

creating a communications plan that 

includes emergency capabilities and 

means to communicate with employees 

and third parties; (5) establishing 

procedures to address management of 

space and transfer of employee 

functions; and (6) establishing a 

restoration plan with procedures to 

transition back to normal operations. 

Finally, we also proposed, in 

§§ 422.504(o)(1)(ii)(G) and 

423.505(p)(1)(ii)(G), 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 or Part D sponsor 

would have in its possession, we 

proposed 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) 

of each proposed regulation. 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 proposed 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. Proposed 

§§ 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 stated our belief that the broad list 

of areas that we proposed to cover as 

part of business continuity plans were 

not new to MA organizations and Part 

D sponsors. We stated these topics 

typically appear in standard business 

continuity plans and that we also were 

building on some requirements that 

already existed 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. We 

indicated our goal was to provide a list 

broad enough to align with the business 

contingency plans that we believed 

most, if not the vast majority, of MA 

organizations and Part D sponsors 

already had in place. 

In contrast to the aforementioned list 

of broad content requirements, we 

stated that the need to protect 

beneficiary access required a 

prescriptive approach for some 

functions. In proposed §§ 422.504(o)(2) 

and 423.505(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 identified what we 

believed to be the minimum essential 

functions for both MA and Part D plans: 

Benefit authorization, if authorization 

requirements have not been waived, and 

claims adjudication and processing; an 

exceptions and appeals process; and call 

center operations. We stated that given 

the mandate of the Act to ensure 

beneficiary access to health care and 


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covered Part D drugs and the inability 

of many beneficiaries to pay for services 

or drugs without the Medicare benefit, 

we believed that the operations listed in 

the proposed regulations were the most 

essential operations because they 

directly supported the provision of Part 

C and D benefits. We stated that they 

ensured immediate electronic 

communication on the availability and 

extent of Part C and D benefits and also 

provided 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). We observed that 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 also proposed a list of the 

operations that we believed were 

essential operations that had to be 

restored in a rapid time frame. We 

intended our proposed deadline of the 

proposed 24 hours to be the outside 

limit and at that time articulated an 

expectation that MA organizations and 

Part D sponsors restore operation of 

essential functions as soon as possible 

but not later than 24 hours after they fail 

or otherwise stop functioning as usual. 

We stated 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). 

We stated that the need to ensure 

correct claims adjudication and benefit 

administration of health care services 

and drugs is no less acute during 

disasters or other emergencies, and that 

such disruptions in one part of the 

country might disable MA organization 

and Part D sponsor systems that affect 

enrollees in other regions. We noted that 

beneficiaries in those unaffected areas 

who are 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) 

identified benefit authorization (if not 

waived) and claim adjudication and 

processing as essential functions which 

had to be operational within 24 hours. 

Our proposal required restoration of 

those operations for services rendered at 

a hospital, clinic, provider office, or at 

the point of sale for Part D covered 

drugs. We also stated in the proposed 

rule that this function was essential for 

both MA and Part D plans. 

In addition, we proposed standards 

specific to Part D sponsors in 

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

a beneficiary who presents at a 

pharmacy with an appropriate 

prescription for a covered Part D drug 

during a disruption would be more 

likely to receive the drug at the point of 

sale. The first three prongs under 

proposed § 423.505(p)(2) classified 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. We noted these 

essential tasks entail numerous 

subfunctions. For instance, we stated 

that 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, we noted that 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 section III. A.10, 

‘‘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’’ of the May 23, 2014 final 

rule (79 FR 29867)). 

Proposed §§ 422.504(o)(2)(ii) and 

423.505(p)(2)(iv) each classified as an 

essential operation an enrollee 

exceptions and appeals process 

including coverage determinations. 

Under these proposed rules we 

specified that, 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 rights to appeal or to 

seek a formulary exception. 

Finally, for both MA organizations 

and Part D sponsors, we proposed that 

the operation of the call center be an 

essential function which must be 

restored within 24 hours. We stated that 

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 could 

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 pre-authorization requirements 

are waived or beneficiaries can obtain 

benefits at out-of-network providers or 

pharmacies). We stated that 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 

could ensure that he or she obtained 

drugs appropriately covered by his or 

her Part D plan before returning home 

or moving to a safer area. 

Furthermore, in the proposed rule we 

stated that because it might be difficult 

during a disaster to get to a provider’s 

office or a pharmacy, we believed it was 

important that benefit authorization, 

claims adjudication, and call center 

operations be restored within 24 hours 

after failure. While our proposed 

provisions required both MA 

organizations and Part D sponsors to 

coordinate their workforce, facilities, 

and IT and other systems support to 

meet a 24 hour RTO, in the preamble to 

the proposed rule we noted our belief 

that the vast majority of MA 

organizations and Part D sponsors 

already met, or would be able to meet, 

this requirement with their current 

resources, based on our knowledge of 

the industry and as evidenced by the 

lack of widespread problems with MA 

organization and Part D operations after 

recent natural disasters in different parts 

of the country. We observed that MA 

organizations and Part D sponsors 

would not be required to take any 

prescribed specific actions (for example, 

there was no requirement for redundant 

systems located at certain distances 

apart) to meet these standards. Rather, 

we stated that the proposed 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). 

We stated that our goal in proposing 

a contractual requirement for business 

continuity plans was to better ensure 

beneficiary access to health care 

services and Part D drugs during 

disasters and other interruptions to 


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regular business operations, and we 

viewed prior planning as essential to 

achieving this goal. We specifically 

solicited comments regarding which 

functions should be identified as 

essential operations and the 24-hour 

timeframe for RTO and stated that we 

would appreciate any information 

unique to the role of MA organizations 

and Part D sponsors. 

We received the following comments 

on these proposals and our response 

follows: 

Comment: Some commenters strongly 

supported the proposed provision and 

noted that it was absolutely critical that 

MA organizations develop and test 

business continuity plans to ensure that 

beneficiary needs are met and 

commended CMS for its commitment to 

ensure beneficiary access to Medicare 

benefits. A number of commenters 

specifically approved that part of the 

proposed regulation that set forth 

minimum standards. Additionally, 

several commenters, including some 

who did not support the specific 

requirements of the proposed provision, 

agreed that there was a need for 

‘‘robust’’ business continuity plans. 

Response: We thank those 

commenters who support the proposal 

in its entirety or approved the general 

outline of minimum requirements, as 

well as those who recognized there is a 

need for MA organizations and Part D 

sponsors to have business continuity 

plans. 

Comment: Noting that CMS 

acknowledged in the preamble there 

were relatively few problems in the 

past, some commenters stated that 

industry practices were adequate and 

questioned the need for detailed 

provisions that classified certain 

functions as essential which had to be 

restored within a 24-hour RTO deadline. 

A few commenters pointed to the fact, 

also acknowledged by CMS in the 

preamble, that the requirements 

overlapped with other existing federal, 

state, and local requirements such as the 

HIPAA Security Rule and stated that 

they saw no need for an additional layer 

of regulation. In contrast, another 

commenter stated that developing a 

business continuity plan should not be 

overly burdensome because the HIPAA 

Security Rule already requires 

development of such a plan. 

Response: We appreciate the fact that, 

as far as we are aware, only a limited 

number of beneficiaries experienced 

problems as the result of inadequate 

continuity planning in the wake of 

Hurricane Sandy. However, there were 

some beneficiaries who were unable to 

access benefits, and contingency 

planning might have prevented some of 

those problems. Having a business 

continuity plan to prepare for business 

disruptions is an established business 

practice; the fact that most MA 

organizations and Part D sponsors 

successfully handled the disaster does 

not excuse those entities that did not. 

We do not believe that requiring a 

business continuity plan is imposing an 

unnecessary level of regulation. 

However, we would like to clarify that 

HIPAA requirements are distinct from 

our business continuity provision. As 

we noted previously, 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. 

Referencing this rule created no 

additional burden. 

Comment: Commenters stated that the 

regulation was significantly more 

detailed than necessary. While some 

commenters pointed to concerns 

regarding paragraph (1) of §§ 422.504(o) 

and 423.505(p) which lists basic 

minimum requirements (addressed later 

in this section), most commenters noted 

concern with paragraph (2) of 

§§ 422.504(o) and 423.505(p) which 

identified as essential specific functions 

and required that MA organizations and 

Part D sponsors restore them within 24 

hours of failure or loss of function. 

• The majority of commenters 

opposed the requirement that MA 

organizations and Part D sponsors 

restore essential functions within 24 

hours, with several stating this was not 

feasible. Many commenters noted that 

because catastrophes are by their nature 

hard to predict, out of the control of MA 

organizations and Part D sponsors, and 

result in major disruptions that have the 

potential to last for weeks (for instance, 

power outages), a 24-hour RTO deadline 

would hamper the flexibility of MA 

organizations and Part D sponsors to 

prioritize. A commenter suggested that 

we institute a ‘‘force majeure’’ clause to 

provide relief for causes beyond the 

control of MA organizations and Part D. 

• Commenters indicated that they 

generally agreed with CMS that the 

emphasis should be on quickly getting 

care to those beneficiaries who need it, 

and there was some consensus that 

providing drugs and services at point-ofsale (POS) should remain an essential 

function. Several commenters observed 

that, consistent with industry standards, 

Part D sponsors were generally able to 

restore the systems necessary to allow 

beneficiaries to obtain drugs within 

approximately 24 hours. For instance, a 

commenter identified benefit 

authorization, claims adjudication, and 

pharmacy services as higher priorities. 

Some commenters specifically 

identified call center services as timesensitive functions requiring a 24-hour 

recovery. 

• However, there was no clear 

consensus on the specific functions that 

should be considered essential or even 

how to prioritize among all of them. For 

instance, a commenter noted normal 

appeals would fall into a longer category 

than 24 hours recovery, but that 

expedited appeals might possibly fall 

within the 24 hour time line. Several 

commenters suggested that different 

functions would require different RTO 

time frames. Several commenters 

mentioned a 72-hour timeframe, with 

one noting it restored functions less 

critical for health and safety within 72, 

rather than 24, hours. 

• In evaluating essential functions, a 

number of commenters distinguished 

between the Part C and D programs. 

Commenters observed, for instance, that 

provider payments are not a 24-hour 

critical function for MA plans since 

payment is allowed to be made within 

30 days and that in a disaster or 

emergency MA organizations should not 

be required to prioritize claims 

processing for services already 

rendered. In contrast, a few commenters 

agreed that the 24-hour restoration 

requirement could be applied to Part D 

point-of-sale claims that require 

immediate adjudication. 

Response: These commenters 

persuaded us that we need to build 

more flexibility into our business 

continuity plan requirements for RTO 

for essential functions and we are 

accordingly finalizing the regulation 

with changes from our proposal. In 

paragraph (2) of §§ 422.504(o) and 

423.505(p), we are providing that MA 

organizations and Part D sponsors must 

plan to restore essential functions 

within 72, rather than 24, hours after 

any one of the essential functions fail or 

otherwise stop functioning as usual. As 

discussed in more detail later in this 

section, we also finalize regulation text 

to clarify that we require MA 

organizations and sponsors to ‘‘plan to’’ 

restore essential functions within the 

72-hour time period, rather than 

guarantee complete restoration within 

the time frame. Given the lack of a clear 

consensus on how to prioritize all 

essential functions, we believe that this 

will provide MA organizations and Part 

D sponsors with the flexibility the 

commenters advocated, and still address 

our concerns about planning to better 

ensure beneficiary access to the 

Medicare benefit. 

However, we underscore that 

although we are finalizing a more 

flexible regulatory mandate, we expect 

that Part D sponsors will plan for a 24- 


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hour RTO deadline for POS 

transactions. We are concerned that 

beneficiaries who are not able to access 

their Part D drug coverage may in fact 

suffer adverse health effects. Our 

decision not to explicitly require a plan 

for a 24-hour restoration for POS drug 

transactions is informed by the fact that 

commenters suggested that a 24-hour 

RTO for POS transactions is an industry 

standard already generally met, and that 

relatively few problems were reported 

in the aftermath of recent disasters. We 

want to ensure that that track record not 

only continues but improves. We will 

continue to closely monitor the timing 

of POS transaction in the aftermath of 

disasters, emergencies, and other 

disruptions and take any necessary 

actions. We also will revisit the 

regulation if necessary. 

We also agreed with commenters that 

there are distinctions between the Part 

C and D programs relative to identifying 

what services are of the highest priority 

for speedy restoration. For instance, 

beneficiaries need to know whether they 

have Part D Medicare coverage at the 

POS because usually they rely on the 

benefit to obtain prescription drugs. For 

most beneficiaries, such claim denials 

may mean they leave pharmacies 

without medications or pay out-ofpocket for costs that are their plans’ 

responsibility. In contrast, this is often 

not the case for Part C health care 

services. Provision of Part C services is 

not so closely tied to plan 

authorizations and a provider may not 

bill the MA organization for services 

until days or weeks after the service is 

furnished. Thus, because beneficiary 

health and safety would not be put at 

risk by failure of Part C claims 

processing and appeals processes, we 

agree with the commenters that those 

systems are not essential functions to 

which the 72-hour timeframe would 

apply. Furthermore, as finalized in 

section II.E.9. of this final rule (MA 

Organization Responsibilities in 

Disasters and Emergencies (§ 422.100)), 

beneficiary access to health care 

services is protected in the more limited 

circumstances of disasters and public 

health emergencies and we believe that 

provision, in conjunction with 

§ 422.504(o)(2), ensures, to the extent 

possible, that beneficiaries enrolled in 

MA organizations will have continued 

access to needed health care services 

when there are disruptions to normal 

business operations. 

Accordingly we are finalizing 

§ 422.504(o)(2) to define as essential 

services, for Part C purposes, benefit 

authorization (if not waived) for services 

to be immediately furnished at a 

hospital, clinic, provider office, or other 

place of service instead of the broader 

requirement that was proposed. This 

final rule text would include benefit 

authorization to the extent that members 

and providers contact the MA 

organization to request such 

authorizations even when the MA 

organization has waived that 

requirement. 

Similarly, we agree that restoration of 

Part C claims processing and appeals 

processes are not essential functions in 

that beneficiary health and safety is not 

put at risk by a failure of those systems 

that lasts for longer than 72 hours. We 

agree with the commenters that in a 

disaster or emergency, MA 

organizations should not be required to 

prioritize claims for services already 

rendered, but we do not want 

beneficiaries to lose access to necessary 

treatment at provider offices. 

Accordingly, for Part C, we are no 

longer characterizing ‘‘Operation of an 

enrollee exceptions and appeals process 

including coverage determinations’’ as 

an essential function and are not 

finalizing that part of our proposal for 

§ 422.504(o)(2). 

Lastly, we agree with the commenters 

that characterized call center services as 

high priorities for both Part C and Part 

D plans. In a disaster or other 

emergency, normal procedures may be 

disrupted and beneficiaries need to be 

able to find out how and where they can 

obtain health care services and drugs by 

having contact with the plan. 

In contrast, for Part D we plan to 

finalize § 423.505(p)(2) as proposed. We 

discussed the importance of the 

elements in more detail in the preamble 

to the proposed rule, but would like to 

note here that a beneficiary cannot 

obtain Part D coverage without benefits 

authorization, adjudication, and 

processing of drug claims at the point of 

sale. A pharmacy’s inability to obtain, 

for instance, coordination of benefits 

information may affect the beneficiary’s 

ability to obtain the drug as well; and 

pharmacy technical assistance is critical 

in case the dispensing pharmacy has 

questions. We also believe the operation 

of the enrollee exceptions and appeals 

process is essential—a beneficiary who 

has been denied Part D coverage will 

want to resolve quickly any issues so he 

or she can obtain the drug timely. 

Lastly, as previously noted, we believe 

call center operations are essential. 

Comment: A commenter suggested 

there was a need for more detail in 

addition to that provided in the 

regulation as to exactly when the 24- 

hour clock would start and that CMS 

would, for instance, need to clarify if 

the clock would begin running when the 

disaster was declared or when it 

occurred. Another commenter suggested 

the proposed 24-hour RTO should begin 

running when the incident management 

team made the determination of action 

or after a specified amount of time after 

the disruption was reported. 

Response: We believe that the 

language we proposed, namely that the 

clock will start running ‘‘after any of the 

essential functions fail or otherwise stop 

functioning as usual,’’ provides 

adequate direction to MA organizations 

and Part D sponsors. We are finalizing 

a clearly defined time period—72 hours 

(rather than the 24-hour time period 

proposed)—in which MA organizations 

and Part D sponsors must plan to restore 

essential operations. In contrast, we 

deliberately chose to provide more 

flexibility to MA organizations and Part 

D sponsors to determine the precise 

point at which the 72-hour clock starts 

running. Essential functions could fail 

in an infinite variety of ways depending 

on the circumstances and the systems 

and supports in place (for instance, 

claims processing systems might fail in 

different ways than operation of the 

exceptions and appeals process). We 

believe that MA organizations and Part 

D sponsors are in the best position to 

both learn about failures or disruptions 

in usual functions or the facts that might 

potentially cause them and, in the 

aftermath of such occurrences, gather as 

much information as possible internally 

and from outside sources (such as firsttier, downstream and related entities 

(FDRs) and local authorities and 

utilities). We will revisit this regulation 

if problems arise in the future. 

Comment: A couple of commenters 

expressed concern that the requirement 

that MA organizations and Part D 

sponsors return functions to ‘‘normal’’ 

operations would not permit them to 

utilize temporary alternative workflows 

that could be more effective than normal 

business operations in preserving 

member access to care. 

Response: We disagree with this 

conclusion. Our proposal does not 

require MA organizations and Part D 

sponsors to return immediately to 

normal operations but rather, views that 

as an ultimate goal in an ongoing 

transition process. Paragraph (1)(ii) of 

§§ 422.504(o) and 423.505(p) requires 

MA organizations and Part D sponsors 

to create a mitigation strategy to 

‘‘prioritize the order in which to restore 

[essential and] other functions to normal 

operations’’, while paragraph (1)(ii)(F) 

of §§ 422.504(o) and 423.505(p) requires 

MA organizations and Part D sponsors 

to ‘‘[e]stablish a restoration plan 

including procedures to transition to 

normal operations.’’ Additionally, we 

do not define ‘‘normal operations.’’ In 


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fact, depending on the severity of a 

disaster or emergency, ‘‘normal 

operations’’ certainly might not be 

operations performed exactly the same 

as they were before the event. We do not 

prescribe when or how normal 

functions are performed; an MA 

organization or Part D sponsor may 

achieve a comparable level of 

performance (for example, in terms of 

appeals being heard on a timely basis at 

the same rate as before the disaster) and 

consider normal operations achieved 

even if different personnel or offices 

now perform those functions. We view 

‘‘normal operations’’ as an operational 

level at which MA organizations and 

Part D sponsors are able to administer 

the benefit correctly and fulfill contract 

requirements. 

Comment: A commenter stated that 

the proposed provisions were 

inconsistent with Executive Order 

13563 which requires that proposed 

rules specify performance objectives 

rather than the behavior or manner of 

compliance that regulated entities must 

adopt. 

Response: We disagree with this 

commenter. The first part of our 

proposed provisions simply lists basic 

areas that business continuity plans 

must cover. We also view as 

performance objectives the list of 

essential functions for which we require 

MA organizations and Part D sponsors 

to plan a 72-hour RTO. As revised, the 

regulation requires that each entity plan 

to restore those functions that directly 

support the timely provision of Part C 

and D Medicare benefits to 

beneficiaries. We leave it to the MA 

organizations and Part D sponsors to 

determine the manner by which they 

plan to meet these requirements timely 

after a failure occurs. 

Comment: Commenters took issue 

with the costs associated with the 

proposal. A number of commenters 

expressed concerns that we were 

requiring continuous service which 

would give rise to enormous costs to 

create systems redundancy, while 

several commenters were concerned 

about the cost of testing IT systems on 

an annual basis. 

Response: Although we believe the 

proposed regulation was clear in 

paragraphs (1)(ii)(B)(1) of §§ 422.504(o) 

and 423.505(p) that we do not expect 

plans to be able to maintain continuous 

service under all circumstances, we are 

revising both of these regulation 

paragraphs in this final rule to clarify 

the language that we believe caused this 

confusion. We are revising the language 

in the proposed paragraph (1) of 

§§ 422.504(o) and 423.505(p) to require 

MA organizations and Part D sponsors 

to plan to restore business operations 

following disruptions, rather than plan 

to continue business operations during 

disruptions. 

To clarify, we do not expect MA 

organizations and Part D sponsors to 

prevent any disruptions on an absolute 

basis but rather to plan to ensure 

operations are restored as best they can 

when business operations fail. It is 

understood that disasters, emergencies, 

and other events may cause severe 

disruptions outside of the control of MA 

organizations and Part D sponsors; the 

reason we are requiring business 

continuity plans is to ensure that MA 

organizations and Part D sponsors are 

better equipped to handle those 

problems when they occur. 

Additionally, proposed 

§§ 422.504(o)(2) and 423.505(p)(2) 

required that MA organizations and Part 

D sponsors ‘‘restore’’ essential functions 

within the specified timeframe, which 

we believe raises the same concerns 

expressed by the commenter. We want 

to make it clear that the actual 

restoration of essential functions within 

72 hours is the goal of the business 

continuity plan, not a requirement that 

is to be met in all circumstances. 

Accordingly, the regulation is being 

finalized to require that MA 

organizations and Part D sponsors plan 

to restore essential functions within the 

72-hour time period. The business 

continuity plan must be designed with 

this 72-hour period as a deadline. 

As to the commenters’ concern about 

the cost of annual IT training, paragraph 

(1)(iii) of §§ 422.504(o) and 423.505(p) 

requires MA organizations and Part D 

sponsors to test and update the business 

operations continuity plan on at least an 

annual basis. This broad description 

does not detail specific kinds of testing 

but relies upon MA organizations and 

Part D sponsor discretion to adequately 

test and update the business continuity 

plan. This would include determining 

exactly what must be tested and how 

such testing must occur. 

Comment: A commenter expressed 

concern that the rule would require 

annual training for ‘‘all’’ employees, 

which might not be necessary under all 

conditions. 

Response: We agree that it is best left 

to MA organizations and Part D 

sponsors to determine which employees 

would most appropriately require 

annual training on the business 

continuity plan. We are finalizing the 

regulations to require annual training of 

appropriate employees rather than all 

employees, as well as making changes to 

make the language applying to both 

Parts C and D consistent. Specifically, 

we are removing the phrase ‘‘all 

employees, including contract staff’’ 

from § 422.504(o)(1)(iv) and ‘‘all new 

and existing employees’’ from 

§ 423.505(p)(1)(iv), and replacing them 

both with ‘‘appropriate employees’’. 

Comment: Several commenters 

suggested that our regulatory impact 

analysis (RIA) significantly 

underestimated costs. Concerns were 

raised about the high cost of creating 

systems’ redundancy to avoid any 

disruption of processing of claims; one 

commenter mentioned that the 

requirement would necessitate spending 

millions of dollars. Another commenter 

mentioned that many business 

continuity plans currently in place for 

MA organizations and Part D sponsors 

would not meet requirements such as 

the restoration of essential functions 

within 24 hours. A commenter was 

concerned that the estimate did not take 

into account resources needed to 

ascertain the extent of damage and 

evaluate options. 

Response: We believe that the 

modifications, clarifications, and 

comments discussed previously about 

this final rule address the vast majority 

of concerns raised about the RIA. We are 

also well aware of the major expense of 

creating redundant computer systems to 

ensure there is no interruption in claims 

processing—and repeat that we are not 

requiring MA organizations and Part D 

sponsors to absolutely ensure that 

systems never fail or to build redundant 

systems to avoid any potential failure. 

We are requiring that MA organizations 

and Part D sponsors plan to avoid such 

system and other failures and, in the 

event they do occur, to be prepared to 

recover essential functions within a 

certain timeframe. We appreciate that 

while contracting organizations may 

plan—even plan well—to avoid such 

disruptions and to recover from them 

within 72 hours, there may be scenarios 

in which a return of functionality for 

essential operations within the 

timeframe of paragraph (2) of 

§§ 422.504(o) and 423.505(p) is 

impossible . We also believe that 

providing the greater flexibility to plan 

for a 72-hour, rather than 24-hour, RTO 

for MA organizations and Part D 

sponsors should further alleviate 

concerns about high costs. 

In this final rule, we also are revising 

the regulations to clarify that we require 

annual training of ‘‘appropriate’’ rather 

than ‘‘all’’ employees. As noted earlier, 

our requirement for annual testing of the 

business continuity plan does not 

specify exactly what must be tested or 

how such testing must be conducted. As 

to the last comment, MA organizations 

and Part D sponsors need to assess 

damages and evaluate alternatives 


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regardless of whether they have 

business continuity plans. 

Additionally, we have revised our 

cost estimates to account for costs of 

what we believe will be, at most, 

minimal changes to existing business 

continuity plans. We base this on: (1) 

The fact that we believe most MA 

organizations and Part D sponsors with 

existing business continuity plans 

already cover the same broad list of 

areas we require in this rule; and (2) 

revisions to our rule that provide 

flexibility that enables most MA 

organizations and Part D sponsors to 

follow the same industry standards 

commenters suggested they currently 

follow. (See section IV. Regulatory 

Impact Statement of this final rule.) 

Comment: A commenter stated that 

MA organizations and Part D sponsors 

could incur potentially very large 

additional costs to come into 

compliance with the new requirements 

which would amount to unexpected 

expenses that would unfairly count 

against a plan’s administrative expenses 

on its medical loss ratio (MLR) 

calculation. 

Response: Items that count as MLR 

are outside of the scope of this final 

rule. However, we note that this final 

rule will apply to all MA organizations 

and Part D sponsors and that we believe 

strongly that planning for the least 

disruption to operations and better 

provision of health care and drug 

benefits during disasters is an important 

function for insurance companies, and 

that such work will also benefit the MA 

organizations and Part D sponsors 

themselves. 

Comment: Noting that they are 

confidential and contain blueprint 

information on processes and 

supporting resources, a commenter 

requested that rather than make 

business continuity plans available to 

CMS upon request, that CMS require an 

in-camera review of certain elements. In 

contrast, another commenter 

recommended that CMS review such 

plans as part of the Medicare Part D 

application process as well as via 

regular CMS compliance audits. A third 

requested whether there would be an 

audit element that focuses on business 

continuity plans. 

Response: We appreciate the 

commenter’s concerns about 

confidentiality. First, we would like to 

note that we are not requiring MA 

organizations and Part D sponsors to 

submit these business continuity plans 

and materials as a matter of course or to 

make such plans publicly available. 

Furthermore, if we do request these 

documents, we do not intend to 

voluntarily disclose them to any parties 

outside of the government. Under the 

Freedom of Information Act (FOIA), 

members of the public may request 

government records, which may include 

documents submitted to us. MA 

organizations and Part D sponsors may 

seek to protect their information from 

disclosure under FOIA by claiming 

FOIA exemption 4 and taking the 

appropriate steps—including labelling 

the information in question as 

‘‘confidential’’ or ‘‘proprietary.’’ 

Furthermore, redaction of especially 

sensitive information is sometimes an 

option, depending on what information 

CMS needs and the nature of the 

information the organization seeks to 

redact. We will consider both 

compliance and confidentiality needs as 

we develop application and audit 

requirements related to this provision. 

Comment: A commenter requested 

that CMS require PACE and long term 

care services and support providers 

(such as skilled nursing facilities (SNFs) 

and assisted living residences (ALRs)) to 

create plans that deal with natural and 

other disasters. 

Response: As discussed in this final 

rule, the requirements in this regulation 

that are applicable to Part D sponsors 

also apply to 1876 cost contracts and 

PACE organizations that provide 

qualified prescription drug coverage. On 

December 27, 2013, we proposed 

regulations on emergency preparedness 

requirements for Medicare and 

Medicaid participating providers and 

suppliers (78 FR 79082). The emergency 

preparedness requirements of that 

regulation would apply to PACE 

organizations in their capacity as 

providers and, as we noted earlier, the 

Part D proposed requirements apply to 

PACE organizations to the extent they 

function as Part D sponsors. 

Both that proposed rule and this 

finalized Part C and D rule have the 

same goal of ensuring the least 

interruption to beneficiary health care 

and drugs as a result of disasters and 

emergencies by requiring entities to 

assess possible risks and lessen their 

impact through planning. However, this 

final rule applies to the entities 

providing coverage of the benefits (MA 

organizations and Part D sponsors), 

while the other rule, ‘‘Medicare and 

Medicaid Programs; Emergency 

Preparedness Requirements for 

Medicare and Medicaid Participating 

Providers and Suppliers’’ would apply 

to entities directly providing the 

services. Specifically, this Part C and D 

rule applies to MA organizations and 

Part D sponsors to better ensure that 

beneficiaries enrolled in their plans 

have access in a timely manner to the 

Medicare covered items and services, 

supplemental benefits and prescription 

drugs. In contrast, the emergency 

preparedness rule would apply to both 

the Medicare and Medicaid programs 

and would require providers and 

suppliers to be adequately prepared to 

meet the direct health care needs of 

patients, residents, clients, and 

participants during disasters and 

emergencies. 

Comment: Commenters expressed 

concerns that the proposed regulation 

did not take into account disparate 

circumstances. A commenter noted that 

MA organizations and Part D sponsors 

typically were located in the same area 

where members experiencing disasters 

or emergencies were living, while other 

commenters suggested the requirement 

would particularly burden smaller 

entities or entities with less experience 

that might, for example, need to contract 

with third parties to meet RTO 

obligations. 

Response: We appreciate that 

different MA organizations and Part D 

sponsors will face different challenges 

during disasters and emergencies. 

However, we drafted broad areas of 

coverage to provide as much flexibility 

as possible to different entities. Given 

that emergencies and disasters are 

varied and unpredictable, we believe it 

would not be prudent for CMS to try 

and create different requirements based 

on different circumstances. We also 

believe that most of these concerns 

about costs and sufficient flexibility 

have been addressed through revisions 

or clarification of this proposed 

regulatory change. 

Comment: A commenter stated that it 

was not aware of any reason that there 

should be different standards for the 

protection of Medicare beneficiaries 

during disasters than those generally 

applicable to the rest of the population. 

Response: The treatment of 

individuals who are not Medicare 

beneficiaries is outside the scope of this 

regulation. However, we note that we 

are the steward of the Federal Trust 

Fund with direct authority over the 

Medicare program. Disasters, 

emergencies, and disruptions not only 

can limit beneficiary access to Medicare 

benefits, but they pose direct threats to 

the health of beneficiaries which in turn 

could create greater needs for health 

care services and drugs. Our core 

function is to ensure as best we can that 

beneficiaries are able to access their 

Medicare benefits; we believe the 

requirement that MA organizations and 

Part D sponsors establish business 

continuity plans that better enable them 

to deal with disasters is central to 

achieving this goal. 


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After consideration of the public 

comments received, we are finalizing 

our business continuity proposal with 

the following modifications as 

discussed and as follows: 

• In §§ 422.504(o)(1) and 

423.505(p)(1) we are replacing the 

phrase ‘‘ensure the continuation of 

business operations during disruptions’’ 

with the phrase ‘‘ensure the restoration 

of business operations following 

disruptions’’. 

• In § 422.504(o)(1)(iv) we are 

replacing the phrase ‘‘all employees, 

including contract staff’’ with the phrase 

‘‘appropriate employees’’. 

• In § 423.505(p)(1)(iv), we are 

replacing the phrase ‘‘all new and 

existing employees’’ with the phrase 

‘‘appropriate employees’’. 

• In §§ 422.504(o)(2) 

and§ 423.505(p)(2), we are inserting the 

words ‘‘plan to’’ before the phrase 

‘‘restore essential functions’’ in order 

that it reads ‘‘plan to restore essential 

functions.’’ We are also replacing the 

number ‘‘24’’ with ‘‘72’’. 

• In § 422.504(o)(2)(i), we are 

replacing the phrase ‘‘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’’ with ‘‘Benefit 

authorization (if not waived) for services 

to be immediately furnished at a 

hospital, clinic, provider office, or other 

place of service.’’ 

• We are removing proposed 

paragraph (ii) of § 422.504(o)(2) 

(‘‘Operation of an enrollee exceptions 

and appeals process including coverage 

determinations.’’) and renumbering 

proposed paragraph (iii). 

5. Efficient Dispensing in Long Term 

Care Facilities and Other Changes 

(§ 423.154) 

We proposed 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 

an 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, we published a final 

rule 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’’), which governs the dispensing of 

prescription drugs in LTC facilities 

under Part D plans. In accordance with 

§ 423.154, 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. As a clarification to the April 

15, 2011 final rule, we proposed in the 

January 2014 proposed rule 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 by prorating 

dispensing fees based on days’ supply 

or quantity dispensed, and a 

requirement to ensure that any 

difference in payment methodology 

among LTC pharmacies incentivizes 

more efficient 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 

in the proposed rule, we addressed each 

proposed change in more detail. 

a. Prohibition on Payment 

Arrangements That Penalize the 

Offering and Adoption of More Efficient 

LTC Dispensing Techniques (§ 423.154) 

Our first proposed change was to add 

a paragraph to § 423.154 prohibiting 

payment arrangements that penalize the 

offering and adoption of more efficient 

LTC dispensing techniques by prorating 

dispensing fees based on days’ supply 

or quantity dispensed, and a 

requirement to ensure that any 

difference in payment methodology 

among long-term care pharmacies 

incentivizes more efficient dispensing 

techniques. Certain dispensing fee 

payment arrangements, for example, 

some proration arrangements, penalize 

the offering and adoption of more 

efficient LTC dispensing. For instance, 

if a medication is discontinued before a 

month’s supply has been dispensed, a 

pharmacy that dispenses the maximum 

amount of the medication at a time 

permitted under § 423.154 (for example, 

14 days), collects more in dispensing 

fees than a pharmacy that utilizes 

dispensing techniques that result in less 

than maximum quantities being 

dispensed at a time. In other words, the 

least efficient pharmacy collects more in 

dispensing fees than a more efficient 

pharmacy. 

In the proposed rule, we provided the 

following example of two pharmacies— 

one more efficient at dispensing than 

the other—to illustrate our concern: A 

monthly $4.00 dispensing fee for 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 ($0.1333 × 

28), 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 ($0.1333 × 21), which results in 

no medication waste. 

We believe this example is contrary to 

the Congress’ intent in enacting section 

3310 of the Affordable Care Act, which 

was to reduce medication waste. In this 

example, the second pharmacy’s more 

efficient dispensing techniques results 

in less medication waste, but the 

pharmacy itself receives less in 

dispensing fees than it would if it had 

dispensed in 14-day increments, which 

result in more medication waste. This 

approach creates a perverse incentive 

for LTC pharmacies to adopt the least 

efficient dispensing technique, if 

available, which is to dispense drugs in 

14 days supplies. This encourages 

wasteful dispensing to the Part D 

program. 

Given the clear intent of the 

Affordable Care Act to reduce wasteful 

dispensing in the LTC setting, we 

proposed to prohibit payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques by adding a new 

requirement that would state 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. We proposed that 

this requirement 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. 


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b. Misinterpretation of Language as 

Requiring the Proration of Dispensing 

Fees (§ 423.154) 

Our second proposed change to 

§ 423.154 was to eliminate paragraph 

(e), which we believe has caused 

confusion. Section 423.154(e) currently 

states that 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 in LTCs. 

We believe misinterpretation of 

paragraph (e) may have prompted some 

sponsors to prorate dispensing fees in a 

way that penalizes the offering and 

adoption of more efficient LTC 

dispensing techniques, even though the 

current regulation does not address 

dispensing fees. 

Moreover, effective January 1, 2014, 

the daily cost-sharing rate requirement 

in § 423.153(b)(4)(i) applies whenever a 

prescription is dispensed by a network 

pharmacy for less than a month’s 

supply, unless the drug is excepted, 

regardless of the setting in which the 

drug is dispensed. In other words, the 

daily cost-sharing rate requirement 

applies to brand drugs dispensed in LTC 

facilities to the extent they must be 

dispensed in supplies less than 30 days 

under § 423.154, and to generic drugs, to 

the extent a sponsor voluntarily 

dispenses generic drugs in LTC facilities 

in supplies less than a month’s supply. 

Consequently, the requirement of 

§ 423.153(b)(4)(i) makes § 423.154(e) 

unnecessary, and we believe retaining 

both provisions could cause further 

confusion. For these reasons, we 

proposed to delete § 423.154(e). 

c. Additional Waiver for LTC 

Pharmacies Using Restock and Reuse 

Dispensing Methodologies Under 

Certain Conditions (§ 423.154) 

Our third proposed change to 

§ 423.154 was 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 shortcycle 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. 

In light of this, we proposed 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 also would 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 proposed 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 

apply only to the qualifying pharmacies 

themselves. We proposed that we would 

not require the pharmacies to credit 

back any amount of the dispensing fee 

when the pharmacies return a drug to 

stock for reuse, since the level of effort 

for the pharmacies would not be 

expected to decrease. We stated that, if 

anything, the level of effort would be 

increased, since the pharmacies have to 

implement the appropriate internal 

controls for inspection and return to 

inventory of the unused medication. 

We further solicited 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. 

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 proposed 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 an 

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 

comply with the requirement (in the 

form and manner we specified in the 

previously-referenced memorandum) 

via PDE submission. Thus, we proposed 

deleting the language in in 

§ 423.154(a)(2) that appeared to require 

separate reporting, to eliminate any 

confusion. 

We received the following comments 

on this proposal and our responses 

follow: 

Comment: Numerous commenters 

support the proposal to add a 

prohibition on payment arrangements 

that penalize the offering and adoption 

of more efficient LTC dispensing 

techniques by prorating dispensing fees 

based on days’ supply or quantity 

dispensed, and a requirement to ensure 

that any difference in payment 

methodology among long term care 

pharmacies incentivizes more efficient 

dispensing. Many of these comments in 

particular supported CMS’ view that 

there is not a justifiable reason for 

proration of monthly dispensing fees 

since the cost of dispensing is not 

directly related to the quantity 

dispensed. These commenters asserted 

that proration of dispensing fees ignored 


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7932 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

the clinical oversight and fixed costs for 

pharmacy professional services for each 

dispense. These commenters 

acknowledged that prorated 

professional fees have resulted in a 

perverse economic model that 

encourages pharmacies to dispense the 

maximum allowable quantity of drugs 

(for example, 14 days supplies) in each 

prescription drug event transaction. 

Other commenters opposed this 

proposal, stating that it would increase 

costs by requiring a full dispensing fee 

with each dispensing event in an LTC 

facility, and that since the LTC 

pharmacies determine dispensing 

increments, this will incentivize them to 

select the system that provides the 

highest number of dispensing fees. 

These commenters also noted that the 

Affordable Care Act did not specify a 

new LTC dispensing fee structure. 

A commenter provided an illustrative 

example of prorated monthly dispensing 

fees that may not penalize the offering 

and adoption of more efficient LTC 

dispensing techniques. Specifically, the 

example demonstrates how an increased 

dispensing fee with proration can create 

appropriate incentives to reduce waste 

and cost in LTC facilities. The example 

provided for a $10 base dispensing fee 

for a 30-day supply for a pharmacy with 

technology that dispenses in 7-day 

increments and a $4.00 base dispensing 

fee for a pharmacy that dispenses in 14- 

day increments. Under this scenario, the 

more efficient pharmacy would receive 

$2.31 for dispensing 7 days of 

medication ($10/30 = $0.33 × 7) and the 

less efficient pharmacy would receive 

$1.82 ($4/30 = $0.13 × 14) for 

dispensing 14 days of medication. This 

commenter urged us to allow for any 

dispensing structure where the daily 

dispensing fee encourages all 

pharmacies, regardless of their size or 

negotiation capabilities, to use the most 

efficient dispensing technologies. 

Response: We thank the supportive 

commenters for their comments. With 

respect to the commenters that opposed 

the proposal, we note that the proposal 

did not require a full monthly 

dispensing fee with each dispensing 

event, or any specific dispensing fee or 

methodology for that matter. The intent 

of this rule is to prohibit dispensing fees 

that penalize the offering and adoption 

of more efficient LTC dispensing 

techniques by prorating dispensing fees 

based on days’ supply or quantity 

dispensed. This rule also adds a 

requirement to ensure that any 

difference in payment methodology 

among long-term care pharmacies 

incentivizes more efficient dispensing 

techniques. 

With respect to the one commenter 

that pointed out that certain prorated 

dispensing fees may not penalize the 

offering and adoption of more efficient 

LTC dispensing techniques in certain 

instances, we take no position at this 

time on whether specific dispensing fee 

arrangements would be compliant with 

this rule. We reiterate that this rule does 

not require a specific dispensing fee or 

methodology, but rather, prohibits 

payment arrangements that penalize the 

offering and adoption of more efficient 

LTC dispensing techniques by prorating 

dispensing fees based on days’ supply 

or quantity dispensed. In addition, this 

rule requires that any difference in 

payment methodology among LTC 

pharmacies incentivizes more efficient 

dispensing techniques. 

Comment: A commenter stated that 

because its data shows 80 percent of all 

LTC dispense claims are for generic 

medications, modifying dispensing fees 

will not truly affect the use of shortcycle methodology. This commenter 

requested that CMS provide any 

research demonstrating the increased 

utilization of short-cycle fill in 

dispensing in pharmacies whose 

dispensing fees did not change to a 

prorated fee. Alternatively, this 

commenter requested CMS’ 

observations and supporting data 

demonstrating that a daily dispensing 

fee actively discourages pharmacies 

from short-cycle filling medications. 

Response: We do not believe the 

research and data requested are 

necessary to finalizing this proposal. We 

believe it is self-evident that proration 

of the same monthly dispensing fee 

based on days’ supply or quantity 

dispensed (which results in a type of 

daily dispensing fee or rate) penalizes 

more efficient pharmacies relative to 

less efficient ones—the more efficient 

pharmacy is reimbursed less per 

dispense because it dispenses in smaller 

increments. Moreover, that prorated 

dispensing fee decreases per dispense 

the more efficiently the pharmacy 

dispenses. 

Comment: A commenter stated that 

CMS confuses prorated dispensing fees 

with daily dispensing fees that are not 

necessarily pro rata adjustments of 

otherwise applicable dispensing fees. 

Response: Our prohibition of 

proration that penalizes more efficient 

dispensing would apply both to 

proration of a monthly dispensing fee 

amount and proration determined by 

setting a daily rate that is applied to the 

number of days dispensed. The intent is 

of our rule is to prohibit payment 

arrangements that penalize the offering 

and adoption of more efficient LTC 

dispensing techniques by prorating 

dispensing fees based on days’ supply 

or quantity dispensed, and to require 

that any difference in payment 

methodology among LTC pharmacies 

incentivizes more efficient dispensing 

techniques. 

Comment: A commenter stated that 

PBMs have very little leverage in 

negotiating cost effective strategies with 

LTC pharmacies on behalf of Part D 

sponsors, as the LTC landscape is 

controlled by three very large LTC 

pharmacy organizations that make up an 

estimated 80 percent of the market 

share, and that in many cases, only one 

of them is the provider of prescription 

medications in LTC facilities. This 

commenter further stated that these LTC 

pharmacy organizations dictated the 

contractual requirement to prorate 

dispensing fees, asserting that their 

member LTC pharmacies needed 

compensation for every prescription fill. 

Response: This rule prohibits 

payment arrangements that penalize the 

offering and adoption of more efficient 

LTC dispensing techniques by prorating 

dispensing fees based on days’ supply 

or quantity dispensed. For example, this 

rule prohibits payment arrangements 

that penalize LTC dispensing 

techniques of less than 14 days supplies 

of drugs at a time. This rule also 

requires that any difference in payment 

methodology among LTC pharmacies 

incentivizes more efficient dispensing 

techniques. For example, this rule 

requires that differences in payment 

methodologies among LTC pharmacies 

incentivize dispensing techniques of 

less than 14 days supplies of drugs at a 

time. If the prorated dispensing fees by 

days’ supply or quantity dispensed do 

not penalize the offering of more 

efficient dispensing techniques by these 

LTC pharmacies, and any difference in 

payment methodology relative to other 

LTC pharmacies incentivizes more 

efficient dispensing techniques, then 

this regulatory provision is not 

implicated. 

Comment: Some commenters asserted 

that our proposal was a violation of the 

non-interference clause and exceeded 

our delegated authority. 

Response: We disagree. 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. Thus, the Congress gave the 

Secretary authority to regulate with 

respect to reducing waste of covered 

Part D drugs in LTC facilities. Moreover, 


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this requirement does not dictate any 

specific dispensing fee amounts or 

methodologies, but rather prohibits only 

those dispensing fees that penalize more 

efficient dispensing and requires that 

any difference in payment methodology 

among LTC pharmacies incentivizes 

more efficient dispensing techniques. 

For the reasons stated previously, we 

believe this is consistent with the 

statutory directive to reduce waste 

associated with 30-day fills in LTC 

facilities. 

Comment: A commenter stated the 

regulatory text was vague. 

Response: We disagree. The policy 

reflected in the preamble and regulatory 

text is clear—to prohibit the prorated 

LTC dispensing fees in the Part D 

market today that are financially 

penalizing more efficient LTC 

pharmacies. In addition, we believe the 

discussion in this preamble, with 

examples provided, makes clear how 

sponsors must not penalize more 

efficient dispensing techniques in LTC 

facilities by prorating dispensing fees 

based on days’ supply or quantity 

dispensed and that any difference in 

payment methodologies among LTC 

pharmacies must incentivize more 

efficient dispensing techniques. We 

have deliberately struck a balance in 

drafting the regulatory text to be specific 

enough to accomplish the policy goal 

without being so specific as to dictate 

the particular dispensing fee 

arrangements that are permissible. 

Comment: A commenter requested 

whether this new requirement applies to 

all payments to LTC pharmacies; 

whether it applies to all prescriptions in 

LTC facilities or only to those subject to 

the short-cycle dispensing methodology; 

and whether a Part D sponsor must 

prove to each LTC pharmacy how its 

payment methodology incentivizes 

more efficient dispensing techniques. 

Response: The requirement in this 

final rule applies to payments to 

pharmacies related to the dispensing of 

Part D drugs to residents in LTC 

facilities, including those Part D drugs 

that are not subject to the short-cycle 

dispensing requirement. As noted 

previously, this rule does not address 

specific negotiations between Part D 

sponsors and pharmacies. 

Comment: One commenter stated that 

the regulatory text was confusing and 

contained three negatives. 

Response: We are moving the 

proposed language to § 423.154(a)(2) 

and (3) and revising the regulation text. 

We believe this will make the regulatory 

text less confusing. However, because 

we did not propose to waive this 

requirement with respect to pharmacies 

when they dispense Part D drugs to 

residents of intermediate care facilities 

for the mentally retarded (ICFs/IID) and 

institutes for mental disease (IMDs) and 

for I/T/U pharmacies, we are making 

conforming changes to § 423.154(c) to 

make clear that the requirements of 

paragraph (a)(2) and (3) are not waived 

for with respect to these pharmacies. 

Comment: A commenter stated that it 

was unnecessary for CMS to 

memorialize the fact that the rule 

applies to contracting intermediaries in 

addition to Part D sponsors in the 

regulatory text. 

Response: We agree. The reference to 

‘‘intermediary contracting 

organizations’’ in the regulatory text is 

now unnecessary because we are 

moving the requirement to 

§ 423.154(a)(2) and (3), as noted just 

previously. 

Based on all the comments received, 

we are finalizing our proposal with the 

changes previously described in this 

section. 

Comment: Some commenters 

supported the removal of the language 

in § 423,154(e) that CMS believes may 

have been misinterpreted as requiring 

the proration of dispensing fee. A few 

commenters opposed this proposal. One 

of these commenters that opposed this 

proposal stated that plans did not 

interpret the provision as requiring the 

proration of dispensing fees, but rather 

as permitting it. 

Response: Based on the comments 

received, we are finalizing the removal 

of this language from the current 

regulatory text. As noted previously, 

this provision was intended to address 

cost sharing for short-cycle dispensing 

in LTC facilities, but the daily costsharing rate rule at § 423.153(b)(iv)(i) 

now addresses cost-sharing when less 

than a month’s supply of a Part D drug 

is dispensed. Thus, this regulatory text 

is no longer necessary. Moreover, we 

believe the comments support our view 

that the language was confusing. 

Comment: Several commenters 

supported CMS’ proposal in principle 

for an additional waiver from the shortcycle dispensing requirements for 

certain LTC pharmacies that maintain 

custody of medications by operating a 

closed pharmacy within the facility, but 

these commenters expressed concerns 

about how the waiver would be 

implemented. Specifically, these 

commenters pointed out that there is no 

current transaction standard that 

accommodates transmitting a net 

quantity for payment following the 

acceptance of a returned medication 

applied against a quantity dispensed for 

ingredient cost credit, and that use of an 

existing transaction to accomplish this 

would violate HIPAA. These 

commenters stated that a new HIPAA 

standard transaction would be required 

to support a waiver based on return and 

reuse billing. 

Response: In the proposed regulation, 

while we used an industry term of art 

‘‘restock and reuse,’’ we did not intend 

to implicate a billing standard that does 

not exist. This term, as used in the 

industry, encompasses a billing system 

that modifies pharmacy claims as 

unused medications are returned to 

stock. We are aware of the current 

limitations of this particular system. 

The type of pharmacy that would 

qualify for the waiver, as we described 

in the proposed rule, is an institutional, 

on-site, closed pharmacy, such as a 

pharmacy in a veteran’s home, which 

maintains custody of medications 

within the LTC facility, such that all 

unused medications that are eligible 

under applicable law are restocked and 

reused. In other words, such a pharmacy 

has such quality control over 

medications in the LTC facility that it 

does not have to dispense in 14-day 

supplies or less in order to reduce 

waste. Such pharmacies may use postconsumption billing, a reverse and rebill 

system, or some other billing method to 

only charge a Part D sponsor for the 

medications that are actually used. 

Given the misunderstanding of our 

proposed additional waiver from the 

LTC short-cycle dispensing rule, we are 

not finalizing it as this time. We will 

consider proposing the waiver again in 

future rulemaking. 

Comment: We received no comment 

on our proposal to delete language in 

§ 423.154(a)(2) to eliminate any 

confusion about that there is a separate 

reporting requirement. 

Response: We are finalizing this 

deletion, except that we are 

redesignating the remaining language in 

(a)(2) as (a)(4) in light of the other 

changes previously described. 

Comment: Some commenters 

requested a delay in the effective date of 

this requirement until 2016, asserting 

that the requirement will necessitate 

significant changes in adjudication and 

network contracting logic to 

accommodate the replacement of 

prorated dispensing fees with standard 

dispensing fees. One commenter 

requested clarification of the effective 

date of this requirement. 

Response: The effective date of this 

requirement is January 1, 2016. 

6. 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 


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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 employer-offered 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 CMS 

using our authority under section 

1860D–22(b) of the Act. The Affordable 

Care Act did not exclude EGWP 

enrollees that otherwise meet the 

definition of an applicable beneficiary 

(as defined in § 423.100) 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 for applicable beneficiaries as 

invoiced. 

Beginning in 2014, all EGWP benefits 

beyond the parameters of the defined 

standard benefit will be treated as nonMedicare Other Health Insurance (OHI) 

that wraps around Part D. We excluded 

supplemental coverage offered through 

EGWPs from the definition of Part D 

supplemental benefits in § 423.100 in 

our 2012 rulemaking. However, as 

discussed in section II.E.14. of this final 

rule, the change was erroneously not 

included in the CFR. Therefore, we are 

making a technical change to rectify that 

problem. The change with respect to 

EGWPs was made 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 

is 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 took the 

opportunity to propose this specific 

requirement in § 423.2325(h)(1) to 

remove any ambiguity. 

Comment: Some commenters strongly 

urged CMS to revise the policy 

established in our April 2012 rule that 

considers EGWP plan supplemental 

benefits to be outside of Part D, and 

therefore OHI. These commenters stated 

that treating EGWP benefits as OHI is 

inconsistent with the statute as it does 

not, on its face appear to result in direct 

reductions in beneficiary cost sharing. 

They state that since many EGWP 

enrollees do not experience a coverage 

gap the discounts are not used to offset 

beneficiary spending in the gap which 

is the original statutory intent. A few 

commenters stated that the current 

policy has led employer groups to 

migrate from Retiree Drug Subsidy plans 

to EGWPs which is costly to the 

taxpayer. 

Response: We did not propose any 

changes to our existing policy with 

respect to EGWP supplemental benefits, 

and we decline to do so now. For the 

reasons set forth in our April 2012 

rulemaking, we believe our current 

regulation is consistent with the statute. 

The purpose of this final rule is solely 

to clarify that basic EGWP benefits are 

to be based upon the Defined Standard 

benefit. 

After considering the comments 

received, we are finalizing the portion of 

the provision which proposed that Part 

D sponsors offering employer group 

waiver plans must provide applicable 

discounts to EGWP plans as determined 

consistent with the Defined Standard 

benefit, except we are making a 

technical change to clarify that 

applicable discounts are available only 

to applicable beneficiaries enrolled in 

the EGWPs. We are not finalizing the 

proposed requirement that Part D 

sponsors of EGWPs disclose to each 

employer group the projected and actual 

manufacturer discount payments under 

the Discount Program attributable to the 

employer group’s enrollees, at least 

annually or upon request. 

7. 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 defines 

‘‘other prescription drug coverage’’ for 

COB purposes to include, among other 

entities, other Part D plans, and 

specifies 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 

process for a prior plan to report these 

TrOOP-related data and for the new 

plan of record to receive, upload, and 

use the data position the beneficiary in 

the correct phase of the benefit was 

initially manual. 

In 2009, this process was replaced by 

an automated process for TrOOP-related 

data transfer. Our guidance released in 

2008 (HPMS memorandum dated 

October 21, 2008 titled, ‘‘Updated Part 

D Sponsor Automated TrOOP Balance 

Transfer Operational Guidance’’) 

described sponsor implementation of 

the automated TrOOP balance transfer 

process and 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. 

To ensure Part D benefits are correctly 

administered when a beneficiary 

transfers enrollment during the coverage 

year, we proposed to codify these 

requirements in federal regulations. 

Specifically, we proposed 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 


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• 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. 

Comment: One commenter objected to 

the provision claiming it was vague and 

ill-defined and requested we include 

additional detail in lieu of deferring to 

sub-regulatory guidance. 

Response: We disagree. The proposed 

regulatory text specifies the 

requirements for sponsors to report, 

accept and apply accumulator data. We 

believe the details of the transfer 

process are more appropriately 

addressed in guidance because they are 

procedural, and retaining them in 

guidance will preserve flexibility to 

adapt these procedures as the need 

arises. CMS and the industry developed 

the automated data transfer process in 

collaboration with National Council for 

Prescription Drug Programs (NCPDP) 

and have continued to work 

collaboratively to refine and improve 

the process. When a change in the 

transfer process is agreed upon and 

substantive requirements are unaffected, 

use of guidance permits us to issue 

updated instructions in a timely 

manner. 

Comment: Three commenters 

expressed support for the provision. 

Response: We appreciate the support 

for this provision and are adopting this 

provision as proposed with a minor 

change. That is, we are redesignating the 

current paragraph (B) in 

§ 423.464(f)(2)(i)(B) as (C) and adding 

this provision as paragraph (B) to more 

logically sequence the requirements. 

8. 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. 

We proposed 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. The proposed 

revisions to these paragraphs 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 

proposed 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 proposed to delete 

paragraph (h)(2) of § 422.152 as it 

pertains to contract year 2010 and is no 

longer relevant. 

We received the following comments 

and our responses are as follows: 

Comment: We received several 

comments that supported § 422.152 

overall and CMS efforts to implement 

policies that ensure high quality health 

care for enrollees. 

Response: We thank the commenters 

for their support. 

Comment: One commenter requested 

clarification as to what exactly has 

changed under § 422.152(c), ‘‘Chronic 

care improvement program 

requirements,’’ as it appears to expand 

only one requirement and reorder the 

others. 

Response: Our proposal, and the 

finalized rule here, revises paragraphs 

(c)(1)(ii) to add a requirement for the 

MA organization to evaluate participant 

outcomes (such as changes in health 

status), and add paragraphs (c)(1)(iii), 

(c)(1)(iv), and (c)(2). Paragraph (c)(1)(iii) 

requires performance assessments that 

use quality indicators that are objective, 

clearly and unambiguously defined, and 

based on current clinical knowledge or 

research, and (c)(1)(iv) requires 

systematic and ongoing follow-up on 

the effects of the chronic care 

improvement program. Finally, new 

paragraph (c)(2) requires that the 

organization report to CMS on the 

results of each chronic care program. 

The proposed changes also included 

reorganization of the section to parallel 

requirements in paragraph (d), ‘‘Quality 

improvement projects.’’ 

Comment: One commenter requested 

whether recent changes to the SNP 

Model of Care (MOC) requirements 

would be the vehicle for evaluating 

compliance in relation to the 

effectiveness of a plan’s Model of Care. 

Response: This comment is outside 

the scope of the proposed changes to 

this provision because we did not 

propose, and are not finalizing in this 

rule, any changes to the SNP MOC 

requirements. Information about the 

MOC and associated requirements can 

be found in Chapter 5 of the Medicare 

Managed Care Manual. 

Comment: One commenter requested 

clarification on the additional quality 

improvement program requirements for 

SNP plans. 

Comment: The changes made to this 

provision do not create any new quality 

improvement program requirements for 

SNPs. The changes are to clarify the 

requirement that SNPs must comply 

with the requirements under paragraph 

(g) as well as those in paragraphs (a) 

through (f). The SNP-specific 

requirements in paragraph (g) do not 

replace the requirements in paragraphs 

(a) through (f), which apply to all plans, 

including SNPs. 

Comment: A commenter requested 

whether Quality Improvement Project 

and Chronic Care Improvement Program 

results will be included in Star Rating 

measurements in the near future. 

Response: This comment is outside 

the scope of the proposed changes to 

this provision as we did not propose, 

and are not finalizing in this rule, any 

Star Rating measures in connection with 

the quality improvement program 

requirement. 

Comment: A commenter expressed 

opposition to expanded quality 

improvement requirements as a whole 

because MA organizations respond to 

such requirements by setting unrealistic 

targets for physicians. The commenter 

added that compliance must often be at 

100 percent for a physician to qualify 

for a payment incentive. 

Response: Our proposal codifies our 

recent expansion of the quality 

improvement program policies and 

revises paragraph (c) of § 422.152 to 

codify our recently expanded chronic 

care improvement program policies. The 

proposed revisions to these paragraphs 

more accurately reflect current quality 

care improvement program policies and 

requirements that are already in 

practice. While we understand the 

commenter’s concern, we do not agree 

that codifying requirements that are 

already in practice will place any 

further burden on MA organizations and 

thus tangentially increase the burden on 

physicians. Additionally, while we 

understand that our recent expansion of 

our quality improvement program 

policies may have impacted MA 

organizations and, in turn, providers, 

the requirements do not specify any 

provider requirements or address 

payment incentives of any type. MA 

organizations and providers remain free 

to contract and make agreements on 


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these topics without CMS interference, 

thus MA organizations have flexibility 

when shaping their provider processes, 

policies, and overall framework. 

Comment: A commenter stated that 

CMS’s guidance with respect to Quality 

Improvement Projects and Chronic Care 

Improvement Programs for SNP plans 

has been unclear. 

Response: Our proposal, and this final 

rule, revises 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 in lieu of the quality 

improvement program requirements 

presented in paragraphs (a) and (f). We 

believe the revisions to the regulation 

clarify that Quality Improvement Project 

and Chronic Care Improvement Program 

requirements are the same for SNP and 

non-SNP plans. 

After consideration of the public 

comments received, we are finalizing 

the proposed codification and 

clarification of our Quality 

Improvement Program regulation at 

§ 422.152 without modification. 

B. Improving Payment Accuracy 

1. Determination of Payments 

(§ 423.329) 

In the January 2014 proposed rule, we 

proposed a technical change to 

§ 423.329(d) to correctly describe the 

low-income cost-sharing subsidy 

payment amount as it is intended by 

statute and has been implemented and 

described in interpretive guidance by 

CMS. That amount had been defined in 

the regulation 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. The lowincome 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, 07–29–11), at http:// 

www.cms.gov/Regulations-andGuidance/Guidance/Transmittals/ 

Downloads/Chapter13.pdf). As we 

stated in the proposed rule, under the 

basic benefit defined at § 423.100, the 

low-income cost-sharing subsidy 

payment amount is the difference 

between the Part D 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 proposed to amend 

§ 423.329(d) consistent with this 

guidance. 

We also explained in our proposed 

rule that 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 plan is 

considered ‘‘other health or prescription 

drug coverage.’’ This definition applied 

to all of Medicare Part D. (See the April 

12, 2012 final rule titled ‘‘Medicare 

Program; Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2013 and Other Changes’’ 

(77 FR 22082)). 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 proposed 

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 subsidyeligible individual enrolled in a Part D 

plan for a coverage year as the 

difference between the 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. 

In order to clarify that enhanced 

alternative benefits apply prior to 

determining the low-income costsharing subsidy payment amount, we 

clarify in this preamble and in the final 

regulation text that the low-income costsharing subsidy payment amount is the 

difference between the cost sharing (not 

the ‘‘Part D cost sharing,’’ as proposed) 

for a non-LIS beneficiary under the Part 

D plan and the statutory cost sharing for 

the LIS-eligible beneficiary. 

We received no comments on this 

proposal and are finalizing with a minor 

modification, as discussed previously. 

2. Reopening (§ 423.346) 

We proposed to amend the reopening 

provisions such that we may perform 

one reopening within 5 years after the 

date of the notice of the initial payment 

determination to the Part D sponsors. 

We also proposed to amend the 

provision to accommodate reopening 

the Coverage Gap Discount 

Reconciliation described at 

§ 423.2320(b). 

As we stated in the proposed rule, we 

had originally patterned the reopening 

provisions after the Medicare claims 

reopening regulations found in part 405, 

but now with a better understanding of 

the need for reopening a payment 

determination, we proposed to modify 

our regulation at § 423.346 to align with 

our experience. We stated that our 

experience indicates to us that we will 

likely have to perform a reopening of 

the initial payment determination for 

every contract year, and we proposed to 

remove the current timeframes for a 

reopening described in § 423.346(a)(1) 

through (a)(3), remove paragraph (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. 

As stated in the proposed rule, we 

believe that data stability will occur 

within 5 years of the notice of the initial 

payment determination. Within 5-years 

of the notice of the initial payment 

determination, additional prescription 

drug event (PDE) data 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 proposed to codify 

at § 423.360, we stated that we do not 

believe that it is necessary to reopen a 

payment reconciliation after that 5-year 

period, and that we believe it is not 

necessary to reopen a reconsidered 

payment determination. Therefore, we 

proposed to amend § 423.346(a) such 

that we will only reopen the initial 

payment determination and will not 

reopen a reconsidered payment 

determination. 

With respect to determining whether 

to reopen a contract year, we stated that 

we will consider a number of issues, 

including, but not limited to, whether 

the contract has terminated and 

received a final settlement. We stated 

that we will not approve a request to 

reopen for a contract that has terminated 

and received a final settlement. We also 

stated that when we performed a 

reopening on our own initiative, 

contracts that have been terminated and 

settled will not be included in the 

reopening. 

In addition, we proposed 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 January 28, 2005 final 


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rule titled, ‘‘Medicare Program; 

Medicare Prescription Drug Benefit’’ (70 

FR 4316). We noted that 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. Due to 

the invoicing process that continues to 

occur after the reconciliation process, 

we do not anticipate the need to reopen 

the Coverage Gap Discount 

Reconciliation. However, we want to 

leave open the option to reopen if 

unforeseen events result in 

underpayments or overpayments to Part 

D sponsors. Therefore, we proposed to 

amend § 423.346 to accommodate 

reopening a Coverage Gap Discount 

Reconciliation. 

Based on the preceding, we proposed 

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.’’ 

We received the following comments 

and our responses follow: 

Comment: A commenter stated that 

the past 6 years indicate that unforeseen 

issues arise and require multiple 

reopenings to address them properly. A 

commenter recommended that CMS 

relax the proposed regulation and not 

unnecessarily restrict CMS’s ability to 

conduct more than one reopening. A 

commenter supported the goal of one 

reopening per contract year, but 

recommended that CMS set a threshold, 

such as a dollar amount, to restrict 

reopenings while preserving an 

appropriate amount of flexibility in the 

regulation to accommodate 

circumstances with a degree of 

materiality. 

Response: We agree with the 

commenter that multiple reopenings 

may be necessary. We know from 

experience that there are unforeseen 

circumstances that require us to do 

multiple global or targeted reopenings 

for a contract year. Target reopenings 

include reopening for a specific plan 

type (for example, PACE organizations) 

or for specific contracts or parent 

organizations. For this reason and also 

due to potential conflicts between the 5- 

year time frame of this proposed 

provision and the 6-year look-back 

period associated with the overpayment 

provision recently codified at § 423.360 

(see 79 FR 29847), we are not finalizing 

the proposal to reopen one time within 

5 years after the date of the notice of the 

initial determination to the Part D 

sponsors. 

Our proposal to do one reopening 

within 5 years after the date of the 

notice of the initial determination may 

create difficulties for Part D sponsors to 

return overpayments that they identify 

and are required to report and return 

under § 423.360. Section 423.360 creates 

a 6-year look-back period at § 423.360(f). 

In accordance with § 423.360(f), a Part D 

sponsor must report and return any 

overpayment identified within the 6 

most recent completed payment years. 

In our May 23, 2014 final rule, (79 FR 

29843), we stated that CMS would 

recover plan-identified overpayment 

amounts through routine processing. 

For Part D, that means that if an 

overpayment is discovered, the Part D 

sponsor may fulfill its obligation to 

return the overpayment by requesting a 

reopening and submitting corrected data 

prior to CMS conducting the reopening. 

(For more information, see 79 FR 

29923). To the extent possible, we want 

to allow for overpayments to be 

recovered through routine payment 

processes through the entire 6-year lookback period. The decision not to finalize 

our proposal to conduct one reopening 

within a 5-year period gives the Part D 

sponsor more flexibility to return 

overpayments and CMS more flexibility 

to collect overpayments through routine 

payment processes. Therefore, we are 

not finalizing the proposed provision 

that CMS will reopen one time within 

5 years after the date of the notice of the 

initial determination to the Part D 

sponsors. 

We note that we agree with the 

commenter that making the decision 

whether to reopen could be based on a 

dollar amount threshold. We currently 

consider several factors, including 

dollar amount, to determine whether to 

do a reopening. However, the decision 

of whether or not to do a reopening 

beyond the initial global reopening will 

be decided based on factors specific to 

the circumstance. For that reason, we 

will not codify a threshold or any other 

list of factors that would give rise to 

multiple reopenings. 

Comment: A few commenters 

disagreed with our approach to do one 

global reopening. A commenter stated 

that unfocused reopenings would place 

a great burden on Part D sponsors, 

particularly when looking back as much 

as 5 years, and recommended that the 

current rule, requiring ‘‘good cause’’ for 

a reopening after 1 year after the final 

payment determination, remain in 

place. A commenter also considered the 

possibility of extending the timeframe 

beyond the current 4 years to 5 years for 

reopening with cause. 

Response: Although we are not 

finalizing the proposed provision that 

we will reopen one time within 5 years 

after the date of the notice of the initial 

determination to the Part D sponsors, 

we disagree with the commenter’s 

statement that unfocused reopenings 

will place a great burden on Part D 

sponsors. We conduct reopenings after 

we see stability in the PDE and DIR data. 

We track the number of PDEs that we 

receive for each contract year on a 

weekly basis. We know that the Part D 

sponsors and their contracted pharmacy 

benefit managers (PBMs) submit 

significant amounts of data after the Part 

D payment reconciliation cut-off date. 

The data continues to be submitted well 

after 1 year of the notice of the initial 

payment determination. Given the 

volume of new data that we receive after 

the notice of the initial payment 

determination, we believe that it is 

necessary to conduct at least 1 global 

reopening for every contract year in 

order to accurately reconcile the 

prospective payment made to Part D 

sponsors with the corresponding actual 

costs reported by the Part D sponsor on 

the PDEs. 

In addition, and subsequent to our 

decision not to finalize the proposal that 

CMS perform one reopening within 5 

year of the notice of the initial payment 

determination, we are not finalizing our 

proposal to remove the current 

timeframes for a reopening described in 

§ 423.346 (a)(1) through (a)(3), remove 

paragraph (b) describing good cause 

referred to in paragraph (a)(2), or modify 

paragraph (c) to eliminate the reference 

to ‘‘good cause.’’ In other words, Part D 

plan payment reopenings will continue 

to be conducted as described at the 

current regulation at § 423.346. 

Comment: A commenter stated that 

experience would suggest that over the 

years since the Part D program’s 

inception, we have all improved in our 

efforts at the reconciliation and 

reopening of the Part D financial books, 

and therefore, encouraged CMS to 

enforce a shorter reopening timeframe 

after plan year initial closure. 

Specifically, the commenter 

recommended that CMS decrease the 

amount of time that plan years remain 

not finally reconciled to 4 years, not 5 

years. This commenter encouraged a 

shorter time frame than 5 years, because 

from financial and compliance 

perspectives, this commenter thought 

that it would be beneficial to have a true 

final ‘‘closure’’ of the plan year earlier 

rather than later, to reduce uncertainty 

and risk. 


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Response: We agree with the 

commenter that experience suggests that 

we have all improved our efforts at 

reconciliations and reopenings. We are 

also sympathetic to the Part D sponsors’ 

desires to ‘‘close’’ a plan year. However, 

we are not finalizing the proposal that 

CMS will reopen one time within 5 

years after the date of the notice of the 

initial determination to the Part D 

sponsors. As previously stated, we 

believe that the proposal, if finalized, 

may create difficulties for Part D 

sponsors to return overpayments that 

they identify and are required to report 

and return under § 423.360. 

Comment: A commenter requested 

that CMS consider setting a time period 

for when global reopenings occur, so 

that the industry has some clarity and 

predictability around timing of the 

reopenings. This commenter thought 

that knowing when a reopening is 

expected would make planning for Part 

D sponsors and CMS much easier and 

more efficient. 

Response: Although we are not 

finalizing the proposal to reopen one 

time within 5 years after the date of the 

notice of the initial payment 

determination to the Part D sponsors, 

we agree with the commenter that 

setting a time period for when global 

reopenings occur would provide clarity 

and predictability around timing of the 

reopenings. As our experience and 

efficiencies improve, we expect that the 

reopenings will fall into a predictable, 

yearly schedule. Based upon recent 

historical experience, we anticipate 

beginning the global reopening process 

for a benefit year 4 years after releasing 

the initial reconciliation reports. We, at 

our discretion, may conduct reopenings 

after this time to rectify overpayments 

or unexpected issues resulting from the 

initial reopening. 

After consideration of the public 

comments we received, we are not 

finalizing the proposal that we will 

reopen one time within 5 years after the 

date of the notice of the initial payment 

determination to the Part D sponsors. 

Consequently, we are not finalizing our 

proposal 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), or modify 

paragraph (c) to eliminate the reference 

to ‘‘good cause.’’ 

We did not receive specific comments 

on our proposal to modify § 423.346 to 

accommodate the Coverage Gap 

Discount Reconciliation. We proposed 

that, similar to the Part D plan payment 

reopening, the reopening for the 

Coverage Gap Discount would be 

conducted one time in a 5-year period. 

For the same reasons previously stated 

for the Part D plan payment reopening, 

we are not finalizing that the Coverage 

Gap Discount reopening be conducted 

once in a 5-year period. However, 

consistent with that proposal, we are 

incorporating the Coverage Gap 

Discount reopening into the reopening 

process described at § 423.346. 

Therefore, we finalize the Coverage Gap 

Discount Reconciliation reopening by 

modifying § 423.346(a) by adding the 

phrase ‘‘or the Coverage Gap Discount 

Reconciliation (as described at 

§ 423.2320(b))’’ to the end of the 

introductory paragraph. 

3. Payment Appeals (§ 423.350) 

In our proposed rule, we proposed to 

revise § 423.350 to accommodate a 

Coverage Gap Discount Reconciliation 

appeals process under the same 

authority with which we established the 

Part D payment appeals process under 

section 1860D–15(d)(1) of the Act. 

Consistent with the Part D payment 

appeals process currently described at 

§ 423.350, the proposed changes 

establish an appeals process where the 

final reconciliation of the interim 

Coverage Gap Discount Program (CGDP) 

payments may be subject to appeal. 

Consistent with the Part D payment 

appeals process, we also proposed 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 

proposed 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). 

Based on the preceding, we proposed 

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). 

We received the following comment 

and our response follows: 

Comment: A few commenters 

requested that CMS extend the proposed 

15-day deadline to file a request for 

reconsideration to 30 days due to the 

complexity of the CGDP. A commenter 

noted that 30 days would be more 

consistent with the existing plan-to-plan 

process. Another commenter stated that 

the15-day deadline would result in 

more ‘‘defensive’’ appeal from plans 

attempting to protect their interest in 

payments prior to the expiration of the 

appeal period, even where the subject 

plan may not yet, at this time of appeal, 

conclude that any payment 

discrepancies were in fact the result of 

methodological errors. A commenter 

believed that the proposed 15-day 

deadline would increase the 

administrative burden for CMS in 

processing unnecessary appeals and 

impair the efficient use of plan 

resources, which raises overall plan 

administrative costs. 

Response: We decline to modify 

§ 423.350(b)(1) to extend the proposed 

15-day deadline to file a request for 

reconsideration to 30 days for the CGDP. 

We believe that some commenters may 

think that the appeals process under 

§ 423.350 is broader than it actually is. 

Section 423.350 describes the appeals 

process for the Part D payment 

reconciliation and, as we proposed, the 

Coverage Gap Discount Reconciliation. 

An appeal can be filed if a Part D 

sponsor believes that CMS did not 

correctly apply its stated payment 

methodology. An appeal for any other 

reason will be dismissed. If a sponsor 

identifies a data discrepancy, the 

sponsor would not file an appeal but 

would file a reopening request under 

§ 423.346. 

The Part D sponsors are in possession 

of the same data CMS uses to determine 

the Coverage Gap Discount 

Reconciliation. The Part D sponsors will 

have the data in advance of the 

reconciliation and can validate the data 

prior to the reconciliation. Therefore, 

we believe that the proposed 15-day 

deadline is an adequate time for a Part 

D sponsor to determine whether CMS 

has correctly applied its stated payment 

methodology and, if necessary, file a 

request for reconsideration. 

After consideration of the public 

comments we received, we are 

finalizing § 423.350 as proposed. 

4. Payment Processes for Part D 

Sponsors (§ 423.2320) 

In our proposed rule, we proposed 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 


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8We proposed three amendments to § 422.310 in 

our January 10, 2014 proposed rule. In the May 23, 

2014 final rule, we finalized one proposal, stated 

that we would not finalize the second proposal, and 

would finalize the third proposal at a later time. 

(See the May 23, 2014 final rule (79 FR 29848, 

29925, and 29926). The third proposal is addressed 

in this final rule. 

§ 423.2320(b). This will 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 

also stated that we would file a proof of 

claim with the bankruptcy court to 

recover costs from the bankrupt 

manufacturer. We proposed that we 

would implement our policy by 

adjusting the Coverage Gap Discount 

Reconciliation 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 proposed 

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. 

We received the following comment 

and our response follows: 

Comment: Commenters strongly 

supported our proposal. One commenter 

requested that CMS expand upon the 

section to include scenarios other than 

bankruptcy. 

Response: We appreciate the support 

expressed for our proposal. However, 

we will not be expanding § 423.2320(c) 

to include scenarios other than 

bankruptcy. We will cover the costs of 

unpaid quarterly invoices only in the 

event that a manufacturer becomes 

bankrupt and fails to pay the invoices. 

As stated in the proposed rule, if a 

manufacturer becomes bankrupt, we are 

concerned that a court will modify or 

reduce the amount of the civil money 

penalties (CMPs), rendering the CMPs 

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. In all other 

scenarios, CMPs, described at 

§ 423.2340, will cover the cost of the 

unpaid invoices. 

In light of the comment that we 

received recommending that we expand 

our proposal to include scenarios other 

than bankruptcy, we clarify that this 

provision will apply only to adjust for 

quarterly invoices that go unpaid after 

the manufacturer has declared 

bankruptcy. As previously stated, in all 

other cases, CMPs will cover the costs 

of unpaid quarterly invoices. 

Also, consistent with our proposal to 

adjust 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, we clarify in the regulation 

that we will only adjust the Coverage 

Gap Discount Reconciliation amount for 

unpaid quarterly invoices used for that 

particular Coverage Gap Reconciliation. 

Use of a particular set of quarterly 

invoices in a Coverage Gap Discount 

Reconciliation is consistent with our 

current process, and we are not 

modifying that process for the purposes 

of this provision. Therefore, we clarify 

that we will not adjust the Coverage Gap 

Reconciliation amount for unpaid 

quarterly invoices that are not 

specifically used in that contract year’s 

Coverage Gap Reconciliation. 

After consideration of the public 

comments we received, we are 

finalizing § 423.2320(c) as proposed, 

with the minor clarifications discussed. 

5. Risk Adjustment Data Requirements 

(§ 422.310) 

In addition to the provisions 

addressed in the May 23, 2014 final rule 

(79 FR 29847),8 we proposed to align 

§ 422.310 regarding submission of risk 

adjustment data with § 422.326 by 

making a change in paragraph (g); 

specifically, we proposed the deletion of 

the January 31 deadline in paragraph 

(g)(2)(ii) 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 would allow the risk 

adjustment data submission deadline to 

also function as the Part C applicable 

reconciliation date for purposes of 

§ 422.326 on overpayment rules because 

§ 422.326(a) refers to the annual final 

deadline for risk adjustment data 

submission as a date ‘‘announced by 

CMS each year.’’ 

In response to the January 10, 2014 

proposed rule, we received 

approximately six pieces of 

correspondence from organizations and 

individuals regarding this specific 

proposal to replace the January 31 

deadline with a date announced 

annually by CMS. We received the 

following public comments and our 

responses follow. 

Comment: A few commenters 

supported CMS’ proposal to remove the 

current date of January 31 as the annual 

final risk adjustment data submission 

deadline and replace it with the 

provision that CMS will announce the 

deadline annually, with the proviso that 

CMS’ timing of this annual deadline 

always allow sufficient opportunity for 

organizations to make final data 

submissions. Several other commenters 

stated their concern about this proposed 

change in deadline, including a concern 

that CMS might announce a deadline 

earlier than January 31 in some years. 

These commenters requested that CMS 

clarify that the annual deadline would 

never be before January 31, and a few 

commenters suggested that the 

regulation state that the deadline is 

January 31 but may be extended. 

Finally, a few commenters requested 

that CMS not change the January 31 date 

to a floating date, in order to allow 

operational stability. 

Response: Our goal for eliminating 

January 31 as the final risk adjustment 

data submission deadline was to align 

this deadline at § 422.310(g)(2)(ii) with 

the overpayment provisions in 

§ 422.326, so that the final risk 

adjustment data submission deadline 

would also function as the Part C 

applicable reconciliation date set forth 

in the overpayment provisions. As 

noted in the proposed rule, in order to 

align with the overpayment provisions, 

each year we expect to announce a date 

that would accommodate the current 

subregulatory guidance that MA 

organizations review the monthly 

enrollment and payment reports they 

receive from CMS within 45 days of the 

availability of the reports. We make 

these reports available to MA 

organizations each month according to 

an operational schedule that we release 

each year. Therefore, we expect to 

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, which 

would be about 6 weeks after the end of 

the payment year, and no earlier than 

the current January 31 deadline. 

We do not expect the date of the 

annual final risk adjustment data 

submission deadline to vary much from 

year to year but we believe that 

providing flexibility in the regulation 

text is necessary to accommodate the 

operational routines of our systems. 

In response to comments, we are 

finalizing our provision at 

§ 422.310(g)(ii) with modification, 

stating that the final risk adjustment 

data submission deadline will be 

announced by CMS each year and will 

be no earlier than January 31. 

C. Strengthening Beneficiary Protections 

1. 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 


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this coordination is ensuring that all 

needed services, including drug 

therapies, are provided in a timely 

manner. Certain drug classes, including 

certain infusion agents, oral anticancer 

therapies, oral anti-emetics, 

immunosuppressants, and injectables, 

may be covered by Part D only when 

coverage under Parts A or B is not 

available. Because coverage of these 

drugs cannot generally be determined 

based solely on the drug, plan 

formularies often apply prior 

authorization criteria before claims can 

be paid at the point-of-sale (POS). 

Additionally, when an MA–PD plan 

issues an adverse Part D coverage 

determination because they have 

determined the drug is covered under 

Parts A or B, we expect MA–PD plans 

to ensure the drug is provided under the 

Parts A and B basic benefit. 

In the January 2014 proposed rule, we 

proposed to add a new paragraph 

(b)(7)(i) to § 422.112 to require MA–PDs 

to establish and maintain a process to 

ensure that appropriate payment is 

assigned at the POS. In the preamble, 

we characterized this as a proposal to 

require MA–PDs to establish adequate 

messaging and processing standards 

with network pharmacies to achieve this 

goal. 

We also proposed to add a new 

paragraph (b)(7)(ii) to § 422.112 to 

require that MA–PD plans issue the 

determination and authorize or provide 

the benefit under the applicable part (A, 

B or D)—which would require the MA– 

PD plan to proactively coordinate their 

enrollees’ prescription drug coverage 

under Parts A, B and D—in order to 

ensure that enrollees receive Medicare 

covered prescription drugs as 

expeditiously as the enrollee’s health 

condition requires. We stated in the 

preamble that if a denial under Part D 

is based on the existence of coverage 

under Parts A or B, the MA–PD plan 

should authorize or provide the drug 

under that other benefit without 

requiring the enrollee to make a 

subsequent request for coverage under 

that other benefit. Such determinations 

about the coverage of the drug would 

have to be provided in accordance with 

part 422, subpart M and part 423, 

subpart M, when a party requests a 

coverage determination. 

We received the following comments 

on this proposal and our responses 

follow: 

Comment: Beneficiary advocacy 

groups, some health plans, and 

pharmacy groups expressed their 

support for our proposal to strengthen 

coordination of benefit requirements 

applicable to MA–PD plans. Those 

commenters believe that requiring more 

appropriate messaging at the POS would 

decrease enrollees’ confusion and serve 

to improve coordination of benefits. 

One commenter urged CMS to adopt 

a policy to treat presentation of a 

prescription at the pharmacy counter by 

an enrollee as a request for a Part D 

coverage determination and the 

response from the plan as an initial 

coverage determination, giving the 

enrollee access to the appeals process. 

The commenter stated it is especially 

important for claims rejected at the POS 

under Part D because coverage may be 

available under Part A or Part B from 

the same MA entity, to be treated as a 

request for a coverage determination to 

avoid delays in access. 

Another commenter stated that CMS’ 

longstanding policy that presentation of 

a prescription at the pharmacy counter 

is not considered a request for a 

coverage determination may seem like 

CMS is requiring the enrollee to request 

an initial coverage determination twice, 

contrary to our statement in the 

proposed rule that enrollees should not 

have to make an initial request more 

than once. Furthermore, the comment 

states that many, if not most, plans do 

not choose to treat presentation of a 

prescription as a request for a coverage 

determination because the pharmacy is 

not a representative of the plan trained 

to accept such requests on the plan’s 

behalf, including collecting all the 

necessary information from the enrollee, 

conveying it to the plan within the 

required timeframe, and documenting 

its activities in this regard. 

Response: We appreciate the 

commenters’ support for our proposal, 

but would like to clarify that we are not 

requiring MA–PDs to pay at the POS for 

all drugs that might be covered under 

Parts A, B or D in all circumstances, nor 

are we requiring plans to treat a POS 

claim transaction as a request for a 

coverage determination. As we have 

stated since the inception of the Part D 

program, neither the presentation of a 

prescription at the pharmacy, nor a POS 

claim transaction constitutes a coverage 

determination or a request for a 

coverage determination by the plan. If a 

rejected claim cannot be resolved at the 

POS, the Part D plan is required to 

transmit a code to the network 

pharmacy instructing the pharmacy to 

provide the enrollee with the 

standardized pharmacy notice that 

advises the enrollee of the right to 

request a coverage determination from 

the plan. A coverage determination 

request must be made directly to the 

Part D plan by the enrollee, the 

enrollee’s representative, or the 

prescriber. Pharmacy staff does not have 

all of the information necessary to make 

a coverage determination on behalf of 

the plan. 

Comment: A commenter requested 

that CMS clarify that it does not prevent 

pharmacies from accessing readily 

available information to assist with 

appropriate payment determinations at 

the POS. 

Response: We would like to clarify 

that we do not prohibit pharmacies from 

using or transmitting to the MA–PD 

plan readily available information for 

purposes of determining appropriate 

payment at POS. This final rule does not 

change the guidance contained at 

section 20.2.2 of Chapter 6 of the 

Medicare Prescription Drug Benefit 

Manual, (Rev 10, 2–19–10), with respect 

to readily available information 

accessed by the pharmacy. The MA–PD 

plan will have met appropriate due 

diligence standards under Part D and 

the regulations implemented via this 

final rule without further contacting a 

physician if necessary and sufficient 

information is provided on the 

prescription, and the contracted 

pharmacy is able to communicate this 

information to the sponsor to assist in 

assigning appropriate payment at the 

POS. 

Comment: A few commenters 

requested that CMS extend this proposal 

to out-of-network pharmacies. 

Response: We disagree with these 

commenters. Plans do not have an 

established relationship with out of 

network pharmacies and, therefore, 

applying this proposal to them would be 

impractical. 

Comment: Most commenters 

expressed strong support regarding 

CMS’ proposal to coordinate Parts A, B, 

and D drug coverage during the 

coverage determination process. 

Response: We thank commenters for 

their support. We will continue to work 

with stakeholders to explore program 

enhancements that may be more 

uniquely suited for plans that offer both 

Parts A, B and D benefits. We are 

exploring the possibility for future 

subregulatory guidance on this topic. 

Comment: Several commenters 

suggested that CMS work with the 

Congress to simplify Medicare drug 

coverage by establishing clearer and 

simpler rules such as covering all 

prescription drugs under Part D instead 

of having coverage also under Parts A 

and B. Furthermore, a commenter urged 

CMS to consider using its regulatory 

authority to achieve some simplification 

by, for example, covering exclusively 

under Part D all drugs that are currently 

covered under Part D in the vast 

majority of cases. 

Response: We appreciate commenters’ 

desire for simpler coverage policies for 


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Medicare-covered prescription drugs. 

However, as recognized in the 

comments, statutory changes would be 

needed to simplify coverage and 

payment rules, which is outside the 

scope of this rulemaking. We will 

evaluate what appropriate 

simplifications we may be able to make 

using current regulatory authority. 

Comment: Many commenters stated 

that although they are supportive of 

CMS’ intention to ensure that 

beneficiaries are able to obtain their 

prescriptions without the inconvenience 

and delays that are due to differences in 

the coverage rules for drugs under Parts 

A, B, and D, there are going to be 

circumstances that require the enrollee 

or someone on the enrollee’s behalf to 

request a coverage determination from 

the MA–PD. They suggested that CMS 

revise the proposed rule language to 

recognize that ‘‘timely’’ adjudication 

might not, and often cannot, occur at the 

POS because information that is 

essential to determining whether a drug 

is covered under Parts A or B often is 

not available at the POS and must be 

obtained from the prescriber and 

sometimes an organization 

determination also is required from the 

MA–PD. Pharmacy groups say they 

follow up with prescribers and MA– 

PDs, but delays are inevitable when 

those steps have to be taken. 

Response: As indicated in the 

proposed rule, our intention is to add 

proposed § 422.112(b)(7)(i) to our 

regulatory provisions in an effort to 

improve at the POS the care continuity 

and coordination between Part D drug 

benefits and Parts A and B drug benefits 

administered by the MA–PD, not to 

establish a requirement that pharmacies 

be responsible for making coverage 

determinations. Although plans have 

the discretion to treat POS transactions 

as coverage determinations, it is our 

understanding that network pharmacies 

do not receive all of the information 

needed to act on behalf of hundreds of 

Part D sponsors in making robust 

coverage determinations and generating 

the required denial notice with detailed 

formulary information and appeal 

rights. Additionally, the current HIPAA 

transaction standards do not support the 

type and volume of information that 

would be necessary to treat POS 

rejections as adverse coverage 

determinations. 

We realize that there will be 

circumstances in which the information 

necessary to determine whether a drug 

that is not covered under Part D would 

be covered under Parts A or B will not 

be available at the POS. In those cases, 

enrollees will receive the standardized 

pharmacy notice that explains the right 

to contact the plan for a coverage 

determination. However, we do believe 

that MA–PDs, by working with their 

network pharmacies and prescribers, are 

capable of a high degree of coordination 

and continuity. Through those 

collaborative efforts, the network 

pharmacy can often acquire information 

needed to obtain an edit override from 

the plan or otherwise ensure that the 

claim can be processed and paid at the 

POS. 

Comment: Some commenters 

suggested that CMS adopt use of 

specific prior authorization codes, 

increased interoperability across 

electronic systems, and changes to 

Medicare’s Common Working File 

(CWF) in order to make drug coverage 

determinations possible at the POS and 

decrease billing errors. 

Response: We appreciate those 

suggestions and expect that MA–PDs 

and their network pharmacies will 

explore enhancements to their systems 

to improve communications and 

otherwise streamline their processes in 

order to ensure timely and accurate 

processing of POS transactions. We 

welcome suggestions for appropriate 

approaches that would support such 

improvements but decline to adopt rules 

to that effect at this time. 

Comment: A few commenters stated 

that CMS’ proposal to have plans pay 

for a drug and subsequently chase the 

responsible party for reimbursement 

would be inefficient and costly. 

Response: We clarify for those 

commenters that neither our proposed 

nor this final rule include any provision 

that will require MA–PDs to pay for or 

cover a drug for an enrollee when 

another payor is responsible for that 

payment, or when a payment 

determination cannot be made at the 

POS. We agree that a ‘‘pay and chase’’ 

policy would not be efficient, and is not 

always in the best interest of the 

enrollee. As we discussed in the 

proposed rule, implementing a 

requirement to authorize all claims at 

the POS 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 Parts A, 

B, and D, retrospective TROOP 

adjustments and Part D reconciliation 

(79 FR 2009). We are finalizing the 

proposal to require MA–PDs to 

coordinate with their network 

pharmacies and prescribers to improve 

existing processes and develop new 

ones in order to ensure that enrollees 

receive their Medicare-covered 

prescribed medications, without delay, 

when they present at the network 

pharmacy. 

After considering the comments, we 

are revising § 422.112(b)(7)(i) by 

deleting the reference to ‘‘claims 

adjudication’’ so there is a clearer 

distinction between the POS 

requirements addressed in paragraph 

(b)(7)(i) from the coverage determination 

requirements referenced in paragraph 

(b)(7)(ii). We are finalizing paragraph 

(b)(7)(i) to state that MA–PD plans must 

establish and maintain a process to 

ensure timely and accurate POS 

transactions. Compliance with this 

requirement may be achieved using 

adequate messaging and other 

procedures with network pharmacies to 

ensure care continuity and coordination 

at the POS between Part D drug benefits 

and Parts A or B drug benefits 

administered by the MA–PD. 

When processing a coverage 

determination for a prescription drug 

that may be covered under Parts A, B or 

D, if the MA–PD determines, as part of 

the coverage determination process, that 

the requested drug is not covered under 

Part D, it must then evaluate whether 

the drug in question is covered under 

Parts A or B. The MA–PD is responsible 

for providing a clear explanation of its 

decision, including the decision to 

cover the requested drug under a 

different benefit and how to obtain the 

drug (for example, instructions to take 

the plan decision notice to the 

pharmacy to obtain the requested drug) 

in the Part D standardized denial notice. 

We expect to work with stakeholders to 

explore program enhancements that 

may be more uniquely suited for plans 

that offer both Parts A, B, and D 

benefits. We are finalizing, as proposed, 

§ 422.112(b)(7)(ii) and are exploring 

possibilities for future subregulatory 

guidance on this topic. 

2. 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 establish regulations 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 


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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 

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 

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 cost plan, 

specifically a health maintenance 

organization (HMO) or competitive 

medical plan may disenroll a member 

who fails to pay premiums or other 

charges imposed by the plan for 

deductible and coinsurance amounts. 

With the exception of the grace period, 

the procedural requirements for cost 

plans to disenroll a member for failure 

to pay premiums 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 sent 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 

nonpayment 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 provisions. These 

good cause provisions authorize us 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 or could not 

control, such as an unexpected 

hospitalization. Since its inception, the 

process of accepting, reviewing, and 

processing beneficiary requests for 

reinstatement for good cause has been 

carried out exclusively by CMS. 

However, we have received feedback 

from plans on ways to improve the good 

cause process and make it more efficient 

for both the plans and CMS. Based on 

this feedback, we updated Chapter 2 of 

the Medicare Managed Care Manual and 

Chapter 3 of the Medicare Prescription 

Drug Benefit Manual to clarify the 

language of the notice provided to 

beneficiaries, and the process and 

timing of receiving payments during the 

extended grace period in connection 

with § 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. 

In light of ongoing feedback, in the 

January 2014 proposed rule we 

proposed 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 

proposal would allow us to designate 

another entity, including a plan (MA 

organization, Part D sponsor, or entity 

offering a cost plan) to carry out 

portions or all of the good cause 

process. While we envisioned an 

expanded role for plans to accept 

incoming requests for reinstatement 

directly from former enrollees, which 

would allow them to be more 

responsive to their current and former 

members, we stated that ensuring 

objectivity in the review of these cases 

and equity among beneficiaries 

regarding the determination of good 

cause was critically important. 

Accordingly, we indicated that 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 us 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 assigned to a designee 

that are currently carried out by CMS. 

In addition, we proposed 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 other 

charges. 

We received the following comments 

and our responses follow: 

Comment: Commenters expressed 

both support for and opposition to our 

proposal to allow an entity acting on 

behalf of CMS to effectuate 

reinstatements when it is determined 

that good cause criteria are met. Several 

commenters agreed that plans or an 

independent contractor could perform 

this function if provided appropriate 

guidance and that this new process 

could produce efficiencies that would 

be advantageous to beneficiaries, plans 

and CMS. Other commenters believed 

that only CMS or an independent 

contractor would have the knowledge 

and impartiality to consider these cases 

appropriately. In addition, a few 

commenters expressed concerns with 

the quality of work currently performed 

by plans and CMS contractors and did 

not believe that their current 

performance warranted an increase in 

responsibility. 

Response: We thank commenters for 

their feedback in response to this 

proposal. We continue to believe that 

with proper guidelines, instructions and 

oversight, entities to which we assign 

this activity could review and process 

good cause requests in an appropriate 

manner. Given the feedback we have 

received since establishing the good 

cause review process handled 

exclusively by us, we have learned that 

some good cause reinstatement requests 

could be resolved more efficiently by 

plans since they can readily access a 

former enrollee’s premium billing and 

payment history, and as such, are well 

positioned to more easily resolve 

disenrollment disputes that are 

erroneously being treated, at least 

initially, as good cause requests. 

We fully understand that impartiality 

would be a key concern if this function 

is performed by plans. That is why we 

noted in the January 2014 proposed rule 

that if we were to exercise the authority 

we proposed to include in these 

regulations, an oversight protocol would 

be developed and CMS would retain the 

right to review cases to ensure that 

determinations made by a CMS designee 

are in line with our guidance. 

Comment: Under the assumption that 

plans would be given the responsibility 

to perform good cause reviews, a few 

commenters had questions about the 

plans’ scope of responsibility. 

Specifically, a commenter questioned 

whether plans would be permitted to 

refer a case to CMS for review and 

decision. Another commenter 

questioned whether plans would be able 

to opt out of this work if they did not 

want to take on the burden or costs 

related to this activity. Lastly, a 

commenter questioned whether or not 

beneficiaries would be able to appeal 

the plan’s decision. 

Response: In the event we assign the 

good cause process to plans, the 

expectation would be that they perform 

the work from start to finish (that is, 

intake, research, decision, notification, 


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and effectuation). We would provide 

guidance regarding these activities in 

our enrollment manuals (Chapter 2 and 

Chapter 17, Subchapter D, of the 

Medicare Managed Care Manual and 

Chapter 3 of the Medicare Prescription 

Drug Benefit Manual) and, as part of the 

designation, we would retain the 

authority to review both favorable and 

unfavorable decisions to ensure that 

results are fair and sound. In addition, 

as mentioned previously, we would 

develop an oversight protocol to ensure 

that plans are compliant with our 

guidelines. As with other MA and Part 

D policies, we realize that sometimes 

plans need feedback or guidance from 

us to address certain unique issues. That 

would continue to be the case for good 

cause reviews, but the expectation 

would be that once we assign this 

process to plans, they would develop 

their own internal processes for reviews, 

based on our guidance, and carry out 

the majority of this workload without 

involving us. 

Beneficiaries do not currently have 

the right to appeal good cause 

determinations. Ultimately our goal is to 

streamline the good cause review 

process and make it easier for all parties 

(beneficiaries, plans, and CMS) to 

navigate. As such, we believe that the 

key to any successful delegation of this 

work to the plans would be providing 

clear and complete guidance to plans, 

but not adding another layer of review 

to the process. 

Finally, should we conclude that 

plans are appropriate entities to perform 

good cause reviews, we would assign 

this function to all plans, and under the 

revisions to the regulations being 

finalized here, we would require plans 

to accept this additional responsibility. 

Specifically, we are finalizing the 

revisions to the applicable regulations to 

provide that a third party to which CMS 

has assigned this responsibility, such as 

an entity offering a cost plan, a MA 

organization, or a Part D plan sponsor, 

may reinstate an enrollee based upon 

the good cause showing. We believe it 

would be more complicated 

operationally, and confusing to 

beneficiaries, if we did not implement a 

uniform process for handling requests 

for reinstatement. 

Comment: A commenter expressed 

support for the proposed revision to 

include language regarding a cost plan 

enrollee’s ability to request 

reinstatement for good cause not only 

for failure to pay premiums, but also for 

nonpayment of ‘‘other charges’’ 

including deductibles and cost-sharing. 

Response: We thank the commenter 

for their support for this regulatory 

change and for confirmation of the need 

to expand this beneficiary protection to 

cost plan enrollees. 

After careful consideration of these 

comments, we are finalizing the 

proposed amendments to the 

regulations with modifications to clarify 

that the third party to which CMS may 

assign this responsibility may be an MA 

organization, a Part D sponsor or an 

entity offering a cost plan. 

3. MA Organizations’ Extension of 

Adjudication Timeframes for 

Organization Determinations and 

Reconsiderations (§ 422.568, § 422.572, 

§ 422.590, § 422.618, § 422.619) 

Sections 1852(g)(1)(A) and 1852(g)(2) 

of the Act respectively require MA 

organizations to make all organization 

determinations on a timely basis, and to 

provide for reconsideration, or review, 

of organization determinations within a 

timeframe specified by the Secretary, 

but 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 72 

hours from 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 existing regulations at 42 CFR 

part 422, subpart M, codify the 

procedures MA organizations must 

follow in issuing standard and 

expedited organization determinations 

and reconsiderations, including setting 

forth the required adjudication 

timeframes and the circumstances under 

which plans are permitted to extend 

those timeframes. 

As we stated in the proposed rule (79 

FR 2011), 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 we 

intended and that MA organizations are 

regularly invoking extensions of the 

adjudication timeframes for 

organization determinations and 

reconsiderations. Based on information 

ascertained during recent MA program 

audits, we have seen circumstances in 

which MA organizations are routinely 

and inappropriately invoking the 14-day 

extension in cases where the plan: (1) 

Lacks adequate internal controls to 

ensure coverage requests are reviewed 

and adjudicated within the required 

regulatory timeframe; and (2) is awaiting 

receipt of supporting clinical 

documentation from one of its contract 

providers. 

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 that 

are not affirmatively requested by the 

enrollee 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. 

In the proposed rule, we suggested 

revising these regulatory provisions to 

clarify our intended standard for when 

it is appropriate for an MA organization 

to extend an adjudication timeframe. 

Specifically, we proposed the following 

changes: 

• At § 422.568(b), § 422.572(b), and 

§ 422.590(e), to add new text and to 

restructure the regulation paragraphs for 

clarity. 

• At § 422.568(b)(1)(ii), 

§ 422.572(b)(1)(ii), and 

§ 422.590(e)(1)(ii), to clarify that an 

extension may be justified and in the 

enrollee’s interest due to the need to 

obtain additional medical information, 

which may result in changing the MA 

organization’s denial of coverage of an 

item or service only from a non-contract 

provider. 

• At new § 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. 

• To make corresponding technical 

edits to subpart M to improve clarity in 

our guidance related to extensions and 

to remove duplicative language (that is, 

to remove § 422.590(d)(2) and add a new 

§ 422.590(e), to update cross references 

in § 422.618(a)(1) and § 422.619(a), to 

make changes within § 422.568(b), 

§ 422.572(b), and § 422.590(d) to ensure 


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consistency in the structure and 

language of these provisions). 

We received the following comments 

on this proposal and our responses 

follow: 

Comment: Several commenters 

expressed general agreement that 

extensions to adjudication timeframes 

for organization determinations and 

reconsiderations should not be invoked 

routinely. Some commenters expressed 

strong support for this proposal and 

stated that it would reduce 

inappropriate delays in coverage 

decision-making and, therefore, reduce 

current delays in access to needed care 

that result from more routine use of 

extensions. 

Response: We appreciate the support 

expressed by these commenters. The 

clarifications we proposed reinforce 

longstanding statutory and regulatory 

program requirements for timely 

decision-making that emphasize the 

beneficiary’s health condition and the 

urgency of the requested item or service. 

Comment: A few commenters who 

did not support the proposal stated that 

both contract and noncontract providers 

are not always responsive to plan 

requests for clinical information. A 

commenter further stated that MA 

organizations should not be penalized 

for delays resulting from third parties’ 

failure to provide documentation 

necessary for a timely coverage 

decision. Another commenter added 

that it is not realistic to expect contract 

providers to produce complete medical 

documentation in response to every 

coverage request, and that it is not 

reasonable to expect provider 

contracting to ensure that full 

documentation is produced without the 

need for extensions. Because of those 

concerns, these commenters did not 

believe MA organizations should be 

restricted from using extensions on the 

basis of the provider’s contracting 

status. 

Response: We have considered 

contract providers as agents of the MA 

organization offering the plan, and we 

believe it is reasonable to expect MA 

organizations to use provider 

contracting to establish a wide range of 

expectations for network providers to 

ensure compliance with program rules, 

including timely receipt of relevant 

clinical documentation. MA 

organizations remain responsible for 

compliance with MA rules and 

requirements, even when using 

contractors or other entities to fulfill 

those responsibilities. (For more 

detailed information, see § 422.504(i)). 

We expect the contract terms between 

MA organizations and their contract 

providers to properly incentivize 

contract providers, as necessary, to 

produce requested clinical records in a 

timely manner. 

We appreciate that health care 

providers working with managed care 

plans must navigate a complex and 

changing health care environment and 

routinely contract with multiple plans. 

However, we do not agree that these 

challenges should prevent MA 

organizations from rendering coverage 

decisions that are completed as 

expeditiously as the enrollee’s health 

condition requires. The contractual 

arrangement with network providers is 

an important tool plans can use to 

ensure compliance with these 

beneficiary protections. 

We expect plans to promptly solicit 

and obtain contract providers’ clinical 

documentation when an enrollee 

requests coverage of an item or service. 

When the case file contains incomplete 

information, we expect plans to work 

diligently with contract providers to 

cure the defect while adhering to the 

requirement to issue all decisions as 

expeditiously as the enrollee’s health 

condition requires. As stated previously 

and described in more detail later in 

this final rule, the new regulation text 

at § 422.568(b)(1)(iii), § 422.572(b)(1)(iii) 

and § 422.590(e)(1)(iii) clarifies that 

extensions are permitted—regardless of 

provider contracting status—if 

necessary clinical documentation is not 

readily available due to extraordinary, 

exigent or other non-routine 

circumstances. 

We believe that plans can mitigate 

overuse of extensions by correcting 

other common compliance problems. 

For example, plans often receive audit 

findings for failure to conduct timely or 

sufficient outreach to providers to 

obtain necessary clinical information 

during the coverage determination 

process. Ensuring reasonable and 

diligent provider outreach will improve 

the plan’s ability to issue timely 

decisions based on consideration of 

complete clinical information. 

We expect plans to make reasonable, 

timely, and diligent efforts to obtain 

medical records from both contract and 

non-contract providers without having 

to extend the adjudication timeframe. 

However, we agree with the commenters 

that MA organizations have little control 

over a non-contract provider who does 

not respond to the plan’s requests for 

documentation. For this reason, we are 

clarifying at § 422.568(b)(1)(ii), 

§ 422.572(b)(1)(ii) and § 422.590(e)(1)(ii) 

that extensions are permitted when the 

plan is seeking clinical information 

from a noncontract provider, as long as 

the extension is in the enrollee’s best 

interest. While we acknowledge this 

limitation, we nevertheless expect plans 

to make reasonable efforts to obtain 

necessary information from noncontract 

providers in a manner which affords the 

enrollee a timely decision. 

We believe our proposed changes 

strike the appropriate balance between 

minimizing the burden on MA plans 

and providers (both contract and noncontract) and protecting enrollees’ 

statutory right to timely decisions and to 

timely access to the appeals process. 

Comment: A few commenters 

disagreed with our proposal because 

they believed that CMS was eliminating 

all extensions. 

Response: It appears that these 

commenters misunderstood our 

proposed change. This change will not 

eliminate extensions. Extensions of up 

to 14 days will continue to exist for both 

standard and expedited requests for 

organization determinations and 

reconsiderations. As we stated in the 

proposed rule, we proposed these 

changes to clarify our existing intent 

that extensions at the MA organization’s 

behest should only be taken on a limited 

basis and only when they are in the 

enrollee’s interest. 

Comment: Several commenters—both 

supportive and not supportive of CMS’ 

proposal—noted that consideration of 

complete clinical documentation during 

the coverage decision process is in the 

best interest of the enrollee. Some of 

those commenters who disagreed with 

our proposal also stated that use of 

extensions to obtain missing clinical 

information when the plan is seeking 

that information is, therefore, also in the 

best interest of the enrollee. Likewise, 

some of these commenters expressed a 

belief that not taking an extension 

would be detrimental to enrollees by 

resulting in increased denials and 

delays in access to care. 

Response: While we agree that it is in 

the best interest of an enrollee that the 

MA organization reviews complete 

clinical information when adjudicating 

a coverage request, we disagree with the 

commenters that use of extensions is in 

the best interest of the enrollee when 

such extensions are taken in the absence 

of extraordinary, exigent, or other nonroutine circumstances. Section 1852(d) 

of the Act requires reasonably prompt 

access to medically necessary services— 

including compliance with provider 

network adequacy requirements 

established at § 422.112 of the 

regulations—and section 1852(g) of the 

Act requires timely coverage decisions 

that emphasize the health needs of the 

beneficiary in determining the 

appropriate adjudication timeframe. We 

do not believe that complete 

consideration of clinical documentation 


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and adjudication within the established 

timeframes are mutually exclusive 

activities. We established MA 

adjudication timeframes with strong 

support from stakeholders, including 

the managed care industry, and 

physician groups. (For a more detailed 

discussion, see the June 29, 2000 

Federal Register (65 FR 40278)). 

Therefore, we do not believe that our 

proposed changes will cause a delay in 

access to care since MA organizations 

should be able to obtain the necessary 

information and render a decision 

within the established timeframes. 

The new regulatory provisions at 

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

and § 422.590(e)(1)(iii) permits MA 

plans to invoke an extension in limited 

circumstances where timely receipt of 

necessary clinical information is not 

possible, for example, if a provider’s 

office is flooded and additional time is 

needed to reach the provider and/or to 

obtain off-site or electronic records that 

would support a favorable coverage 

decision. We recognize that these 

extraordinary, exigent or other nonroutine circumstances may arise 

regardless of whether the provider(s) 

involved has a contract with the plan; 

therefore, these extensions are not 

restricted to noncontract providers. 

Comment: A commenter 

recommended that, instead of finalizing 

this proposal, CMS should use its 

existing oversight authority to take 

compliance or enforcement action 

against the MA organizations that over 

utilize extensions of adjudication 

timeframes. 

Response: We agree with this 

commenter that imposing corrective 

action on MA organizations that are 

routinely noncompliant with required 

decision-making timeframes is an 

appropriate use of CMS’ oversight 

authority, but we disagree that this 

should be done in lieu of our proposed 

changes. Based on recent program 

experience, we believe our intended 

restrictions from the original adoption 

of these rules on the use of extensions 

are broadly misinterpreted and that our 

proposed changes to clarify our policy 

will enhance beneficiary protections by 

reducing inappropriate delays in access 

to care and access to the appeals 

process. 

Relying on compliance and 

enforcement authority alone is not a 

sufficient response to identification of a 

broadly misinterpreted policy. By 

clarifying our intent that extensions are 

appropriate only in a limited set of 

circumstances, we aim to assist MA 

plans in their development of 

operational policies and procedures 

related to processing coverage decisions 

and, ultimately, to meet our goal of 

overall program compliance in the 

absence of corrective action and the 

beneficiary risks that may come with it. 

After consideration of the comments 

received on this proposal, and for the 

reasons noted in our January 2014 

proposed rule, we are finalizing without 

modification the proposal to clarify that 

an extension to an adjudication 

timeframe for organization 

determinations and reconsiderations 

should be permitted only in limited 

circumstances. 

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. 

We proposed to amend the text of the 

regulations implementing these 

provisions to maintain consistency in 

their application and harmony with our 

policy. Specifically, we proposed to 

amend the regulations at 

§§ 422.502(b)(3), 422.506(a)(4), and 

422.512(e)(1) to explicitly apply the 2- 

year prohibition to applications for 

service area expansions in addition to 

applications for new contracts. These 

changes to §§ 422.502(b)(3), 

422.506(a)(4), and 422.512(e)(1) 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 also proposed to amend our 

policy on the current application of 

regulations implementing the 2-year 

prohibition to avoid unnecessarily 

narrowing the scope of the 2-year 

prohibition or precluding us from 

preventing poor performing MA 

organizations from reentering the MA 

program. We proposed to interpret 

§§ 422.503(b)(6) and 422.503(b)(7) as 

authorizing denials of new contracts 

and service area expansions, consistent 

with the proposed text for §§ 422.502, 

422.506 and 422.512, regardless of the 

contract type, product type, or service 

area of the previous nonrenewal. We 

further proposed adding a 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 

on all contract types and service area 

expansions. 

We received the following comments 

on this proposal and our responses 

follow: 

Comment: A commenter supported 

the proposal, stating that it will prevent 

poor performing organizations from reentering the program through another 

product type of extension of an existing 

service area. 

Response: We thank the commenter 

for this support. 

Comment: A commenter supported 

CMS’s interpretation of the 2-year 

prohibition rule to voluntary 

nonrenewals and mutual terminations 

and CMS’s efforts to ensure poor 

performing MA organizations do not reenter the marketplace. 

Response: We thank the commenter 

for this support. 

Comment: A commenter requested 

that CMS consider only applying the 2- 

year prohibition to the legal entity level, 

rather than applying the 2-year 

prohibition to the parent organization 

level, as this would be an overly broad 

application which could affect multiple 

legal entities and numerous contracts. 

Response: We currently apply the 2- 

year prohibition at the legal entity level 

and will continue to do so. 

We are finalizing the amendments to 

§§ 422.502(b)(3), 422.506(a)(4), 

422.508(c) and 422.512(e) as proposed. 

Although we discussed the amendments 

to § 422.508(c) and § 422.508(d) in the 

preamble to the January 6, 2014 

proposed rule, we inadvertently omitted 

the proposed amendments to 

§§ 422.508(c) and 422.508(d) from the 

proposed regulation text. We are 

including the revision to § 422.508(c) in 

this final rule. We are not finalizing the 

proposed amendment to § 422.508(d) as 

upon further consideration we believe 

that this amendment is not appropriate. 

We are also amending § 422.506(a)(4) by 

removing the word ‘‘special’’ before 

‘‘circumstances warranting special 

consideration’’ in order to maintain 

consistency with the regulation text at 

§ 422.503(b)(6), § 422.508(c) and 

§ 422.512(e), as we do not differentiate 

between circumstances warranting 

special consideration and special 

circumstances warranting special 

consideration in our administration of 

these regulations. We believe the use of 

‘‘special’’ in § 422.506(a)(4) is redundant 

and its removal does not affect our 

interpretation of the provision and its 

inclusion potentially leads to ambiguity 

in § 422.506(a)(4). We are also 

finalizing, without modification, our 

proposal regarding the interpretation of 


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related regulations that implement the 

2-year prohibition. We clarify here that 

the 2-year prohibition, for purposes of 

§§ 422.502, 422.506, 422.508, and 

422.512, is applied at the legal entity 

level. We are further clarifying that the 

2-year ban is applicable for the 2 

contract years following the year in 

which the non-renewal or termination 

of an organization’s contract is effective. 

For example, if an organization does not 

renew its contract for an effective date 

of December 31, 2015 then we would 

not enter into a contract with the 

organization for contract years 2016 and 

2017 unless there are circumstances that 

warrant special consideration. The 

organization can apply to contract with 

us in contract year 2017 to operate in 

contract year 2018. Likewise, if an 

organization enters a mutual 

termination for a contract with CMS 

midyear during 2015, then we will not 

enter into a contract with the 

organization for contract years 2016 and 

2017 absent circumstances warranting 

special consideration, but the 

organization can apply to contract with 

us in 2017 to operate in contract year 

2018. We understand there are a variety 

of reasons that an organization may 

decide to terminate or to renew a 

contract, and subsequently want to reenter the program. We will consider 

these circumstances on a case-by-case 

basis. 

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 autoassignment of LIS beneficiaries. To 

address this problem, we proposed 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 made 

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 proposed 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 proposed 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 not 

renew 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 is 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. 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. 

We received the following comments 

and our response follows: 

Comment: A number of commenters 

expressed support for CMS’ proposal. 

Response: We appreciate the 

commenters’ support of our proposal. 

We received only supportive 

comments for this proposal; therefore, 

we are finalizing this provision without 

modification. 

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 proposed to create, through 

regulation, an essential operations test, 

which will be a new step in the 

application and contracting process 

with newly contracted entities operating 

as stand-alone PDP sponsors or MA 

organizations offering Part D plans 

(MA–PDs). This step will be 

administered to ‘‘newly contracted 

entities.’’ We used the term ‘‘newly 

contracted entity’’ in the proposed rule 

and in this final rule to describe an 

organization that has 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 


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would include organizations that are 

offering EGWPs for the first time. 

Existing plan sponsors or new sponsors 

that are subsidiaries of a parent 

company that currently operates a Part 

D plan through another subsidiary 

would not be subject to the proposed 

essential operations test. 

The essential operations test will 

allow us to test whether an 

organization’s arrangements appear 

likely to allow the organization to 

effectively administer its contract. We 

proposed 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) of the Act 

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 

proposed adding § 423.504(b)(10) and 

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

‘‘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 

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

revising § 423.509(b)(2)(i)(C) to subpart 

K to reflect this new cause for 

immediate termination. Additionally, 

we proposed 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 our approval of 

the application notice. 

Given that the heart of the Part D 

benefit is the sponsor’s ability to process 

claims for prescription drugs in real 

time, we proposed 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 

proposed that we may require newly 

contracted entities to pass an essential 

operations test conducted by us 

beginning in the fall of 2014. In 

response to the later anticipated date of 

the finalization of this provision, we 

expect to adjust our proposed timing 

and begin requiring newly contracted 

entities to pass an essential operations 

test with the 2016 contract year 

application cycle. 

The essential operations test for 

newly contracted entities will entail 

testing of sponsors’ command of Part D 

benefit administration rules and systems 

related to these areas. Initially, the 

testing will 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 will 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 will 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. 

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. If we find that, 

based on the results of the essential 

operations test, a sponsor does not have 

the requisite systems and processes in 

place to offer Part D benefits in real 

time, our proposal was to 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. 

In accordance with 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. 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. 


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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. 

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, we proposed that no 

termination would be necessary and 

that we would nullify our previous 

conditional approval of the 

organization’s Part D contract 

qualification application. We proposed 

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. 

We would view failure of the essential 

operations test as evidence that the 

applicant is not qualified to contract 

with us. As a result, we would nullify 

our approval based on determining the 

entity is not qualified. Successful 

applicants receive a conditional 

approval at the end of May of their Part 

D application in accordance with 

§ 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 the appeal rights described in 

part 423, subpart N to applicants that 

have their approval nullified based on 

failing the essential operations test 

because an appeals process started at 

that point could not be completed by 

the September 1 deadline imposed by 

§ 423.650(c) for contracts to be effective 

on January 1 of the following year. 

We received the following comments 

and our response follows: 

Comment: Most commenters strongly 

supported CMS’ proposals. 

Response: We appreciate the support 

for these proposals. 

Comment: Several commenters 

requested that CMS elaborate on the 

content of the essential operations test. 

Response: Our plan is to initially offer 

the essential operations test in scenario 

format rather than in real time. Scenario 

format means that we will provide the 

applicant or newly contracted sponsor 

with written scenarios or stories about 

fictional beneficiaries. The scenarios 

will describe the characteristics of the 

beneficiary such as plan enrollment, LIS 

level, prior drug claims data, prior 

authorization criteria information, 

application date, and any other details 

necessary for answering our questions. 

The questions would pertain to topics 

such as determining the correct effective 

date of coverage; the appropriate 

timeframes for specific notifications; 

drug dispensing formats and 

requirements; drug coverage and costs; 

coverage determination process; 

coordination of benefits; and 

demonstrating knowledge of new 

requirements for the upcoming year. 

The real time test, which may also be 

combined with scenario tests, would 

involve electronic data exchanges 

between CMS and the new organization 

and/or its PBM, claims processor, 

enrollment processor, and any other 

entity contracted with the new 

organization to carry out key Part D 

functions. 

Comment: Several commenters 

expressed concern that CMS would 

expect the new organization to 

demonstrate full system readiness in 

September. Other commenters provided 

information about the development 

schedule that their organizations follow 

for the upcoming benefit year. 

Response: It is not our expectation 

that a new organization would have all 

systems ready to implement the Part D 

benefit in September. We appreciated 

the information regarding the 

development schedule, and we will use 

the information to inform, in part, our 

expectations of system readiness when 

we administer a real time test. 

Comment: Several commenters 

requested that CMS provide new 

organizations with information about 

the system requirements of the essential 

operations test no later than May of each 

year. 

Response: We are aware that new 

organizations would need time to 

ensure that the proper infrastructure is 

in place for real time communication 

and electronic data exchange with CMS 

(and our contractors). Therefore, within 

sufficient time to allow it to make 

necessary arrangements prior to the test, 

we will inform the new organization of 

the types of data files that we will send 

or exchange. We are unlikely to provide 

this information before the end of May 

because, at that time, new organizations 

will have not yet submitted bids. The 

essential operations test criteria may be 

developed based upon areas of concern 

we identify during the application, bid, 

and formulary review processes; 

therefore, in May we may not be certain 

of the test contents and parameters. 

Comment: Several commenters 

suggested that CMS complete the 

essential operations test before 

November 1 due to the heavy workload 

in the last quarter of the year. 

Response: We are aware of the heavy 

workload at the end of the year created 

by the annual election period and 

preparations for the start of the new 

benefit year. We will try to complete 

essential operations tests prior to 

November 1. 

Comment: A commenter, a current 

Part D sponsor, was concerned that this 

provision would apply to existing or 

experienced sponsors. 

Response: We clarify that this 

provision would not apply to existing 

sponsors. Rather, as stated at 

§ 423.503(c)(4)(ii), the essential 

operations test will only be required of 

new organizations that do not have any 

Part D experience or a subsidiary/parent 

relationship with an experienced 

organization. If the new organization’s 

parent company currently has other 

subsidiary organizations that are already 

offering Part D plans, then the new 

organization would not be subject to the 

essential operations test. 

We note that the proposed provisions 

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

each began with the phrase, ‘‘Effective 

contract year 2015,’’. This language, 

originally published in January 2014 as 

part of a proposal that at the time was 

expected to be made final in the middle 

of 2014, has since become outdated and 

therefore has been deleted from the final 

version of the rule. The proposed 

language was intended to make clear 

that even though the rule was expected 

to be finalized during the CY 2015 

application review cycle we would 

apply the essential operations test to 

eligible applicants during that cycle. 

These provisions are now being made 

final after the period during which CY 

2015 essential operations tests would 

have been conducted (that is, the fall of 

2014). They will also be finalized well 

in advance of the start of the CY 2016 

application cycle in late February 2015, 

so there is no need to provide a special 

signal to CY 2016 applicants that they 

may be subject to the essential 

operations test other than through the 

publication of this final rule. 

We also note that we are finalizing 

with modification the proposed 

provision of § 423.505(b)(28). We are 

finalizing this provision as 


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§ 423.505(b)(27), instead of 

§ 423.505(b)(28). 

In summary, given the support for this 

proposal, we are finalizing these 

provisions with only the technical 

modifications described previously. 

E. Implementing Other Technical 

Changes 

1. Requirements for Urgently Needed 

Services (§ 422.113) 

Many MA plans have responded to 

the need to provide urgently needed 

services outside of the network’s 

business hours, for example, during the 

weekend or at night, 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 

proposed to revise the regulation by 

removing the phrase ‘‘under 

extraordinary and unusual 

circumstances’’ from the definition of 

‘‘urgently needed services’’ at 

§ 422.113(b)(1)(iii). The revised 

regulatory language would ensure that 

enrollees have access to out-of-network 

facilities in non-extraordinary 

circumstances. 

We received the following comments 

on this proposal and our response 

follows: 

Comment: Several commenters 

supported the policy because it provides 

improved access to enrollees. 

Response: We thank these 

commenters for their support. 

Comment: A commenter stated that 

CMS’ proposed revision would be 

burdensome on plans and would not 

improve health care to enrollees. 

Response: In the January 10, 2014 

proposed rule, we noted that many 

plans already contract with clinics that 

operate 24 hours/day, 7 days/week (24/ 

7) to address the needs of enrollees who 

need care on weekends or after normal 

business hours (79 FR 2018). We also 

noted that there are a small number of 

appeals each year from enrollees who 

sought care out-of-network on weekends 

or after normal business hours and were 

denied coverage. 

We do not believe our proposal adds 

any burden to health plans. Our 

proposed revision to the regulation 

aligns it with current practices for 

provision of urgently needed services 

and our intent that enrollees have access 

to needed care. In fact, we believe that 

plans could realize savings by making 

urgently needed services available in 

settings that are more appropriate to the 

enrollees’ needs than more costly 

hospital emergency departments. 

Comment: A commenter expressed 

concern that the proposed regulatory 

language does not specify the 

circumstances under which the 

organization’s provider network is 

temporarily unavailable or inaccessible 

and that, as a result, enrollees might 

frequently leave the network to obtain 

care. 

Response: Circumstances under 

which the organization’s provider 

network is temporarily unavailable or 

inaccessible would largely include 

weekends or after normal business 

hours, which we believe is clearly 

understood from the discussion in the 

notice of proposed rulemaking. If more 

extreme situations, such as a natural 

disaster, result in the network being 

temporarily unavailable, this rule would 

apply in those situations as well. 

Comment: A commenter requested 

greater clarification of the definition of 

urgently needed services. 

Response: The definition of urgently 

needed services, provided at 

§ 422.113(b)(1)(iii), presents several 

specific requirements for a service to be 

classified as urgently needed. 

Additional clarification of the definition 

of urgently needed services may be 

found in the preamble to the June 29, 

2000 final rule establishing the 

Medicare+Choice program (65 FR 40198 

and 40199). We believe this definition, 

as modified by the removal of the 

phrase ‘‘extraordinary and unusual 

circumstances,’’ is sufficient. 

After review of the public comments 

received, we are finalizing the proposed 

revision to § 422.113 without 

modification. 

2. Agent and Broker Training and 

Testing Requirements (§§ 422.2274 and 

423.2274) 

We proposed to revise §§ 422.2274(b) 

and (c) and 423.2274 (b) and (c) to 

accomplish the following: (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 

annual training to ensure appropriate 

knowledge and understanding of 

Medicare rules and specific plan 

products. 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. 

As we noted in the preamble to the 

proposed rule, since the training and 

testing requirements were implemented, 

we have embarked on various activities 

to improve and ensure the efficacy of 

training and testing. We also noted that, 

through our monitoring efforts, plans 

are complying with the annual guidance 

and providing an adequate level of 

detailed information. Furthermore, our 

ability to nationally accommodate 

agents and brokers through various 

training and testing modules creates a 

significant burden. We also noted in the 

preamble to the proposed rule that our 

ability to maintain consistency with 

endorsing other entities that would 

facilitate the training and testing and 

oversee these entities is limited. 

We also proposed that 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)) require a 

standardized compliance training 

program and that, under those 

provisions, MA organizations and Part D 

sponsors would not be permitted to 

develop and implement plan specific 

training materials or supplemental 

materials. The requirement in this 

section is exclusive for agent and broker 

marketing activities under the MA and 

Part D program. 

We received the following comments 

and our response follows: 

Comment: A commenter supported 

the provision. However, the commenter 

requested clarification as to whether 

CMS will continue to provide annual 

guidance on training and testing 

requirements for agents and brokers. 

Response: We appreciate the 

commenter’s support and will continue 

to provide annual guidance on the 

training and testing requirements. 

Comment: A commenter stated that 

the provision assigns responsibility for 

the annual agent/broker training to the 

MA organization, which is an 

operational burden and additional cost. 

Response: We disagree. Since MA 

organizations and Part D sponsors 

currently facilitate the agent broker 

training and testing or contract with a 

third party, our proposal would not 

create an operational burden or cost. 

Comment: A few commenters stated 

that this provision potentially conflicts 

with the proposed requirement under 

§ 422.503 that MA organizations and 

Part D sponsors use only CMS training 

for general compliance. A commenter 

requested clarification on how the first 


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tier, downstream, and related entities’ 

standardized training applies to agents 

and brokers. 

Response: We believe that this 

provision does not conflict with the 

proposed provision in § 422.503. The 

provision in this section is specific to 

marketing activities for MA 

organizations and Part D sponsors. 

After review of the public comment 

received on this proposed provision, we 

are finalizing this provision without 

modification. 

3. Deemed Approval of Marketing 

Materials (§§ 422.2262, 422.2266, 

423.2262, and 423.2266) 

In the January 10, 2014 proposed rule, 

we proposed to move the substance of 

the current requirements in §§ 422.2266 

and 423.2266 to 422.2262(a)(2) and 

423.2262(a)(2), respectively. As 

previously noted, §§ 422.2266 and 

423.2266 provide the regulatory 

requirements for materials that are 

deemed approved. These requirements 

are part of the review and distribution 

process of marketing materials. 

Therefore, the provisions were moved to 

align with the requirements in 

§§ 422.2262 and 423.2262. Additionally, 

we proposed reserving §§ 422.2266 and 

423.2266 to further clarify the 

requirements for deemed materials by 

revising them to state that, 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 that 

this change clarifies the present 

regulatory requirement for deemed 

marketing materials. 

We received several comments 

regarding this provision, and our 

responses follow. 

Comment: Several commenters 

supported this provision. However, a 

few commenters did request 

clarification, while others emphasized 

the importance of streamlining the 

review and approval process for FIDE 

SNPs. A commenter also stated that 

CMS, Medicaid, and the plans should 

work closer to benefit enrollees. 

Response: We thank the commenters 

for supporting our proposal to revise 

this provision. In response to the 

request for further clarification, we will 

consider including additional guidance 

in the Medicare Marketing Guidelines as 

that is the appropriate vehicle for 

providing detail on the requirements. 

We also appreciate the concerns with 

streamlining the review and approval 

process for FIDE SNPs; however, the 

comment is outside the scope of this 

rule. 

Comment: A commenter opposed this 

provision on the grounds that MA 

organizations are expanding and 

offering more plan offerings with higher 

penetration rates in certain counties and 

regions. The commenter also stated that 

CMS is responsible for ensuring that 

marketing practices and materials are 

carefully monitored. 

Response: While we appreciate the 

commenter’s concern, we do not believe 

that the expansion of plan offerings will 

have an impact on this provision. Since 

this provision has been in existence, our 

analysis of deemed materials has shown 

that very few marketing materials have 

been approved through this process. 

Furthermore, we have protocols in place 

to monitor marketing materials, 

including materials that are deemed 

approved. We note in the Medicare 

Marketing Guidelines that we may 

require an MA organization or Part D 

sponsor to change any previously 

approved marketing materials if found 

to be inaccurate, altered or otherwise 

noncompliant. 

After review of the public comments 

received on this proposal, we are 

finalizing this proposed provision 

without modification. 

4. Cross-Reference Change in the Part C 

Disclosure Requirements (§ 422.111) 

In the January 10, 2014 proposed rule, 

we proposed a technical correction to 

§ 422.111(d)(1) to reflect the correct 

cross reference for procedures that MA 

organizations must follow when 

submitting changes to their rules for 

review. Section 422.111(d)(1) currently 

references § 422.80, which was removed 

when the marketing requirements were 

moved to subpart V, Medicare 

Marketing Requirements. We noted 

previously that subpart V, Medicare 

Marketing Requirements, was published 

in the September 18, 2008, final rule (73 

FR 54208). 

We received no comments on our 

proposal and therefore are finalizing 

this provision without modification. 

5. 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, 

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, we 

proposed to revise 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. 

We also solicited comment on the 

pros and cons of defining PBMs as 

entities that could benefit from 

formulary decisions from which one 

practicing physician and one practicing 

pharmacist on the P&T committee must 

be free of conflict of interest. 


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We received the following comments 

and our response follows: 

Comment: A commenter noted that 

the current CMS formulary review 

process provides the necessary 

protections to beneficiaries and ensures 

that formularies are developed and 

managed in accordance with best 

practices. This commenter also pointed 

out that since the P&T committee 

members do not generally provide their 

services for free, it is standard practice 

that the PBM compensates the 

committee members for their 

committee-related activities; thereby, 

providing a financial conflict of interest. 

The commenter believes that without 

this financial compensation it would be 

difficult to engage qualified clinicians 

for the committee. 

Response: While the compensation 

that P & T committee members receive 

from PBMs for performing committeerelated activities could be seen as a 

potential conflict of interest, this 

practice is widely known and generally 

accepted as necessary to engage the 

most qualified clinicians. Moreover, we 

agree with the commenter that the 

current CMS formulary review process 

provides the necessary protections to 

beneficiaries and ensures that 

formularies are developed and managed 

in accordance with best practices. We 

have devoted extensive resources to the 

oversight of plan formularies and the 

audit of P&T committee proceedings to 

ensure that they comply with industry 

best practices and ensure beneficiaries’ 

access to clinically appropriate 

therapies. As discussed more fully in 

the January 10, 2014 proposed rule (79 

FR 2019), we believe that our current 

formulary review process confers 

appropriate protections to beneficiaries 

from any potential adverse effects of 

conflicts of interest. 

The OIG report recommended that the 

P & T committee should have clearly 

articulated and objective processes to 

determine if disclosed financial 

interests are conflicts, and to manage 

any recusals if conflicts are found. We 

concur with this recommendation and 

proposed to revise our formulary 

requirements pertaining to the 

development and revision by a P & T 

committee at § 423.120(b)(1) to make it 

clear that the Part D sponsor must 

establish these processes. 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’s responsibility to meet the 

formulary requirements; which include 

the development of these processes. 

Comment: Several commenters 

supported CMS’ proposal that P&T 

committee processes must be clearly 

articulated, documented, and enforced 

by an objective party. However, a 

commenter requested that CMS better 

define the term ‘‘objective party’’ to 

include a knowledgeable and 

accountable person at the PBM. 

Response: We agree with the 

commenter and clarify that the objective 

party may be a representative of the 

PBM, as long as that representative is 

not also a member of the sponsor’s P&T 

committee. The objective party should 

be someone not on the P & T committee, 

and may include a representative from 

the PBM that is not on the P & T 

committee. 

Comment: A commenter pointed out 

that while the proposed recusal process 

is logical, it is duplicative and the 

current P&T policy is sufficient for 

dealing with conflicts of interest. 

Response: We disagree with the 

commenter and concurred with the OIG 

report’s recommendation (as discussed 

in the January 2014 proposed rule) that 

P&T committees should have clearly 

articulated and objective processes to 

determine conflicts of interest and 

manage any recusals. We are 

implementing these requirements on the 

recommendation of OIG. These 

requirements are supplemental to the 

beneficiary protections outlined in 

existing P&T policy, which does not 

address recusal and only provides that 

committee members should sign a 

conflict of interest statement revealing 

economic or other relationships with 

entities affected by drug coverage 

decisions that could influence 

committee decisions. 

After review of the comments 

received, we are finalizing this 

provision without modification. 

6. 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 Part D 

sponsors and other payers including 

State Pharmaceutical Assistance 

Programs (SPAPs), other providers of 

prescription drug coverage, or other 

payers. In the April 15, 2010 final rule, 

we explained our approach to 

determining the 3-year timeframe, 

including the benefits derived from its 

establishment. 

We stated in our regulation at 

§ 423.466(b) that, Part D sponsors must 

coordinate benefits with SPAPs, other 

entities providing prescription drug 

coverage, beneficiaries, and others 

paying on the beneficiaries’ behalf for a 

period not to exceed 3 years from the 

date on which the prescription for a 

covered Part D drug was filled. 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 proposed to 

remove from the regulation the phrase 

‘‘not to exceed,’’ and add 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 proposed to revise the 

heading of § 423.466 to reference claims 

adjustments, which are addressed in 

§ 423.466(a). 

Comment: A commenter indicated the 

proposed change was an appropriate 

modification. 

Response: We appreciate the support 

for this provision. 

Comment: A few commenters 

suggested we define the date on which 

the 3-year COB limit begins as the date 

the drug is dispensed or the first date of 

service. 

Response: The regulation already 

specifies the 36-month period begins on 

the date the prescription for a covered 

Part D drug was filled. However, we 

note the date of fill as referenced in the 

regulation is synonymous with the 

NCPDP date of service (Field # 401–D1) 

included in HIPAA standard 

transactions, such as the billing 

transaction, and required on the Part D 

prescription drug event record. 

After review of the public comments 

received in response to this proposal, 

we are finalizing the provision as 

proposed. 

7. Application and Calculation of Daily 

Cost-Sharing Rates (§ 423.153) 

We proposed technical changes to the 

daily cost-sharing rate regulation to 

clarify the application and calculation 

of daily cost-sharing rates and cost 

sharing under the regulations. Section 

423.153(b)(4)(i) requires sponsors to 

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. 

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, 


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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. We 

proposed to replace the 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 cost-sharing rates. 

Also, under our existing definition of 

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

noted previously, 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. 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. Therefore, we proposed 

to replace the language ‘‘lower dollar 

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

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

language better conveys the concept of 

rounding, while realizing this language 

allows Part D sponsors to round daily 

cost-sharing rates up or down to the 

nearest 2 decimal places. 

We also proposed other technical 

changes to the daily cost-sharing rate 

regulation at § 423.153(b)(4)(i) to 

improve the regulation’s clarity. First, 

we proposed 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 proposed 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 

states 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 cost sharing rate by the days’ 

supply actually dispensed when the 

beneficiary receives less than a 30-days’ 

supply. Third, we proposed that 

§ 423.153(b)(4)(iii)(B) states that, 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. We note that 

this means, with respect to dispensing 

fees, that the enrollee’s portion of 

additional dispensing fees for the 

incremental supply is calculated by 

application of this percentage. These 

technical clarifications should assist 

sponsors in correctly setting, 

calculating, and applying daily costsharing rates in the retail and LTC 

settings whenever a prescription is 

dispensed by a network pharmacy for 

less than a 30-days’ supply, unless the 

drug is excepted in the regulation. The 

proposal solicited comments on 

whether sponsors needed additional 

guidance surrounding the rounding 

methodology. 

We received the following comments 

and our responses follow: 

Comment: We received several 

comments in support of our proposal to 

clarify the daily cost sharing rule. 

Response: We thank the commenters 

for their supportive comments on our 

proposal. 

Comment: A commenter requesting 

that the application of the daily costsharing rule should be consistent with 

the changes CMS proposed to the 

definition of the ‘‘daily cost-sharing 

rate.’’ In other words, the commenter 

recommended that the daily costsharing rule apply whenever less than 

the approved month’s supply is 

dispensed; rather than, whenever less 

than a 30-day supply is dispensed. The 

commenter highlighted that this change 

would ensure beneficiaries are not 

required to pay more than they 

otherwise would have. This is 

consistent with CMS’ intent that even 

when the member does receive the 

remainder of a month’s supply, the total 

payment not exceed the 1-month’s cost 

sharing, except by a nominal rounding 

amount. This commenter provided the 

following example: A plan’s approved 

month’s supply is 34 days, and the 

applicable copayment is $30. If a 

member first obtains a 30-day supply 

and then a 4-day supply, under the 

current regulatory language, which 

provides that the daily cost-sharing rule 

applies when a covered Part D drug is 

dispensed for a supply less than 30 

days, the member would pay $30 for the 

first supply since it is not for ‘‘less than 

30 days’’ and then $3.52 (4 x $0.88) for 

the second supply, for a total of $33.52. 

However, if the daily cost-sharing rule 

applied whenever less than the 

approved month’s supply is dispensed, 

the member would pay $26.40 (30 x 

$0.88) for the first supply and $3.52 (4 

x $0.88) for the second, for a total of 

$29.92. 

Response: We were persuaded by the 

comments that this suggested change is 

necessary to avoid confusion with the 

technical change that we proposed, by 

making the terminology consistent with 

the regulatory text. Therefore, we are 

making the following change to the final 

regulatory text: Replace ‘‘30 days’’ with 

‘‘approved month’s supply’’ in 

§ 423.153(b)(4)(i) and (iii). 

Comment: Several commenters 

indicated that CMS guidance is needed 

regarding the rounding methodology. 

Response: We will provide additional 

rounding guidance, if needed, after 

publication of this final rule. 

Based on comments received, we are 

finalizing this proposal as proposed and 

with the following modification: 

replacing ‘‘30 days’’ with ‘‘approved 

month’s supply’’ where applicable in 

§ 423.153(b)(4)(i) and (iii). 

8. 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 

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 


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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 coverage for 

the 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 proposed 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. 

We received no comments on this 

proposal and therefore are finalizing the 

proposed revision to this provision 

without modification. 

9. MA Organization Responsibilities in 

Disasters and Emergencies (§ 422.100) 

We proposed 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 in order to ensure that 

beneficiaries continue to have access to 

care in situations in which normal 

business operations are disrupted due to 

public health emergencies or disasters 

and enable out-of-network providers to 

be informed of the terms of payment for 

furnishing services to affected enrollees 

during public health emergencies or 

disasters. 

The proposed new paragraph would 

require MA organizations to ensure 

access, at in-network cost sharing, to 

covered services even when furnished 

by noncontracted providers when 

disruption in the service area impedes 

enrollees’ ability to access contracted 

providers and/or contracted providers’ 

ability to provide needed services. The 

new paragraph also provides the basis 

for determining the beginning and end 

of a disaster or emergency, and requires 

that the organization annually post on 

its Web site and notify enrollees and 

contracted providers of its disaster and 

emergency policies. 

We received the following comments 

on this proposal and our response 

follows: 

Comment: A commenter requested 

clarification of whether this proposed 

requirement applies if plan service 

delivery is not affected even though in 

a declared disaster area. 

Response: Generally, a disaster creates 

multiple disruptions. For example, 

although provider offices may be 

operating as usual, transportation, 

electricity and phone service may be 

disrupted. Consequently, the proposed 

requirements would apply to all MA 

plans from the time the disaster is 

declared and continue to apply until the 

end of the disaster, as described in the 

proposed paragraph (m)(3). 

Comment: Several commenters stated 

that the proposed revision should only 

apply to emergency and urgently 

needed services that are sought during 

a public health emergency or disaster. 

Response: To the extent possible, we 

expect MA plans to provide continued 

and uninterrupted access to all health 

care services covered by the plan, 

whether routine or unforeseen. 

Disruption to a plan’s network does not 

relieve an MA plan from fulfilling its 

contractual obligation to furnish all 

covered services to enrollees, even if it 

must do so by covering services 

furnished to its enrollees by 

noncontracted providers. 

Comment: A commenter suggested 

that reduced out-of-network cost sharing 

be required only if contracted providers 

are unavailable or not accessible. 

Response: Availability of networks 

depends on several factors—the status 

of provider offices, transportation, 

phone service, electric service, etc.— 

which may be impacted to varying 

degrees during a disaster. The primary 

goal during a disaster is the provision of 

continued and uninterrupted access of 

health care to all enrollees. To achieve 

this goal, enrollees must be allowed to 

obtain medically necessary plancovered services without prior approval, 

at in-network cost sharing, from 

qualified providers, even if those 

providers are out-of-network. 

Comment: A commenter stated that 

CMS should reconsider how this 

proposed regulation may manipulate 

enrollee incentives, reduce access for 

enrollees that need services more 

urgently and increase costs to MA 

organizations and the MA program. 

Response: We recognize that disasters 

can create unavoidable disruptions and 

increased costs for MA organizations. 

Our primary goal during a disaster is the 

provision of continued and 

uninterrupted access to medically 

necessary plan-covered services for all 

enrollees. Our intention is to facilitate 

achievement of this goal by ensuring 

that plans facilitate increased access to 

providers from whom enrollees in the 

disaster area may seek high quality 

services at in-network cost sharing. We 

do not believe that these temporary and 

unusual episodes of increased access 

will incentivize enrollees in a negative 

way or result in significant cost 

increases for affected MA organizations. 

After review of the public comments 

received on this proposal, we are 

finalizing the proposed provisions with 

modification. To provide for greater 

readability, we are finalizing paragraph 

(m)(1)(iii) with slight revisions to the 

text from the proposed version. 

10. 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 MA 

organizations and Part D Plan sponsors, 

respectively. These statutory provisions 

provide a contracting 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 paragraph (c) and contract 

non-renewal is discussed in (b). 

Therefore, we proposed to align 

§ 423.641 with the current list order for 

(b) and (c) in the contract 

determinations section at § 422.641. 


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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 contract terminations for 

both MA organizations and Part D 

sponsors, respectively. In § 423.642(a) 

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 corresponding Part C § 422.644(a). 

To remedy this, we proposed to insert 

‘‘under § 422.641’’ into § 422.644(a) for 

Part C contract determinations. 

In addition, the Part D plan sponsor 

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

notice specifies the—(1) Reasons for the 

determination; and’’. The corresponding 

Part C language in § 422.644(b) states 

that ‘‘(b) The notice specifies—(1) The 

reasons for the determination; and’’. We 

proposed to change § 422.644(b) by 

moving the word ‘‘the’’ and revising it 

to read ‘‘(b) The notice specifies the— 

(1) Reasons for the determination; and’’. 

We received no comments on this 

proposal and therefore are finalizing 

these changes without modification. 

11. 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 provide 

organizations with an opportunity for a 

hearing before its contract is terminated 

in the Part C and Part D programs, 

respectively. Appeal procedures were 

established under section 1856(b)(2) of 

the Act for both MA organizations and 

Part D plan sponsors. 

We proposed 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). We proposed to 

replace the word ‘‘and’’ with ‘‘through’’ 

in § 423.560(a)(4) to ensure consistency 

between § 422.660(a)(4) and 

§ 423.650(a)(4). In addition, we 

proposed 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. 

We received no comments on this 

proposal and therefore are finalizing 

this provision without modification. 

12. Technical Change to the Restrictions 

on Use of Information Under Part D 

(§ 423.322) 

We proposed 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, 

and as originally enacted, both 

subsections (d) and (f) authorized the 

Secretary to collect any information 

needed to carry out this section but also 

stated that information disclosed or 

obtained pursuant to section 1860D–15 

of the Act may be used by officers, 

employees, and contractors of HHS only 

for the purposes of, and to the extent 

necessary in, carrying out section 

1860D–15 of the Act. 

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) of the Affordable Care Act 

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 such 

information. 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 proposed to make 

conforming changes to § 423.322. 

We received no comments regarding 

this proposal and are finalizing the 

proposed amendments to this provision 

without modification. 

13. Technical Changes to Requirements 

Related to Qualified Prescription Drug 

Coverage (§ 423.104) 

In the April 15, 2010 Federal Register 

(75 FR 19711), we finalized new 

requirements at § 423.104 related to 

qualified prescription drug coverage. At 

that time, we codified a new paragraph, 

§ 423.104(d)(2)(iii) stating that tiered 

cost sharing under (d)(2)(ii) of the same 

paragraph may not exceed levels 

annually determined by CMS to be 

discriminatory. In the April 15, 2011 

Federal Register (76 FR 21432), the 

language at (d)(2)(iii) was inadvertently 

removed when making other revisions 

to § 423.104. 

To reinstate the language that was 

removed, we are including a technical 

change to add this language back to 

§ 423.104. This technical correction 

does not represent a change in policy. 

14. Technical Changes to the Definition 

of Supplemental Benefits (§ 423.100) 

In the April 12, 2012 Federal Register 

(77 FR 22169), we revised the definition 

of supplemental benefits at § 423.100 by 

defining supplemental benefits as 

benefits offered by Part D plans, other 

than employer group health or waiver 

plans, that meet the requirements of 

§ 423.104(f)(1)(ii). We subsequently 

issued a correction notice in the June 1 

2012 Federal Register (77 FR 32407) 

with unrelated changes that 

inadvertently resulted in the revised 

definition not being included in the 

CFR. 

To address this omission, we are 

issuing a technical change at this time 

to include the definition of 

supplemental benefits finalized in the 

April 12, 2012 Federal Register (77 FR 

22169). This technical correction does 

not represent a change in policy. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (hereafter, ‘‘PRA’’), we are 

required to provide 30-day notice in the 

Federal Register and solicit public 

comment before a collection of 

information requirement is submitted to 

the Office of Management and Budget 

(OMB) for review and approval. To 

fairly evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the PRA 

requires that we solicit comment on the 

following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

In the January 10, 2014, proposed rule 

(79 FR 1917) we solicited public 

comment on each of the following 

provisions that contained information 

collection requirements (ICRs). 


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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) 

As amended here sections 417.2, 

417.420, 417.422, 417.460, 422.1, 

422.50, 422.74, 423.1, 423.30, and 

423.44 set out the eligibility 

requirement of citizenship or lawful 

presence to enroll in MA, Part D, and 

cost plans. To implement these 

provisions, we will: (1) 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 (2) notify 

plans of loss of eligibility for current 

members based on unlawful presence 

status. In this final rule, we explicitly 

direct MA organizations, Part D 

sponsors, and entities offering cost 

plans not to request or solicit 

information about lawful presence from 

Medicare beneficiaries in connection 

with this rule as CMS will provide the 

necessary information. This data is 

already available to us; thus no new 

data will be collected. 

We received no comments on the 

proposed ICR assessment. 

Consequently, we are finalizing that 

assessment without modification. 

B. ICRs Related to Good Cause Processes 

(§ § 417.460, 422.74, and 423.44) 

Sections 417.460, 422.74, and 423.44 

establish the ability for us to designate 

an entity other than CMS to implement 

the good cause process. If we assign the 

good cause process to entities operating 

a cost plan, MA organization, or a Part 

D sponsor, the plan would already have 

the enrollment data necessary to make 

the determinations required by the 

process. In addition, the former enrollee 

is already required by the applicable 

regulations to provide a credible 

statement to establish good cause for the 

failure to make timely payments. Thus 

no additional data will be collected by 

the plan. However, if we designate plans 

to implement good cause processes, 

there would be additional burden to 

each plan. The burden would consist of 

completing the operational process, 

such as—(1) responding to requests for 

reinstatement from former members; (2) 

gathering the attestation from the 

individual regarding his or her reason 

for not paying the plan premiums 

within the grace period; (3) making the 

determination as to whether the 

individual meets the good cause criteria; 

and (4) 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 30 minutes 

for each reinstatement request. 

According to the most recent wage data 

provided by the Bureau of Labor 

Statistics (BLS) for May 2013, the mean 

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 $16.04/hr. With fringe 

benefits and overhead, the rate is 

$23.74/hr. It is calculated that the cost 

for 30 minutes would be $11.87. Not all 

plans disenroll for nonpayment 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 $11.87 for each 

case is multiplied by 698 cases. 

Therefore, under the revised 

regulations, handling of these requests 

would result in a total monthly cost of 

$8,285 (or $99,423 and 4,188 hours, 

annually) for all plans in the MA, Part 

D, and cost plan programs. The 

requirements and burden will be 

submitted to OMB under control 

number 0938—New (CMS–10544). 

We received no comments on the 

proposed ICR assessment. 

Consequently, we are finalizing this 

assessment with only a minor 

modification in order to reflect the 

updated 2013 wage data. 

C. ICRs Related To Expanding Quality 

Improvement Program Regulations 

(§ 422.152) 

We explained in the proposed rule 

that we do not believe this provision 

would impose any new or revised 

collection requirements or burden 

because it codifies a submission process 

that currently applies for quality 

improvement program information. PRA 

approval is current under OMB control 

number 0938–1023 (CMS–10209). 

We received no comments on the ICRs 

for this proposal and are finalizing these 

provisions without modification. 

D. ICRs Related To Changes to Audit 

and Inspection Authority 

(§§ 422.503(d)(2) and 423.504(d)(2)) 

In §§ 422.503(d)(2) and 423.504(d)(2), 

MA organizations and Part D sponsors 

are required to hire an independent 

auditor to perform validation exercises 

to confirm correction of deficiencies 

found during an audit. We currently 

conduct these validation exercises and 

collect data associated with these 

activities under OMB control number 

0938–1000 (CMS–10191). We believe 

the provision will not impose any 

additional burden on MA organizations 

or Part D sponsors. 

E. ICRs Related to Business Continuity 

for MA Organizations and PDP 

Sponsors (§§ 422.504(o) and 423.505(p)) 

This provision requires MA 

organizations and Part D sponsors to 

develop, maintain, and implement 

business continuity plans that meet 

certain minimum standards. The 

proposed provision was modified due to 

public comment. Specifically, in this 

final rule MA organizations and Part D 

sponsors plan to restore essential 

operations within 72, rather than 24, 

hours of a failure. While the cost 

estimates are set out under this rule’s 

Regulatory Impact Analysis, the PRArelated burden will be made available 

for public comment through a separate 

Federal Register notice under OMB 

control number 0938–0964 (CMS– 

10141). 

F. Submission of PRA-Related 

Comments 

We have submitted a copy of this rule 

to OMB for its review of the rule’s 

information collection and 

recordkeeping requirements. These 

requirements are not effective until they 

have been approved by OMB. 

To obtain copies of the supporting 

statement and any related forms for the 

paperwork collections referenced above, 

access CMS’ Web site at http://

www.cms.hhs.gov/

PaperworkReductionActof1995; email 

your request, including your address, 

phone number, OMB number, and CMS 

document identifier, to Paperwork@

cms.hhs.gov; or call the Reports 

Clearance Office at 410–786–1326. 

When commenting on the stated 

information collections, please reference 

the document identifier or OMB control 

number. To be assured consideration, 

comments and recommendations must 

be received by the OMB desk officer via 

one of the following transmissions: 

Mail: OMB, Office of Information and 

Regulatory Affairs, Attention: CMS Desk 

Officer, Fax: (202) 395–5806, OR Email: 

OIRA_submission@omb.eop.gov. 

PRA-related comments must be 

received on/by March 16, 2015. 

IV. Regulatory Impact Statement 

We examined the impact of this final 

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 


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(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). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

We determined that this final rule 

does not reach the threshold for being 

considered economically significant, 

and thus, is not considered a major rule. 

There are five provisions with nonmeasurable impact: Efficient dispensing, 

requirements for drugs covered under 

Part D, two-year prohibition when 

organizations terminate their contract, 

requirements for urgently needed 

services, and MA organization 

responsibilities in disasters and 

emergencies. 

Some of these provisions do not 

impose new requirements or costs but 

rather, clarify the necessary actions to 

meet existing regulatory requirements, 

and therefore, are expected to have no 

impact. Other provisions reflect 

widespread industry practices or would 

only impact a few plans and therefore 

are expected to have no, or minimal, 

impact. 

There are three provisions with 

measurable impacts: Citizenship or 

lawful presence; audit and inspection 

authority; and business continuity 

operations. We discuss these three 

provisions as follows. 

Citizenship or Lawful Presence. This 

final rule adds ‘‘citizenship or lawful 

presence’’ as an eligibility requirement 

to enroll and remain enrolled in MA, 

Part D, and section 1876 cost contracts 

to comply with section 401 of the 

Personal Responsibility and Work 

Opportunity Act, which mandates that 

aliens who are not lawfully present in 

the United States are not eligible to 

receive any federal benefit, including 

Medicare. 

As indicated in the proposed rule of 

January 10, 2014 (79 FR 1918), based on 

estimates reflecting scoring by the CMS 

Office of the Actuary and 2012 lawful 

presence data provided by the SSA, this 

provision has an anticipated savings of 

$67 million over 5 years. 

We estimate 10 million dollars 

expected savings for 2015 consisting of 

$5 million savings for Medicare 

Advantage (MA) and $5 million savings 

for Part D. These savings increase 

annually and by 2019, we estimate $17 

million savings consisting of $8 million 

for MA and $9 million for Part D. 

Audit and Inspection Authority. This 

rule finalizes some, but not all, 

proposed changes to the audit and 

inspection authority included in the 

proposed rule. We proposed 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. Under the first 

proposal, each MA organization and/or 

Part D sponsor would have been 

required to hire an independent auditor 

to perform a full or partial program 

audit at least every 3 years. However, 

due to public comment, we are not 

finalizing this proposal. 

We also proposed 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. 

With our existing resources we 

currently conduct approximately 30 

audits per year. 

We received numerous comments 

indicating that our initial estimate was 

not accurate and considerably lower 

than the sponsors’ actual costs. Based 

on the public comments, we revaluated 

our methods of estimating the sponsor 

costs associated with procuring an 

independent auditor to conduct 

validations and as a result we 

decreased: (1) The number of 

organizations that may be subject to a 

validation each year; and (2) the number 

of team members likely required to 

perform the validation exercise; and 

increased: (3) The estimated total cost 

per hour for the audit team. The 

estimate for 23 sponsors is closer to the 

maximum number of sponsors that 

would be expected to hire an 

independent auditor to validate 

correction of audit deficiencies that we 

identified. As additional organizations 

are subject to a CMS program audit or 

utilize CMS’ audit protocols to perform 

their own internal auditing, we expect 

that the performance of these 

organizations and the industry in 

general will improve; this in turn will 

reduce the likelihood that an 

organization would need to hire an 

independent auditor to validate 

correction of audit deficiencies. 

Therefore, we expect the total number of 

organizations that may be required to 

hire an independent auditor to validate 

correction of audit deficiencies will 

decline over time. 

While some sponsor audit findings 

can be validated through means other 

than a full-scale validation audit, we 

have found several organizations with 

significant performance deficiencies. 

We estimate that approximately 75 

percent of the 30 organizations we audit 

per year (23 organizations) may be 

requested to retain an independent 

auditor to validate correction of their 

audit deficiencies. 

Under these circumstances we 

estimated that the independent auditor 

hired would 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—physician, 

pharmacist and senior auditor. 

• Organization Determinations, Part C 

Appeals, Part C Grievances—physician, 

nurse practitioner, and senior auditor. 

• Compliance Program 

effectiveness—two senior auditors. 

• Special Needs Plan Model of Care 

(SNP MOC) implementation—nurse 

practitioner and senior auditor. 

We used 2013 wage statistics supplied 

by the Bureau of Labor and Statistics, 

along with benefit and overhead 

included to develop estimates of direct 

wages. The estimated total cost per hour 

for each audit team is $1,202.00. A team 

of 13 professionals (listed previously) is 

necessary for the performance of each 

validation effort. The estimated total 

number of hours the team will need to 

perform the validation per sponsor is 

80. The total cost per sponsor to procure 

and support the independent audit team 

is therefore: 80 (hours) × $1,202.00 = 

$96,160.00. The validation costs will be 

allowable costs in the plan’s bid. Under 

existing regulations, the estimated total 

annual burden related to the time and 

effort for sponsors to perform the 

validation is $2,211,680.00 (23 sponsors 

× $96,160.00 per sponsor). 

Since only 30 sponsors are audited 

per year and only those with the most 

serious findings would likely be 

subjected to hiring an independent 

auditor to conduct validation, the cost 

per sponsor per year is $2,211,680 ÷ 193 

(unique parent organizations) = $11,459 

per year. The number 193 represents the 

193 unique parent organizations as of 

June 2014. This figure includes all 

coordinated care plans (CCPs), private 

fee for service (PFFS) plans, section 


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1876 Medicare cost plans whose parent 

organizations also have an MA or Part 

D plan, stand-alone prescription drug 

plans (PDPs), and employer group 

waiver plans (800 series). Sponsors will 

be allowed to account for this cost in 

their bid. 

Business Continuity. Commenters in 

general took issue with the costs 

associated with the proposal for 

Business Continuity for MA 

organizations and Part D Sponsors 

(§§ 422.504(o) and 423.505(p)). Several 

commenters suggested that our RIA 

significantly underestimated costs 

because requiring MA organizations and 

Part D sponsors to restore essential 

functions within 24 hours would 

necessitate systems redundancy. Other 

commenters were concerned about the 

cost of testing IT systems on an annual 

basis; another commenter questioned 

the need to train ‘‘all’’ employees. 

As detailed in section II.A.4. of this 

final rule (Business Continuity for MA 

organizations and Part D Sponsors 

(§§ 422.504(o) and 423.505(p)), we 

believe that the modifications to 

regulatory text that we are finalizing in 

this final rule, as well as clarifications 

provided in our responses (for instance, 

we are not requiring systems 

redundancy), address the vast majority 

of concerns raised about the RIA. 

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 still estimate that 5 

percent of MA organizations and Part D 

sponsors do not have business 

continuity plans, but are updating our 

estimates from our proposed rule to 

reflect the most recent data available. 

For 2015, there are 568 MA 

organizations and Part D sponsors, 

resulting in an estimated 28 (5 percent 

× 568) affected entities. More recent 

May 2013 wage data from the BLS OES 

sets the hourly rate for an emergency 

management director, General Medical 

and Surgical Hospitals, at $36.90. We 

now estimate the first year burden of a 

full time emergency management 

director to help design the plan to be 

58,240 hours (28 entities × 2,080 hours). 

The estimated cost associated with such 

an expert is the estimated number of 

hours multiplied by the estimated 

hourly rate of $36.90, plus 100 percent 

for fringe benefits and overhead, which 

equals a first year estimated cost of 

$4,298,112. 

In subsequent years, the estimated 

burden associated with this requirement 

will be the cost of an emergency 

management director working on a part 

time basis for an ongoing burden of 

29,120 hours (28 entities × 1,040 hours). 

The estimated cost associated with such 

an expert would be the estimated 

number of hours multiplied by the 

estimated hourly rate of $36.90 plus 100 

percent for fringe benefits and overhead, 

which equals an estimated annual cost 

of $2,149,056 for subsequent years. 

Additionally, as discussed in section 

II.A.4. of this final rule, we agree with 

the commenters that the regulation may 

require some changes, which we believe 

are minimal, to existing business 

continuity plans and are adding 

estimates to cover those costs. We 

estimate that an additional 10 percent of 

the 568 contracting entities, or about 57 

entities, will be affected by this 

requirement. This means the estimated 

first year burden of a part time 

emergency management director to 

conform the existing business 

continuity plans will be 59,280 hours 

(57 entities × 1,040 hours). The 

estimated cost associated with such an 

expert is the estimated number of hours 

multiplied by the estimated hourly rate 

of $36.90 plus 100 percent for fringe 

benefits and overhead, which equals a 

first year estimated cost of $4,373,864. 

In subsequent years, we estimate the 

burden associated with this requirement 

for MA organizations and Part D 

sponsors that are continuing to conform 

their business continuity plans with our 

regulation will decrease, for an ongoing 

burden of 29,640 hours (57 entities × 

520 hours). The estimated cost 

associated with such an expert is the 

estimated number of hours multiplied 

by the estimated hourly rate of $36.90 

plus 100 percent for fringe benefits and 

overhead, which equals a first year cost 

of $2,187,432. 

Lastly, as previously discussed in our 

summary of the proposed effects, we 

believe that savings that we cannot 

capture will be realized by this 

regulation, especially for those MA 

organizations and Part D sponsors that 

do not currently have business 

continuity plans in place. Business 

continuity planning helps to protect 

resources and minimize losses. If as a 

consequence, MA organizations and 

Part D sponsors, that currently do not 

have these plans in place, provide 

Medicare benefits more efficiently after 

disasters and disruptions, this could 

result in fewer risks to beneficiary 

health. 

Our analyses of the three provisions 

with measurable impact—unlawful 

presence, audit and inspection authority 

and business continuity operations— 

show that aggregate savings over 5 years 

is $33 million. Estimated savings for 

2015 is $0 million and the savings 

increase annually to $11 million for 

2019. Consequently, the savings do not 

reach the $100 million threshold and 

therefore this final rule is not a major 

rule. 

The Regulatory Flexibility Analysis 

(RFA), as amended, requires agencies to 

analyze options for regulatory relief of 

small businesses, 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 health insurance industry was 

examined in depth in the RIA prepared 

for the proposed rule on establishment 

of the MA program (69 FR 46866, 

August 3, 2004). It was determined, in 

that analysis, that there were few, if any, 

‘‘insurance firms,’’ including HMOs that 

fell below the size thresholds for 

‘‘small’’ business established by the 

Small Business Administration (SBA). 

We assume that the ‘‘insurance firms’’ 

are synonymous with health plans that 

conduct standard transactions with 

other covered entities and are, therefore, 

the entities that will have costs 

associated with the new requirements 

finalized in this rule. At the time the 

analysis for the MA program was 

conducted, the market for health 

insurance was and remains, dominated 

by a handful of firms with substantial 

market share. 

However, we estimate that the costs of 

this rule on ‘‘small’’ health plans do not 

approach the amounts necessary to be a 

‘‘significant economic impact’’ on firms 

with revenues of tens of millions of 

dollars. Therefore, this rule would not 

have a significant economic impact on 

a substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

analysis for any rule or regulation 

proposed under Title XVIII, Title XIX, 

or Part B of the Act that may have 

significant impact on the operations of 

a substantial number of small rural 

hospitals. We are not preparing an 

analysis for section 1102(b) of the Act 

because the Secretary certifies that this 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (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 2014, that 

threshold is approximately $141 


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7958 Federal Register / Vol. 80, No. 29 / Thursday, February 12, 2015 / Rules and Regulations 

million. This final 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. 

Since this rule does not impose any 

substantial costs on state or local 

governments, the requirements of 

Executive Order 13132 are not 

applicable. 

In accordance with the provisions of 

Executive Order 12866, this rule was 

reviewed by the Office of Management 

and Budget. 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs-health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs-health, Medicare, Reporting 

and recordkeeping requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, Reporting 

and recordkeeping requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

Chapter IV as follows: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATION, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 1. The authority citation for part 417 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), secs. 1301, 1306, and 1310 of the 

Public Health Service Act (42 U.S.C. 300e, 

300e-5, and 300e-9), and 31 U.S.C. 9701. 

■ 2. Amend § 417.2 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] 

■ 3. Amend § 417.420, paragraph (a) by 

removing the phrase ‘‘Individuals who 

are entitled to’’ and adding in its place 

the phrase ‘‘Eligible individuals who are 

entitled to’’. 

■ 4. Amend § 417.422 as follows: 

■ 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 an 

individual who is lawfully present in 

the United States as determined in 8 

CFR 1.3. 

■ 5. Amend § 417.460 as follows: 

■ a. In paragraph (b)(2)(i) by removing 

‘‘.’’ and adding in its place ‘‘;’’. 

■ b. In paragraph (b)(2)(iii) by removing 

‘‘; or’’ and adding in its place ‘‘;’’. 

■ c. Redesignating paragraph (b)(2)(iv) 

as paragraph (b)(2)(v). 

■ d. Adding a new paragraph (b)(2)(iv). 

■ 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 paragraph (j). 

The revisions and the additions read 

as follows: 

§ 417.460 Disenrollment of beneficiaries 

by an HMO or CMP. 

* * * * * 

(b) * * * 

(2) * * * 

(iv) Is not lawfully present in the 

United States; or 

* * * * * 

(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 a 

third party to which CMS has assigned 

this responsibility, such as an HMO or 

CMP) 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. 

* * * * * 

(j) Enrollee is not lawfully present in 

the United States. Disenrollment is 

effective the first day of the month 

following notice by CMS that the 

individual is ineligible in accordance 

with § 417.422(h). 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 6. 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). 

■ 7. Amend § 422.1 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: 

(i) 1128J(d)—Reporting and Returning 

of Overpayments. 

(ii) 1851—Eligibility, election, and 

enrollment. 

(iii) 1852—Benefits and beneficiary 

protections. 

(iv) 1853—Payments to Medicare 

Advantage (MA) organizations. 

(v) 1854—Premiums. 

(vi) 1855—Organization, licensure, 

and solvency of MA organizations. 

(vii) 1856—Standards. 

(viii) 1857—Contract requirements. 

(ix) 1858—Special rules for MA 

Regional Plans. 

(x) 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. 

* * * * * 

■ 8. Amend § 422.50 as follows: 

■ 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 

‘‘.’’. 


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■ 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 is 

lawfully present in the United States as 

determined in 8 CFR 1.3. 

* * * * * 

■ 9. Amend § 422.74 as follows: 

■ a. By adding paragraph (b)(2)(v). 

■ b. By revising paragraph (d)(1)(v). 

■ c. By adding paragraph (d)(8). 

The additions and revision read as 

follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(b) * * * 

(2) * * * 

(v) The individual is not 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 a third 

party to which CMS has assigned this 

responsibility, such as an MA 

organization) may reinstate enrollment 

in the MA plan, without interruption of 

coverage, if the individual— 

(A) Shows good cause for failure to 

pay within the initial grace period; and 

(B) Pays all overdue premiums within 

3 calendar months after the 

disenrollment date; and 

(C) Establishes 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. 

* * * * * 

(8) Enrollee is not lawfully present in 

the United States. Disenrollment is 

effective the first day of the month 

following notice by CMS that the 

individual is ineligible in accordance 

with § 417.422(h) of this chapter. 

* * * * * 

■ 10. Amend § 422.100 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 

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 as if the service or benefit 

had 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 (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 (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), (2), (3), and (4)(i) 

of this section on its Web site. 

■ 11. Amend § 422.111 by revising 

paragraph (d)(1) to read as follows: 

§ 422.111 Disclosure requirements. 

* * * * * 

(d) * * * 

(1) Submit the changes for CMS 

review under procedures of subpart V of 

this part. 

* * * * * 

■ 12. Amend § 422.112 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 point-of-sale 

transactions; 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 subpart M of 

this part and subpart M of part 423 of 

this chapter, as appropriate, when a 

party requests a coverage determination. 

* * * * * 

■ 13. Amend § 422.113 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— 

* * * * * 

■ 14. Amend § 422.152 as follows: 

■ a. Revising paragraph (a) introductory 

text. 


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■ b. Redesignating paragraphs (a)(1) 

through (3) as paragraphs (a)(2) through 

(4), respectively. 

■ c. Adding new paragraph (a)(1). 

■ d. In newly redesignated (a)(2), by 

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

■ e. In newly redesignated (a)(3), by 

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

■ f. Revising paragraph (c). 

■ g. Revising paragraph (g) introductory 

text. 

■ h. Revising paragraph (h). 

The revisions and addition read as 

follows: 

§ 422.152 Quality improvement program. 

(a) General rule. Each MA 

organization that offers one or more MA 

plan must have, for each plan, an 

ongoing quality improvement program 

that meets applicable requirements of 

this section for the service it furnishes 

to its MA enrollees. As part of its 

ongoing quality improvement program, 

a plan must do all of the following: 

(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 

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 does 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). 

■ 15. Amend § 422.310 by revising 

paragraph (g)(2)(ii) to read as follows: 

§ 422.310 Risk adjustment data. 

* * * * * 

(g) * * * 

(2) * * * 

(ii) After the final risk adjustment data 

submission deadline, which is a date 

announced by CMS that is no earlier 

than January 31 of the year following 

the payment year, an MA organization 

can submit data to correct overpayments 

but cannot submit diagnoses for 

additional payment. 

* * * * * 

§ 422.502 [Amended] 

■ 16. Amend § 422.502(b)(3) 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 area expansion based 

on the applicant’s’’. 

■ 17. Amend § 422.503 by adding 

paragraph (d)(2)(iv) to read as follows: 

§ 422.503 General provisions. 

* * * * * 

(d) * * * 

(2) * * * 

(iv) CMS may require that the MA 

organization hire an independent 

auditor to provide CMS with additional 

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. 

* * * * * 

■ 18. Amend § 422.504 by adding 

paragraph (o) to read as follows: 

§ 422.504 Contract provisions. 

* * * * * 

(o) Business continuity. (1) The MA 

organization agrees to develop, 

maintain, and implement a business 

continuity plan containing policies and 

procedures to ensure the restoration of 

business operations following 

disruptions to business operations 

which would include natural or manmade 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 parts 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. 


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(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 appropriate 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 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 plan to 

restore essential functions within 72 

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) for services to be immediately 

furnished at a hospital, clinic, provider 

office, or other place of service. 

(ii) Operation of call center customer 

services. 

■ 19. Amend § 422.506 by revising 

paragraph (a)(4) to read as follows: 

§ 422.506 Nonrenewal of contract. 

(a) * * * 

(4) If an MA organization does not 

renew a contract under 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 

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. 

* * * * * 

■ 20. Amend § 422.508 by revising 

paragraph (c) to read as follows: 

§ 422.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(c) Agreement to limit new MA 

applications. As a condition of the 

consent to a mutual termination CMS 

will require, as a provision of the 

termination agreement language 

prohibiting the MA organization from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. This prohibition may 

apply regardless of the product type, 

contract type or service area of the 

previous contract. 

* * * * * 

■ 21. Amend § 422.512 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. 

* * * * * 

■ 22. Amend § 422.568 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. 

* * * * * 

■ 23. Amend § 422.572 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. 

* * * * * 

■ 24. Amend § 422.590 as follows: 

■ a. By revising paragraph (a)(1). 

■ b. In paragraph (d)(1), by removing the 

cross reference ‘‘paragraph (d)(2) of this 

section’’ and adding in its place the 

cross-reference ‘‘paragraph (e) of this 

section’’. 

■ 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 paragraph (e). 

The addition and revision 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 


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calendar days from the date it receives 

the request for a standard 

reconsideration. 

* * * * * 

(e) Extensions. (1) As described in 

paragraphs (e)(1)(i) through (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] 

■ 25. In § 422.618, amend paragraph 

(a)(1) by removing the cross-reference 

‘‘§ 422.590(a)(1)’’ and adding in its place 

the cross-reference ‘‘§ 422.590(e)’’. 

§ 422.619 [Amended] 

■ 26. In § 422.619, amend paragraph (a) 

by removing the cross-reference 

‘‘§ 422.590(d)(2)’’ and adding in its 

place the cross-reference ‘‘§ 422.590(e)’’. 

■ 27. 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). 

* * * * * 

■ 28. 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 paragraph (c)(2) of this section, CMS 

mails notice to the MA organization 45 

calendar days before the anticipated 

effective date of the termination. 

* * * * * 

■ 29. Amend § 422.660 by revising 

paragraphs (a)(2) and (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). 

* * * * * 

■ 30. 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. 

* * * * * 

§ 422.2266 [Removed and Reserved] 

■ 31. Section 422.2266 is removed and 

reserved. 

■ 32. Amend § 422.2274 by revising 

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

§ 422.2274 Broker and agent requirements. 

* * * * * 

(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. 

* * * * * 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

■ 33. The authority citation for part 423 

continues to read as follows: 

Authority: Sections 1102, 1106, 1860D–1 

through 1860D–42, and 1871 of the Social 

Security Act (42 U.S.C. 1302, 1306, 1395w– 

101 through 1395w–152, and 1395hh). 

■ 34. Amend § 423.1 by adding 

paragraph (a)(3) to read as follows: 

§ 423.1 Basis and scope. 

(a) * * * 

(3) Section 1611 of Title 8 of the 

United States Code regarding 

individuals who are not lawfully 

present and ineligible for Federal public 

benefits. 

* * * * * 

■ 35. 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 is 

lawfully present in the United States as 

determined in 8 CFR 1.3. 

* * * * * 

■ 36. Amend § 423.44 as follows: 

■ a. Adding paragraph (b)(2)(vi). 

■ b. Revising paragraph (d)(1)(vi). 

■ c. Adding paragraph (d)(8). 

The additions and revision read as 

follows: 

§ 423.44 Involuntary disenrollment from 

Part D coverage. 

* * * * * 

(b) * * * 

(2) * * * 

(vi) The individual is not lawfully 

present in the United States. 

* * * * * 

(d) * * * 

(1) * * * 

(vi) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failure to 

pay the plan premium, CMS (or a third 

party to which CMS has assigned this 

responsibility, such as a Part D sponsor) 

may reinstate enrollment in the PDP, 


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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. 

* * * * * 

(8) Individual is not lawfully present 

in the United States. Disenrollment is 

effective the first day of the month 

following notice by CMS that the 

individual is ineligible in accordance 

with § 423.30(a)(1)(iii). 

* * * * * 

■ 37. Amend § 423.100 by revising the 

definitions of ‘‘Daily cost-sharing rate’’ 

and ‘‘Supplemental benefits’’ to 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. 

* * * * * 

Supplemental benefits means benefits 

offered by Part D plans, other than 

employer group health or waiver plans, 

that meet the requirements of 

§ 423.104(f)(1)(ii). 

* * * * * 

■ 38. Amend § 423.104 by adding 

paragraph (d)(2)(iii) to read as follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(d) * * * 

(2) * * * 

(iii) Tiered cost sharing under 

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

not exceed levels annually determined 

by CMS to be discriminatory. 

* * * * * 

■ 39. Amend § 423.120 by redesignating 

paragraphs (b)(1)(iv) through (x) as 

paragraphs (b)(1)(v) through (xi), 

respectively, and adding paragraph 

(b)(1)(iv) to read as follows: 

§ 423.120 Access to covered Part D drugs. 

* * * * * 

(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. 

* * * * * 

■ 40. Amend § 423.128 by adding 

paragraph (g) to read as follows: 

§ 423.128 Dissemination of Part D 

information. 

* * * * * 

(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 this part. 

■ 41. Amend § 423.153 by revising 

paragraph (b)(4) 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 the 

approved month’s supply, if the drug is 

in the form of a solid oral dose and may 

be dispensed for less than the approved 

month’s supply 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 the approved month’s 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. 

* * * * * 

■ 42. Amend § 423.154 as follows: 

■ a. By redesignating paragraph (a)(2) as 

paragraph (a)(4). 

■ b. By adding paragraphs (a)(2) and (3). 

■ c. By revising newly designated 

paragraph (a)(4). 

■ d. By revising paragraph (c). 

■ e. By removing paragraph (e). 

■ f. By redesignating paragraph (f) as 

paragraph (e). 

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) 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. 

(3) Ensure that any difference in 

payment methodology among long-term 

care pharmacies incentivizes more 

efficient dispensing techniques. 

(4) 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, except paragraphs (a)(2) and (3), 

for pharmacies when they service 

intermediate care facilities for the 

mentally retarded (ICFs/IID) and 

institutes for mental disease (IMDs) as 

defined in § 435.1010 and for I/T/U 

pharmacies (as defined in § 423.100). 

* * * * * 

■ 43. 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. 


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(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] 

■ 44. 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 cost sharing for a non-lowincome subsidy eligible beneficiary 

under the Part D plan and the statutory 

cost sharing for a low-income subsidy 

eligible beneficiary.’’ 

§ 423.346 [Amended] 

■ 45. Amend § 423.346(a) introductory 

text by removing the phrase ‘‘as 

described in § 423.336)—’’ and adding 

in its place the phrase ‘‘as described in 

§ 423.336) or the Coverage Gap Discount 

Reconciliation (as described at 

§ 423.2320(b))—’’ . 

■ 46. 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). 

The additions and revision read as 

follows: 

§ 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). 

* * * * * 

■ 47. Amend § 423.464 by redesignating 

paragraph (f)(2)(i)(B) as paragraph 

(f)(2)(i)(C) and adding paragraph 

(f)(2)(i)(B) to read as follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

* * * * * 

(f) * * * 

(2) * * * 

(i) * * * 

(B) Report, accept and apply benefit 

accumulator data in a timeframe and 

manner determined by CMS. 

* * * * * 

■ 48. Amend § 423.466 by revising the 

section heading and, in paragraph (b), 

removing the phrase ‘‘a period not to 

exceed 3 years’’ and adding in its place 

the phrase ‘‘a period of 3 years’’ to read 

as follows: 

§ 423.466 Timeframes for coordination of 

benefits and claims adjustments. 

* * * * * 

■ 49. Amend § 423.503 by revising 

paragraph (a)(1) and adding paragraphs 

(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 any essential 

operations test. 

* * * * * 

(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, etc.), 

CMS gives the applicant written notice 

indicating that the approval issued 

under paragraph (c)(1) of this section 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. 

■ 50. Amend § 423.504 by adding 

paragraphs (b)(10) and (d)(2)(iv) to read 

as follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(10) 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 provide CMS with additional 

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. 

* * * * * 

■ 51. Amend § 423.505 by adding 

paragraphs (b)(27) and (p) to read as 

follows: 

§ 423.505 Contact provisions. 

* * * * * 

(b) * * * 

(27) 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. 

* * * * * 

(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 restoration of business 

operations following disruptions to 

business operations during disruptions 

to business operations which would 


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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 

Regulations at 45 CFR parts 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 appropriate 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 (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 plan to 

restore essential functions within 72 

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. 

■ 52. Amend § 423.509 by adding 

paragraph (a)(4)(xii) and revising 

paragraph (b)(2)(i)(C) to read as follows: 

§ 423.509 Termination of a contract by 

CMS. 

(a) * * * 

(4) * * * 

(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) * * * 

(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] 

■ 53. 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.’’. 

§ 423.650 [Amended] 

■ 54. 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) of 

this part’’ and adding in its place the 

cross-reference ‘‘§ 423.752(a) through 

(b)’’. 

■ 55. 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] 

■ 56. Section 423.2266 is removed and 

reserved. 

■ 57. Amend § 423.2274 by revising 

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

§ 423.2274 Broker and agent requirements. 

* * * * * 

(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. 

* * * * * 

■ 58. Amend § 423.2320 by adding 

paragraph (c) to read as follows: 

§ 423.2320 Payment processes for Part D 

sponsors. 

* * * * * 

(c) Manufacturer bankruptcy. In the 

event that a manufacturer declares 


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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) used for a particular 

contract year’s 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 for that particular 

contract year being reconciled. 

■ 59. Amend § 423.2325 by adding 

paragraph (h) to read as follows: 

§ 423.2325 Provision of applicable 

discounts. 

* * * * * 

(h) Treatment of employer group 

waiver plans. As of 2014, Part D 

sponsors offering employer group 

waiver plans must provide applicable 

discounts to applicable beneficiaries 

who are employer group waiver plan 

enrollees as determined consistent with 

the defined standard benefit. 

Dated: December 18, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: February 4, 2015. 

Sylvia M. Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2015–02671 Filed 2–6–15; 4:15 pm] 

BILLING CODE 4120–01–P 


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