Friday, 

May 25, 2007 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 422 and 423 

Medicare Program; Revisions to the 

Medicare Advantage and Part D 

Prescription Drug Contract 

Determinations, Appeals, and 

Intermediate Sanctions Processes; 

Proposed Rules 


ycherry on PROD1PC64 with PROPOSALS2
29368 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 422 and 423 

[CMS–4124–P] 

RIN 0938–AO78 

Medicare Program; Revisions to the 

Medicare Advantage and Part D 

Prescription Drug Contract 

Determinations, Appeals, and 

Intermediate Sanctions Processes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

clarify the Medicare program provisions 

relating to contract determinations 

involving Medicare Advantage (MA) 

organizations and Medicare Part D 

prescription drug plan sponsors, 

including eliminating the 

reconsideration process for review of 

contract determinations; revising the 

provisions related to appeals of contract 

determinations and clarifying the 

process for MA organizations and Part D 

plan sponsors to complete corrective 

action plans. This proposed rule would 

also clarify the intermediate sanction 

and civil money penalty (CMP) 

provisions that apply to MA 

organizations and Medicare Part D 

prescription drug plan sponsors, modify 

elements of their compliance plans, and 

revise provisions to ensure HHS has 

access to the books and records of MA 

organizations and Part D plan sponsors’ 

first tier, downstream, and related 

entities. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on July 24, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–4124–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4124– 

P, P.O. Box 8012, Baltimore, MD 21244– 

8012. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4124–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Christine Perenich, (410) 786–2987. 

Kevin Stansbury, (410) 786–2570. 

Stephanie Kaisler, (410) 786–0957, for 

issues regarding access to records and 

compliance. 

Rita Wurm, (410) 786–1139, for issues 

regarding access to records and 

compliance. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–4124–P 

and the specific ‘‘issue identifier’’ that 

precedes the section on which you 

choose to comment. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

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

appointment to view public comments, 

phone 1–800–743–3951. 

Abbreviations 

Because of the many terms to which 

we refer by abbreviation in this 

proposed rule, we are listing these 

abbreviations and their corresponding 

terms in alphabetical order below: 

ALJ Administrative Law Judge 

BBA Balanced Budget Act of 1997 

BBRA Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 

CAP Corrective Action Plan 

CMP Civil Money Penalty 

CMS Centers for Medicare & Medicaid 

Services 

DAB Departmental Appeals Board 

ESRD End-Stage Renal Disease 

FWA Fraud, Waste, and Abuse 

HHS Department of Health and 

Human Services 

MA Medicare Advantage 

MMA Medicare Prescription Drug, 

Improvement, and Modernization 

Act of 2003 

M+C Medicare + Choice 

OIG Office of the Inspector General 

PBM Pharmaceutical Benefit Manager 

PDE Prescription Drug Event 

PPO Preferred Provider Organization 

I. Background 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘BACKGROUND’’ at the 

beginning of your comments.] 


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A. Overview of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) 

The President signed the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) into law on December 8, 

2003. The MMA established the 

Medicare prescription drug benefit 

program and renamed the 

Medicare+Choice program the Medicare 

Advantage (MA) program. In accordance 

with the MMA, we revised the existing 

Medicare regulations applicable to the 

MA program at 42 CFR part 422 and 

published regulations governing the 

prescription drug benefit program at 42 

CFR part 423. 

As we have gained more experience 

with MA organizations and Part D 

prescription drug plan sponsors, we are 

proposing clarifications to the Medicare 

program provisions relating to contract 

determinations involving Medicare 

Advantage organizations and Medicare 

Part D prescription drug plan sponsors, 

including eliminating the 

reconsideration process for review of 

contract determinations; revising the 

provisions related to appeals of contract 

determinations and clarifying the 

process for MA organizations and Part D 

plan sponsors to complete corrective 

action plans. This proposed rule would 

clarify the intermediate sanction and 

civil money penalty (CMP) provisions 

that apply to MA organizations and 

Medicare Part D prescription drug plan 

sponsors. We have also proposed 

changes to clarify the compliance plan 

requirements and our access to the 

books and records of an MA 

organization or Part D sponsor’s first 

tier, downstream, and related entities. 

B. Relevant Legislative History and 

Overview 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) established the 

Medicare+Choice (M+C) program. 

Under section 1851(a)(1) of the Act, 

every individual with Medicare Parts A 

and B, except for individuals with endstage renal disease (ESRD), could elect 

to receive benefits either through the 

original Medicare program or an M+C 

plan, if one was offered where the 

beneficiary lived. The primary goal of 

the M+C program was to provide 

Medicare beneficiaries with a wider 

range of health plan choices. 

The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA) (Pub. L. 106–113), 

amended the M+C provisions of the 

BBA. Further amendments were made 

to the M+C program by the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554), enacted 

December 21, 2000. 

The President signed the MMA into 

law on December 8, 2003. Title I of the 

MMA added new sections 1860D–1 

through 1860D–42 to the Act creating 

the Medicare Prescription Drug Benefit 

program, a landmark change to the 

Medicare program since its inception in 

1965. 

Sections 201 through 241 of Title II of 

the MMA made significant changes to 

the M+C program. As directed by Title 

II of the MMA, we renamed the M+C 

program the MA program. We also 

revised our regulations to include new 

payment and bidding provisions based 

largely on risk, to recognize the addition 

of regional Preferred Provider 

Organization (PPO) plans, to address the 

provision of prescription drug benefits 

under the Medicare Part D regulations, 

and to make other changes. 

The MMA, at section 1860D–12(b)(3) 

of the Act, directed that specific aspects 

of the MA contracting requirements 

apply to the prescription drug plan 

benefit program. Consequently, the 

processes for contract determinations 

and the administrative appeal rights in 

the two programs are virtually identical. 

We published the regulations 

implementing the MA and prescription 

drug benefit regulations separately, 

though their development and 

publication were closely coordinated. 

On August 3, 2004, we published 

proposed rules for the MA program (69 

FR 46866) and prescription drug benefit 

program (69 FR 46632). The final 

regulations implementing both the MA 

and prescription drug programs were 

published on January 28, 2005 (70 FR 

4588 and 70 FR 4194, respectively). We 

revised some of our proposed provisions 

in the final rules in response to public 

comments. For further discussion of the 

revisions we made to our proposed 

rules, see the final rules cited above. 

CMS has not issued previous guidance, 

other than regulatory requirements 

regarding contract determinations, 

corrective action plans, contract 

determination appeals, intermediate 

sanctions or civil money penalties. 

However, CMS has published guidance 

on how to develop an effective fraud, 

waste and abuse (FWA) prevention 

program. This guidance is found in 

Chapter 9 of the Prescription Drug 

Benefit Manual entitled ‘‘Part D Program 

to Control Fraud, Waste and Abuse.’’

This rule proposes further revisions to 

the MA and prescription drug 

regulations and we welcome your 

comments on our proposed regulations. 

II. Provisions of the Proposed 

Regulations 

[If you choose to comment on issues 

in this section, please include the 

caption ‘‘PROVISIONS OF THE 

PROPOSED REGULATIONS’’ at the 

beginning of your comments.] 

A. Overview of Proposed Changes to the 

Medicare Advantage Program and the 

Prescription Drug Benefit Program 

Our experience involving contract 

determinations, appeals, intermediate 

sanctions, and CMPs since the 

enactment of the Balanced Budget Act 

of 1997 have led us to propose changes 

to our regulations. In this rule, we 

propose to simplify the procedures for 

contract determinations; to clarify the 

procedures regarding submission and 

review of corrective action plans; to 

clarify the procedures for imposition of 

intermediate sanctions and CMPs; and 

to clarify the procedures to appeal CMPs 

imposed under the MA and Part D 

programs. 

In addition, we propose revisions to 

the appeal procedures for all types of 

contract determinations, which would 

make these procedures identical for 

decisions not to contract, for 

nonrenewals, and for terminations. We 

propose to provide for enhanced 

beneficiary protections when we decide 

to terminate a plan on an expedited 

basis. 

In this rule, we are also proposing 

changes and making clarifications to 

Subpart K, contract requirements under 

the MA and Part D programs. We have 

proposed changes to clarify HHS’ access 

to the books and records of a MA 

organization or Part D sponsor’s first 

tier, downstream, and related entities, 

including records relating to Part D 

rebates and price concessions and any 

underlying PDE records. We have also 

proposed changes to clarify that certain 

elements of the compliance plan apply 

to first tier, downstream, and related 

entities. 

The proposed changes would ensure 

that both the MA and Medicare Part D 

prescription drug benefit programs may 

operate as efficiently as possible within 

the guidelines of the statute. 

Below, we set forth the proposed 

regulation changes and corresponding 

proposed implementation dates: 


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Proposed regulation change Proposed implementation date 

Incorporation of Fraud, Waste, and Abuse Prevention Measures into Compliance Plan .............................................................. 1/1/2009 

Requirement to apply Compliance Plan’s training and communication requirements to first tier, downstream, and related entities ................................................................................................................................................................................................ 1/1/2009 

Mandatory procedures for self-reporting potential fraud and misconduct ...................................................................................... 1/1/2009 

Requirement to obtain access to Part D sponsor’s first tier, downstream, and related entity’s books and records through contractual arrangements .................................................................................................................................................................. 1/1/2009 

Elimination of CMS’ requirement to inform organization of renewal ............................................................................................... 1/1/2008 

Change date of CMS’ notification of non-renewal from May 1 to September 1 ............................................................................. 1/1/2008 

Provide for same administrative appeal rights (including CAP) for all contract determinations (non-renewal, expedited termination, termination) ...................................................................................................................................................................... 1/1/2008 

Change regarding CAP process may be provided prior to notification of termination, and the imposition of time limits on Corrective Action Plans ..................................................................................................................................................................... 1/1/2008 

Change immediate termination to expedited termination with CMS setting the effective date of termination ............................... 1/1/2008 

Elimination of Reconsideration Step for contract determination appeals ....................................................................................... 1/1/2008 

Implementation of Burden of Proof for contract determinations ..................................................................................................... 1/1/2008 

Ability for a hearing officer to issue summary judgment ................................................................................................................. 1/1/2008 

Request for Administrator review, submission of information, and timeframe associated with Administrator review ................... 1/1/2008 

Settlement of Civil Money Penalties ................................................................................................................................................ 1/1/2008 

Appeal procedures for Civil Money Penalties ................................................................................................................................. 1/1/2008 

B. Distribution Table 

The following crosswalk table 

references the changes we propose to 

make to the prescription drug and the 

MA programs. We propose to make the 

same changes to 42 CFR Parts 422 and 

423 with minimum differences. The 

crosswalk lists the section headings, for 

parts 422 and 423, and indicates if the 

section is being deleted. 

TABLE 1.—CROSSWALK OF PART 422 AND PART 423 CFR SECTIONS

Section heading Section references in part 422 Section references 

in part 423 

Definitions .................................................................................................. 422.2 ................................................................... 423.4. 

Compliance Plan ........................................................................................ 422.503(b)(4)(vi) ................................................. 423.504(b)(4)(vi). 

Access to Facilities and Records .............................................................. 422.504(e) and 422.503(d)(2)(iii) ....................... 423.505(e). 

Contract Provisions .................................................................................... 422.504(i) ............................................................ 423.505(i). 

Effective Date and Term of Contract ......................................................... 422.505 ............................................................... 423.506. 

Non-renewal of contract ............................................................................. 422.506 ............................................................... 423.507. 

Termination of contract by CMS ................................................................ 422.510 ............................................................... 423.509. 

Notice of contract determination ................................................................ 422.644 ............................................................... 423.642. 

Effect of contract determination ................................................................. 422.646 ............................................................... 423.643. 

Reconsideration: applicability .................................................................... 422.648 (delete) ................................................. 423.644 (delete). 

Request for reconsideration ....................................................................... 422.650 (delete) ................................................. 423.645 (delete). 

Opportunity to submit evidence ................................................................. 422.652 (delete) ................................................. 423.646 (delete). 

Reconsidered determination ...................................................................... 422.654 (delete) ................................................. 423.647 (delete). 

Notice of reconsidered determination ........................................................ 422.656 (delete) ................................................. 423.648 (delete). 

Effect of reconsidered determination ......................................................... 422.658 (delete) ................................................. 423.649 (delete). 

Right to a hearing and burden of proof ..................................................... 422.660 ............................................................... 423.650. 

Request for hearing ................................................................................... 422.662 ............................................................... 423.651. 

Postponement of effective date of a contract determination when a request for a hearing with respect to a contract determination is filed 

timely.

422.664 ............................................................... 423.652. 

Time and Place of Hearing ........................................................................ 422.670 ............................................................... 423.655. 

Discovery ................................................................................................... 422.682 ............................................................... 423.661. 

Prehearing and Summary Judgment ......................................................... 422.684 ............................................................... 423.662. 

Review by the Administrator ...................................................................... 422.692 ............................................................... 423.666. 

Reopening of initial contract determination or intermediate sanction or 

decision of a hearing officer or the Administrator.

422.696 ............................................................... 423.668. 

Effect of revised determination .................................................................. 422.698 (delete) ................................................. 423.669 (delete). 

Types of intermediate sanctions and civil money penalties ...................... 422.750 ............................................................... 423.750. 

Basis for imposing intermediate sanctions and civil money penalties ...... 422.752 ............................................................... 423.752. 

Procedures for imposing intermediate sanctions and civil money penalties.422.756 ............................................................... 423.756. 

Collection of civil money penalty imposed by CMS .................................. 422.758 ............................................................... 423.758. 

Determinations regarding the amount of civil money penalties and assessment imposed by CMS.422.760 ............................................................... 423.760. 

Settlement of penalties .............................................................................. 422.762 ............................................................... 423.762. 

Other applicable provisions ....................................................................... 422.764 ............................................................... 423.764. 

Basis and scope ........................................................................................ 422.1000 ............................................................. 423.1000. 

Definitions .................................................................................................. 422.1002 ............................................................. 423.1002. 

Scope and applicability .............................................................................. 422.1004 ............................................................. 423.1004. 

Appeal rights .............................................................................................. 422.1006 ............................................................. 423.1006. 

Appointment of representatives ................................................................. 422.1008 ............................................................. 423.1008. 


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TABLE 1.—CROSSWALK OF PART 422 AND PART 423 CFR SECTIONS—Continued 

Section heading Section references in part 422 Section references 

in part 423 

Authority of representatives ....................................................................... 422.1010 ............................................................. 423.1010. 

Fees for services of representatives ......................................................... 422.1012 ............................................................. 423.1012. 

Charge for transcripts ................................................................................ 422.1014 ............................................................. 423.1014. 

Filing of briefs with the Administrative Law Judge or Departmental Appeals Board, and opportunity for rebuttal.422.1016 ............................................................. 423.1016. 

Notice and effect of initial determinations ................................................. 422.1018 ............................................................. 423.1018. 

Request for hearing ................................................................................... 422.1020 ............................................................. 423.1020. 

Parties to the hearing ................................................................................ 422.1022 ............................................................. 423.1022. 

Designation of hearing official ................................................................... 422.1024 ............................................................. 423.1024. 

Disqualification of Administrative Law Judge ............................................ 422.1026 ............................................................. 423.1026. 

Prehearing conference ............................................................................... 422.1028 ............................................................. 423.1028. 

Notice of prehearing conference ............................................................... 422.1030 ............................................................. 423.1030. 

Conduct of prehearing conference ............................................................ 422.1032 ............................................................. 423.1032. 

Record, order, and effect of prehearing conference ................................. 422.1034 ............................................................. 423.1034. 

Time and place of hearing ......................................................................... 422.1036 ............................................................. 423.1036. 

Change in time and place of hearing ........................................................ 422.1038 ............................................................. 423.1038. 

Joint hearing .............................................................................................. 422.1040 ............................................................. 423.1040. 

Hearing on new issues .............................................................................. 422.1042 ............................................................. 423.1042. 

Subpoenas ................................................................................................. 422.1044 ............................................................. 423.1044. 

Conduct of hearing .................................................................................... 422.1046 ............................................................. 423.1046. 

Evidence .................................................................................................... 422.1048 ............................................................. 423.1048. 

Witnesses ................................................................................................... 422.1050 ............................................................. 423.1050. 

Oral and written summation ....................................................................... 422.1052 ............................................................. 423.1052. 

Record of hearing ...................................................................................... 422.1054 ............................................................. 423.1054. 

Waiver of right to appear and present evidence ....................................... 422.1056 ............................................................. 423.1056. 

Dismissal of request for hearing ................................................................ 422.1058 ............................................................. 423.1058. 

Dismissal for abandonment ....................................................................... 422.1060 ............................................................. 423.1060. 

Dismissal for cause .................................................................................... 422.1062 ............................................................. 423.1062. 

Notice and effect of dismissal and right to request review ....................... 422.1064 ............................................................. 423.1064. 

Vacating a dismissal of request for hearing .............................................. 422.1066 ............................................................. 423.1066. 

Administrative Law Judge’s decision ......................................................... 422.1068 ............................................................. 423.1068. 

Removal of hearing to Departmental Appeals Board ................................ 422.1070 ............................................................. 423.1070. 

Remand by the Administrative Law Judge ................................................ 422.1072 ............................................................. 423.1072. 

Right to request Departmental Appeals Board review of Administrative 

Law Judge’s decision or dismissal.

422.1074 ............................................................. 423.1074. 

Request for Departmental Appeals Board review ..................................... 422.1076 ............................................................. 423.1076. 

Departmental Appeals Board action on request for review ...................... 422.1078 ............................................................. 423.1078. 

Procedures before Departmental Appeals Board on review ..................... 422.1080 ............................................................. 423.1080. 

Evidence admissible on review ................................................................. 422.1082 ............................................................. 423.1082. 

Decision or remand by the Departmental Appeals Board ......................... 422.1084 ............................................................. 423.1084. 

Effect of Departmental Appeals Board decision ........................................ 422.1086 ............................................................. 423.1086. 

Extension of time for seeking judicial review ............................................ 422.1088 ............................................................. 423.1088. 

Basis, timing, and authority for reopening an Administrative Law Judge 

or Board decision.

422.1090 ............................................................. 423.1090. 

Revision of reopened decision .................................................................. 422.1092 ............................................................. 423.1092. 

Notice and effect of revised decision ........................................................ 422.1094 ............................................................. 423.1094. 

C. Proposed Changes to Part 422— 

Medicare Advantage Program and Part 

423—Medicare Prescription Drug 

Benefit Program 

Sections 422.2 and 423.4—Definitions 

We are proposing to correct a 

technical oversight in both regulations 

by including the definitions of 

‘‘downstream entity,’’ ‘‘first tier entity,’’

and ‘‘related entity,’’ in the overall 

definitions sections of both the MA and 

Part D regulations at § 422.2 and § 423.4 

to ensure that these terms are used 

consistently throughout both programs. 

Since these three terms are only defined 

in Subpart K of Parts 422 and 423, we 

are proposing to add them to Subpart A, 

General Provisions at § 422.4 and 

§ 423.4. The definitions are as follows: 

First tier entity means any party that 

enters into a written arrangement, 

acceptable to CMS, with a Part D 

sponsor or an MA organization or 

applicant to provide administrative 

services or health care services for a 

Medicare eligible individual under the 

Part D or MA program. 

Downstream entity means any party 

that enters into a written arrangement, 

acceptable to CMS, below the level of 

the arrangement between a Part D 

sponsor or an MA organization (or 

applicant) and a first tier entity. These 

written arrangements continue down to 

the level of the ultimate provider of both 

health and administrative services. 

Related entity means any entity that is 

related to the Part D sponsor or MA 

organization by common ownership or 

control and (1) Performs some of the 

Part D sponsor or MA organization’s 

management functions under contract or 

delegation; (2) Furnishes services to 

Medicare enrollees under an oral or 

written agreement; or (3) Leases real 

property or sells materials to the Part D 

sponsor or MA organization at a cost of 

more than $2,500 during a contract 

period. 

Below is a flow chart that provides 

examples of, and describes the 

relationships between, Part D sponsors, 

and first tier, downstream, and related 

entities. In accordance with the 

proposed changes above, we are 

removing the term ‘‘subcontractor’’ from 

this previously published flowchart. 

The original flowchart was published in 

the final version of Chapter 9 of the Part 


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D Manual last year. We will make 

conforming changes to the manual at a 

later date. After the flowchart we have 

provided examples of first tier and 

downstream entities for MA 

organizations. 

An example of a first tier entity for 

MA organizations would be a provider 

group that contracts with the MA 

organization to provide health care 

services to MA members. An example of 

a downstream entity for MA 

organizations would be an individual 

provider who contracts with a provider 

group that contracts with the MA 

organization to provide health care 

services to MA members. 

Sections 422.503 and 423.504—General 

Provisions 

The current regulations at § 423.504 

include a requirement that a Part D 

sponsor’s compliance plan consist of 

training and education as well as 

effective lines of communication 

between the compliance officer, and the 

organization’s employees, contractors, 

agents, directors, and managers. The 

terms ‘‘contractor’’ and ‘‘agent’’ are not 

defined in current regulation, and it has 

been unclear to the industry which 

entities are subject to the training and 

education, and the effective lines of 

communication requirements. In 

response to industry concerns and to 

eliminate the confusion associated with 

using the term ‘‘contractor’’, currently 

used in those sections, we are proposing 

to revise paragraphs (b)(4)(vi)(C) and 

(b)(4)(vi)(D) of § 423.504 to clarify that 

a compliance plan must consist of 

training, education, and effective lines 

of communication between the 

compliance officer and the Part D 

sponsor’s employees, managers, and 

directors, as well as the Part D sponsor’s 

‘‘first tier, downstream, and related 

entities’’ which are defined at 422.500 

and 423.501. This proposed change 

would clarify that Part D plan sponsors 

need to apply these training and 

communication requirements to all 

entities they are partnering with to 

provide benefits or services in the Part 

D program, not just their direct 

employees within their organizations. 

Pursuant to our authority under 

section 1856(b)(1) of the Act to establish 

Medicare Advantage standards by 

regulation, we are also proposing to 

require MA organizations to apply their 

training and education and effective 

lines of communication requirements to 

their first tier, downstream, and related 

entities. Since many MA–PDs, as Part D 

sponsors, have already been required to 

apply these requirements to the entities 

they contract with to deliver the Part D 

benefit, we are taking this opportunity 

to make the compliance plan 

requirements uniform across MA 

organizations, MA–PDs, and other Part 

D sponsors. 

Additionally, we propose clarifying 

paragraph (b)(4)(vi) in § 422.503 and 

§ 423.504 by removing what we believe 

to be a duplicative and confusing ‘‘final 

element’’ of the compliance plan— a 

‘‘comprehensive fraud, waste, and abuse 

plan to detect, correct, and prevent 

fraud, waste and abuse’’ at paragraph 

(b)(4)(vi)(H) of both regulations. We are 

proposing to remove this element 

because we received feedback from 

many Part D sponsors indicating that it 

was not clear whether CMS was 

requiring a fraud, waste, and abuse 

(FWA) plan separate and distinct from 

a compliance plan. In fact, we believe 

that a compliance plan that meets the 

compliance plan requirements in the 

regulations already has a 

‘‘comprehensive fraud, waste, and abuse 

plan to detect, correct, and prevent 

fraud, waste, and abuse.’’


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In April 2006, we issued Chapter 9 of 

the Part D Manual (‘‘Part D Program to 

Control Fraud, Waste and Abuse’’) as 

‘‘best practices’’ guidance for Part D 

sponsors to develop a FWA plan. We 

intended for Chapter 9 to be similar to 

the type of best practices guidance 

issued by the Office of the Inspector 

General (OIG) in its Compliance 

Program Guidance for drug 

manufacturers and health care 

providers. While we clarified in Chapter 

9 that Part D sponsors could choose 

whether to incorporate FWA measures 

in a compliance plan or develop a 

separate, stand-alone FWA plan, we 

believe the final element continues to 

cause potential confusion to the 

industry and therefore, are proposing to 

remove this element from (b)(4)(vi) of 

422.503 and 422.504. 

We continue to believe an effective 

compliance plan includes procedures 

and policies for preventing fraud, waste, 

and abuse and have proposed changes 

to the introductory clause of 

§ 423.504(b)(4)(vi) that reflect our policy 

stance. Since Congress mandated that 

Part D sponsors have a ‘‘program to 

control fraud, waste, and abuse’’

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

we also are clarifying that if Part D plan 

sponsors develop an effective 

compliance plan that incorporates 

measures to detect, prevent, and correct 

fraud, waste, and abuse, this compliance 

plan would also satisfy the statutory 

requirement for sponsors to have a FWA 

plan. Part D sponsors should look to 

Chapter 9 as recommended guidance for 

the types of measures we recommend in 

detecting and preventing fraud, waste, 

and abuse. Chapter 9 can be viewed at 

http://www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

PDBManual_Chapter9_FWA.pdf. 

Also pursuant to our authority under 

section 1856(b)(1) of the Act, we are 

proposing to make the same change to 

the introductory clause of 

§ 422.503(b)(4)(vi) so that the 

compliance plan requirements for MA 

organizations will be identical to those 

for Part D sponsors. We propose that 

MA organizations must include 

‘‘measures to detect, correct, and 

prevent fraud, waste, and abuse’’

throughout the 7 elements of the 

compliance plan requirement. While the 

existing MA compliance plan 

requirement does not explicitly refer to 

the prevention of fraud, waste, and 

abuse, it has always been our 

expectation that fraud, waste, and abuse 

would be addressed through the 

implementation of each of the 7 

elements in a compliance plan, 

enumerated at paragraphs (A) through 

(G) of § 422.504(b)(4)(vi). It has been our 

longstanding policy that an effective 

MA compliance plan addresses the 

detection, correction, and prevention of 

fraud, waste, and abuse in the MA 

program, and our proposed change 

would make this policy explicit in our 

regulations. We welcome your 

comments on this proposal. 

Since we are proposing to remove 

§ 423.504(b)(4)(vi)(H), we are proposing 

to add paragraph (b)(4)(vi)(G)(3) to 

§ 423.504 to include a provision on selfreporting of potential fraud or 

misconduct, which was addressed in 

§ 423.504(b)(4)(vi)(H). Pursuant to our 

authority under section 1856(b)(1) of the 

Act we also propose to add paragraph 

(b)(4)(vi)(G)(3) to § 422.503 to add a selfreporting provision to the MA 

regulations as well, in order to make the 

compliance plan requirements uniform 

across MA organizations and Part D 

sponsors. 

We note that when the original Part C 

regulations were issued in a June 26, 

1998 interim final rule establishing a 

new part 422, they included a selfreporting requirement at 

§ 423.501(b)(4)(vi)(H). (See 63 FR 

35100.) Unlike the current Part D selfreporting provision, this original 

paragraph (H) required that compliance 

plans have an ‘‘adhered-to-process for 

reporting to [CMS] and/or the OIG 

credible information of violations of law 

by the [MA] organization * * *.’’ In a 

June 29, 2000 final rule responding to 

comments on the June 26, 1998 interim 

final rule, this mandatory self-reporting 

requirement was eliminated. (See 65 FR 

40264–40265, 40299.) 

We believe that the decision to 

eliminate a mandatory self-reporting 

requirement has contributed to some 

highly publicized cases in which we 

have first found out about a major MA 

organization compliance issue when it 

appeared in the press. We have 

expressed our concerns in such 

situations that the matter was not 

promptly reported to us when it came 

to the attention of the MA organization 

in question. We believe that it is 

important for the government to have 

information on possible fraud or 

misconduct as soon as possible in order 

to determine whether any actions would 

be appropriate. We therefore are 

proposing to restore a mandatory selfreporting requirement for MA 

organizations, and to make the selfreporting provision that applies to Part 

D sponsors mandatory. The language in 

the new proposed 

§ 423.504(b)(4)(vi)(G)(3) and new 

proposed § 422.503(b)(4)(vi)(G)(3) 

accordingly provides for mandatory selfreporting. We welcome your comments 

on all of these changes. 

Sections 422.504 and 423.505—General 

Provisions 

We are proposing to clarify which 

entities under contract to MA 

organizations and Part D sponsors are 

subject to the contract provisions in the 

MA and Part D programs. Currently, the 

contract provisions at 422.504 and 

423.505 refer to such entities as the MA 

organization or Part D sponsor’s 

‘‘contractors’’ and ‘‘subcontractors,’’

which as we described above, are 

undefined terms in the statute and 

regulations. We are proposing, where 

applicable, to delete the term 

‘‘contractor’’ and replace the term 

‘‘subcontractor’’ with the terms ‘‘first 

tier and downstream entity’’ in 

422.504(e) and (i) to clarify which 

entities are subject to the contract 

provisions at 422.504. 

We are also proposing, where 

applicable, to delete the term 

‘‘contractor,’’ and replace the term 

‘‘subcontractor’’ with the terms ‘‘first 

tier entity’’ and ‘‘downstream entity’’ in 

the Part D contract provisions at 

423.505(e) and (i) for the same reasons. 

We believe using ‘‘first tier and 

downstream entity’’ instead of 

‘‘subcontractor’’ would lessen the 

potential for confusion in the Part D 

program. To clarify, under the Part D 

program, an example of a ‘‘first tier 

entity’’ is a pharmaceutical benefit 

manager (PBM) under contract to a Part 

D sponsor to provide all or some aspect 

of the Part D benefit on behalf of the 

sponsor. An example of a ‘‘downstream 

entity’’ in the Part D program is a 

pharmacy under contract to such a 

PBM. As discussed above, we are 

proposing to use the definitions of ‘‘first 

tier entity’’ and ‘‘downstream entity’’ (as 

well as ‘‘related entity’’) set forth at 

§ 423.501 to lessen any potential 

confusion in both programs. We 

welcome your comments on these 

proposed changes to the contract 

provisions. 

We have existing authority under 

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

§ 422.504(e) and § 423.505(e) to inspect 

and audit any books, contracts, requests, 

and records of a Part D sponsor or MA 

organization relating to the Part D 

program. In the preamble to the Part D 

proposed rule, published on January 28, 

2005 (70 FR 4194), describing these 

provisions, we clearly stated our 

inspection and audit rights with respect 

to a Part D sponsor and its contractors, 

subcontractors, and related entities 

under the section entitled ‘‘Access to 

Facilities and Records.’’ (69 FR 46632, 

46712). These third party disclosure 

requirements were finalized in the final 

MA and Part D rules and were approved 


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under the Paperwork Reduction Act 

approval under OMB #0938–1004 (Part 

C) and OMB #0938–1000 (Part D). The 

information collection section of this 

preamble also references the OMB 

approval numbers. 

In addition, we note that the 

solicitation for a Part D application 

already requires that a Part D sponsor’s 

contract or letter of agreement with each 

subcontractor ‘‘contain language 

ensuring that the subcontractor will 

make its books and other records 

available in accordance with 42 CFR 

423.505(i)(2).’’

Under this established legal authority, 

HHS, the Comptroller General, or their 

designees have the right to inspect, 

evaluate, and audit the books and other 

records of Part D sponsors and their first 

tier, downstream, and related entities. 

These rights continue for a period of 10 

years from the final date of the contract 

period or the date of audit completion, 

whichever is later. However, based on 

industry feedback and our own varied 

experience with accessing Medicare 

payment-related records from 

subcontracting entities, we believe we 

need to provide clarity to both the Part 

D sponsors and their first tier, 

downstream, and related entities 

regarding our expectation for complying 

with this disclosure requirement. Our 

expectation is that the first tier, 

downstream, and related entities will, 

upon CMS’ or our designees’ request, 

produce any pertinent contracts, books, 

documents, papers, and records relating 

to the Part D program. 

We are proposing in this rule to add 

a provision to the contracts and written 

arrangements between sponsors and 

their first tier, downstream, and related 

entities at § 423.505(i)(3)(iv) to clarify 

that this information can be provided to 

either the Part D sponsor or directly to 

CMS or our designees. We do not intend 

this new contract provision to explicitly 

require first tier, downstream, or related 

entities to produce their books and 

records directly to the Part D sponsor. 

Instead, we propose to leave it to the 

contracting parties to determine during 

their contract negotiations the process 

for submitting the requested information 

to CMS or our designees. The provision 

must be clear as to whether or not the 

requested documentation is to be 

submitted through the Part D sponsor to 

CMS, or submitted directly to CMS or 

our designees. The parties could also 

decide to have such books and records 

made directly available to CMS or our 

designees through onsite access. The 

Part D sponsor should be prepared to 

submit evidence of this agreed upon 

provision in its executed contracts to 

CMS. 

Because of the proposed contract 

provision, we are also proposing to 

redesignate § 423.505(i)(4)(iv) as 

§ 423.505(i)(4)(v). 

In accessing Part D-related books and 

records, HHS, the Comptroller General, 

or its designees have the authority to 

collect any information from the first 

tier, downstream, or related entities that 

is related to the Medicare Part D 

prescription drug transaction. Examples 

of this type of information include, but 

are not limited to: Policies and 

procedures; compliance plans; 

statements of conflict of interest; proof 

of beneficiary identification; 

documentation of the quantity and 

frequency of drugs being received by the 

beneficiary; evidence of the prescriber 

of the Part D drugs and the individual 

who signs for the drugs; and 

documentation relating to the drug’s 

history and origin. This information is 

critical to our ability to effectively 

oversee and monitor the Part D benefit, 

with the ultimate goal of protecting the 

Medicare Trust Fund and those 

beneficiaries enrolled in Part D. The 

information provided will be used to 

conduct investigations and audits of the 

Part D sponsors and its first tier, 

downstream, or related entities, to 

ensure compliance with Medicare Part 

D requirements, and to address potential 

fraud, waste, and abuse in the Part D 

benefit. 

CMS or our designees will make 

information requests as necessary to 

support any Part D investigations and 

audits. There is no continuous reporting 

requirement under sections 423.505(e) 

and (i), but rather requests are 

dependent upon the nature and severity 

of the complaint and the extent to 

which the investigation relies on 

supporting data from the first tier, 

downstream, and related entities. 

In addition to proposing a new 

contract provision at § 423.505(i)(4)(iv), 

we are also proposing minor regulatory 

changes which clarify the sponsor’s 

CMS contractual requirements. While 

we continue to believe our regulations 

clearly state our authority to access the 

books and records of a sponsor’s first 

tier, downstream, and related entities, 

we are proposing to add language about 

these partnering entities to 

§ 423.505(b)(10) and proposing to 

consolidate § 423.505(e)(2) and (3) into 

one provision at (e)(2). We are 

proposing these revisions to make 

explicit the Part D plan sponsor’s 

contractual obligation to ensure HHS, 

the Comptroller General, or their 

designees have access to any books and 

records related to the Part D program, 

including those of a sponsor’s first tier, 

downstream, and related entities. These 

proposed revisions do not impose any 

new requirements on Part D sponsors or 

its partnering entities. 

We are also proposing to clarify, 

without specific regulatory change in 

this rule that HHS, the Comptroller 

General, or their designees have the 

authority under the statute to request 

records relating to Part D rebate and any 

other price concessions information 

from Part D sponsors or their first tier, 

downstream, or related entities. These 

records would include, for example, 

copies of rebate agreements between 

PBMs and manufacturers and any 

records reflecting discounts, price 

concessions, chargebacks, rebates, cash 

discounts, free goods contingent on a 

purchase agreement, up-front payments, 

coupons, goods in kind, free or reduced 

price services, grants or other price 

concessions or similar benefits offered 

to some or all purchasers. 

Part D plan sponsors must maintain, 

as required by § 423.505(d), financial 

records, books and records pertaining to 

‘‘determinations of amounts payable 

under the contract,’’ agreements, 

contracts, and subcontracts, and ‘‘all 

prescription drug claims for the current 

period and 10 prior periods.’’ Since Part 

D sponsors have delegated many Part D 

functions to their first tier entities, many 

of these records reside with first tier 

entities, such as PBMs. We are taking 

this opportunity in this proposed rule to 

make explicit that we have the authority 

to request for verification of payment 

purposes, any records relating to rebates 

and any other price concessions 

between PBMs and manufacturers that 

may impact payments made to sponsors 

in the Part D program. 

We believe our proposal to obtain 

rebate and price-concession related 

records is supported by the statute. 

Sections 1860D–15(d)(2) and 1860D–

15(f)(1)(A) of the Act give us authority 

to request any information ‘‘necessary’’

to carry out the payment provisions in 

section 1860D–15 of the Act, which 

include payments of direct subsidies, 

reinsurance, and risk corridor costs to 

sponsors. While the rebate and other 

price concession information reported 

by the sponsors may provide some 

payment information, it may not be 

enough for us to determine in all cases 

whether appropriate payments have 

been made to the sponsor. It may be 

‘‘necessary’’ for us to obtain more 

detailed rebate and other price 

concession information from first tier 

entities in order to verify proper 

payments made to the sponsor. For 

example, we must receive accurate and 

complete rebate and other price 

concession information in order to 

determine what was ‘‘actually paid’’ and 


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to clearly reflect what was a gross 

covered cost, which excludes 

administrative costs. 

As stated in the CMS 2007 

Prescription Drug Sponsor Call Letter, 

‘‘CMS must assume that if a PBM retains 

a portion of the manufacturer rebates it 

negotiates on behalf of the Part D 

sponsors then the direct payment the 

sponsor pays the PBM for its services 

will be less, that is, the sponsor receives 

a price concession from the PBM.’’ If the 

rebates are passed completely through 

to the Plan then the charge from the 

PBM to the Plan would be an 

administrative cost that will need to be 

deducted from the ‘‘gross covered 

prescription drug costs’’ which along 

with the ‘‘actually paid costs’’ are a 

basis for CMS payment to the plans. 

In addition, such rebate and other 

price concession information is critical 

to our oversight efforts in curbing fraud, 

waste, and abuse in the Part D program. 

Congress granted us, under section 

1860D–2(d)(3) of the Act, the right to 

conduct periodic audits of a sponsor’s 

financial statements, books, and records 

‘‘to protect against fraud and abuse and 

to ensure proper disclosure and 

accounting’’ in the Part D program. 

Given the history of rebate reporting 

problems the government has 

encountered with PBMs in 

administering the Medicaid Drug Rebate 

Act, we believe we must have the ability 

to evaluate and inspect records relating 

to Part D rebates and other price 

concessions in order to fulfill our 

statutory duty of protecting beneficiaries 

from fraud and abuse and to ensure the 

financial integrity of the Part D program. 

Therefore, we propose when 

appropriate, to reserve the right to 

request records relating to Part D rebates 

and price concessions from the 

sponsor’s first tier entities. 

To the extent information necessary to 

verify payment would be collected 

under the auspices of section 1860D–15 

of the Act, the restrictions on using such 

information under 1860D–15(f) and (d) 

of the Act would also apply. Thus, the 

information collected to verify payment 

would be used only in carrying out the 

provisions of section 1860D–15 of the 

Act, and would not be used for other 

purposes. 

We are also clarifying in this 

proposed rule that in instances of 

suspected improper payment or 

potential fraud, we may obtain the 

actual records used by a Part D sponsor 

to submit its prescription drug event 

(PDE) data for payment, whether such 

records are with the sponsor or its first 

tier, downstream, or related entities. 

Sections 1860D–15(d)(2)(A) and 1860D–

15(f)(1) of the Act require the sponsor to 

disclose or provide ‘‘such information 

as the Secretary determines is 

necessary’’ to verify appropriate 

payments made to the Part D sponsor 

and to do so in a ‘‘form and manner’’

specified by the Secretary. The 

Secretary has also delegated to CMS 

inspection and audit rights under 

section 1860D–15(f)(1)(B) of the Act to 

ensure proper payments to sponsors. 

Based on these authorities, we are 

clarifying in the preamble of this 

proposed rule that we have the ability 

to access any records used by a Part D 

plan sponsor to calculate and submit its 

PDE data, including any records with 

the sponsor’s first tier, downstream, or 

related entities, for purposes of verifying 

payment. In order to verify accurate 

payments to the Part D plan sponsor, we 

may need at times to evaluate the 

records which comprised the basis for 

the PDE submission to ensure there are 

no inconsistencies, inaccuracies, or 

mistakes contained in these records 

which could have resulted in 

inappropriate or inaccurate 

determinations of payment. Moreover, 

we may need to review the underlying 

records of the PDE submission for 

purposes of investigating allegations of 

misconduct such as data tampering, 

fraudulent misrepresentation, or 

omissions of data which could have 

affected whether appropriate and 

accurate payments were made to the 

sponsor. 

In such instances of suspected fraud 

or improper payment, we may request 

from the sponsor, or its first tier, 

downstream, and related entities, 

records that include for example, the 

prescription drug claim or transaction 

record submitted by a pharmacy to a 

PBM. We are soliciting comment on 

what types of records should be subject 

to this access requirement. Again, to the 

extent such information would be 

provided under the authority of 1860D–

15 of the Act, the restrictions on use in 

that section would also apply. 

We note that any failure or omission 

by a first tier, downstream, or related 

entity to provide information requested 

by us, or to allow HHS access to its 

books and records relating to payment, 

would constitute a violation by the MA 

organization or Part D plan sponsor of 

its contract with us and a violation of 

the MA and Part D regulations. Such a 

failure would provide the basis for any 

applicable adverse actions, including 

potentially, the imposition of 

intermediate sanctions, civil money 

penalties, or contract termination 

against the Part D sponsor or MA 

organization. We welcome comments on 

these proposed changes. 

Sections 422.505 and 423.506—Effective 

Date and Term of Contract 

We propose removing § 422.505(c)(1) 

and § 423.506(c)(1), which state that 

contracts with MA organizations or Part 

D plan sponsors are only renewed if 

CMS informs the MA organization or 

Part D sponsor that it has authorized a 

renewal. Section 1857(c)(1) of the Act 

provides that the contract renews 

automatically, unless CMS or the 

organization notifies the other party of 

its intent to terminate the contract at the 

end of the existing contract term. 

Therefore, we propose to revise 

§ 422.505(c) and § 423.506(c) to state 

that in accordance with § 422.506 and 

§ 423.507, contracts are renewed 

annually only if the MA organization or 

Part D plan sponsor has not provided us 

with a notice of intent not to renew and 

we have not provided the MA 

organization or Part D plan sponsor with 

a notice of intent not to renew. This 

proposed change would better align the 

regulations with the statute. 

Sections 422.506 and § 423.507—

Nonrenewal of a Contract 

We propose revising the introductory 

text for § 422.506(b)(2) and 

§ 423.507(b)(2). In addition, we propose 

revising § 422.506(b)(2)(i) and § 423.507 

(b)(2)(i). The existing provisions require 

us to provide plans with notice of both 

renewal and nonrenewal decisions by 

May 1. We propose that a notice only be 

provided if we decide not to renew an 

MA organization or a Part D plan 

sponsor’s contract with us. As discussed 

above, Section 1857(c)(1) of the Act 

provides for an automatically renewable 

contract and does not require us to 

provide notice when we decide to 

renew a plan or sponsor’s contract with 

us. We propose revising the 

§ 422.506(b)(2) introductory text and the 

§ 423.507(b)(2) introductory text to 

clarify that we must provide notice of 

our decision not to authorize renewal of 

a contract. In addition, we propose to 

revise § 422.506(b)(2)(i) and § 423.507 

(b)(2)(i) to require that we provide 

notice by September 1 of the contract 

year, rather than May 1. If an MA 

organization or Part D sponsor receives 

a non-renewal notice from CMS, we will 

not provide information regarding the 

MA or Part D plans that the organization 

or sponsor offers in certain hard copy 

materials, such as the ‘‘Medicare & You’’

handbook. Information regarding the 

plans would continue to be available on 

the CMS website. For purposes of this 

proposed rule, a non-renewal would 

take effect on January 1 of the following 

contract year, whereas a termination 

may take effect at any time during the 


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contract year. Our proposed provisions 

would make contract renewal 

automatic, without notice, unless we 

notify the MA organization or Medicare 

Part D plan sponsor of our intent to 

nonrenew the contract by September 1 

of the current contract year. We 

welcome comments on these proposed 

changes. 

Changing the notification deadline to 

September 1 would provide us with 

additional time to make a determination 

as to whether an MA organization or 

Part D plan sponsor is in compliance 

with our requirements and should have 

its contract renewed for the following 

contract year. It has been our experience 

that the May 1 deadline does not 

provide us with enough time to obtain 

accurate up-to-date information in order 

to make a decision about contract 

renewals. This change would provide 

more time for us to make an accurate 

determination concerning contract nonrenewals. 

We propose redesignating 

§ 422.506(b)(3) as § 422.506(b)(4) and 

redesignating § 423.507(b)(3) as 

§ 423.507(b)(4). We propose adding a 

new paragraph at § 422.506(b)(3) and 

§ 423.507(b)(3) which would clarify the 

CAP process for nonrenewals. The Act 

requires us to provide MA organizations 

and Part D plan sponsors with a 

reasonable opportunity to develop a 

CAP prior to terminating a contract, in 

this case, a nonrenewal. The CAP 

process for nonrenewals would be the 

same process as we propose for 

terminations. We propose a more 

structured process which outlines the 

processes and timeframes for CAPs. 

Since we have the discretion to provide 

plans with the opportunity to develop 

and implement a CAP either prior to, or 

after, sending out a notice of intent to 

nonrenew, we would provide an MA 

organization or Part D plan sponsor with 

an opportunity to develop and 

implement a CAP prior to sending the 

sponsor or organization a notice of 

intent to nonrenew. This proposal 

marks a divergence from our past 

practice with respect to the CAP process 

as we have previously asked sponsors or 

organizations to develop CAPs 

subsequent to notifying them of a 

nonrenewal or termination decision. 

Our proposal clarifies that, in the future, 

once we issue a notice of nonrenewal or 

a notice of termination, the MA 

organization or Part D plan sponsor 

would not have an opportunity to 

submit a CAP. We would provide that 

opportunity to organizations and 

sponsors prior to issuing a notice of 

intent to nonrenew or a notice of intent 

to terminate. MA organizations and Part 

D plan sponsors should take very 

seriously any request from us to develop 

and implement a CAP since a failure to 

comply may result in a nonrenewal or 

termination action. We welcome 

comments on these proposed changes. 

We propose time limits at 

§ 422.506(b)(3) and § 423.507(b)(3) for 

the development and implementation of 

a CAP. Our experience with the CAP 

process is that plans may attempt to 

draw out the process indefinitely in the 

absence of a time limit. We do not 

believe that the statute intends for this 

process to go on indefinitely. We 

propose to provide the MA organization 

or Part D plan sponsor 45 days in which 

to submit a CAP to us. If we find that 

the CAP is unacceptable, the MA 

organization or Part D plan sponsor 

would have an additional 30 days to 

revise and resubmit the CAP. If we then 

find the CAP acceptable, we would 

provide the MA organization or Part D 

plan sponsor with a deadline by which 

the CAP must be implemented. If we 

find that the second version of the CAP 

is unacceptable, we would be under no 

obligation to accept further revisions to 

the CAP and would have the discretion 

to proceed directly to issuing a notice of 

nonrenewal to the MA organization or 

Part D plan sponsor. We welcome 

comments on these proposed changes. 

Sections 422.510 and 423.509—

Termination of Contract by CMS 

We propose revising § 422.510(a)(1) 

and § 423.509(a)(1) to clarify one of the 

bases for contract termination. The 

existing provision states that we may 

terminate an MA organization or Part D 

plan sponsor’s contract with us if the 

MA organization or Part D plan sponsor 

‘‘failed substantially to carry out the 

terms of its contract with CMS.’’ We 

propose language to clarify that we may 

terminate an MA organization or Part D 

plan sponsor’s contract if the 

organization substantially failed to carry 

out the terms of its contract with us for 

the current term or its contract from a 

previous term. This clarification would 

be consistent with section 1857(c)(1) of 

the Act, which states that a contract 

must be for a period of at least 1 year 

with the contract being automatically 

renewable from term to term, absent 

notice from either party of an intent to 

terminate the contract at the end of the 

current term. Given that we have 

already adopted automatically 

renewable multi-year contracts, failure 

to substantially carry out a contract term 

necessarily would apply to all years of 

the contract. 

We propose revising § 422.510(b) and 

§ 423.509(b) introductory text and 

revising the paragraph heading for 

§ 422.510(b)(2) and § 423.509(b)(2) to 

delete the term ‘‘immediate’’ and 

replace it with ‘‘expedited’’. In addition, 

we propose revising § 422.510(b)(2)(i) 

and § 423.509(b)(2)(i) to state that an 

expedited termination would take effect 

on a date specified by us. According to 

the existing regulations, an immediate 

termination takes effect once the MA 

organization or Part D plan sponsor 

receives notice that we intend to 

immediately terminate the plan’s 

contract with us and a plan’s enrollees 

are automatically disenrolled from the 

plan on the date such notice is received. 

Our proposed change would provide 

greater protection for Medicare 

beneficiaries because we would have 

time between notifying a plan of an 

expedited termination decision and the 

actual date of termination to provide 

enrollees of the MA or Part D plan with 

enough information to enroll in another 

plan. We welcome comments on these 

proposed changes. 

These changes are supported by 

section 1857(h)(2) of the Act which 

permits us to terminate a contract with 

an MA organization or Part D plan 

sponsor without providing the plan 

with an opportunity to submit a CAP 

and without notice and opportunity for 

a hearing, where the notice and hearing 

procedures required by section 

1857(h)(1) of the Act would pose an 

imminent and serious risk to the health 

of enrollees in the plan. Section 

1857(h)(2) of the Act is silent on the 

specifics of this alternate termination 

process and does not require 

‘‘immediate’’ termination; merely that 

the procedures at section 1857(h)(1) of 

the Act shall not apply. 

We would also clarify that we would 

be able to invoke the expedited 

termination process when a 

determination regarding an MA 

organization is made according to 

§ 422.510(a)(5). The existing regulations 

state that we invoke the current 

immediate termination process when a 

determination is made according to 

§ 422.510(a)(4) for the MA program and 

§ 423.509(a)(4) or (a)(5) for the Medicare 

Part D program. By adding (a)(5) as a 

basis for an expedited termination for 

MA organizations, the grounds for 

expedited terminations would be 

identical for the MA and Part D 

programs. The addition of 

§ 422.510(a)(5) would provide 

consistency between the Part C 

regulations and the Part D regulations. 

We propose to amend our procedures 

at § 422.510(c) and § 423.509(c) to 

provide more structure to the process 

for the submission and review of CAPs. 

The Act requires us to provide MA 

organizations and Part D plan sponsors 

with a reasonable opportunity to 


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develop and implement a CAP before 

we terminate the organization or 

sponsor’s contract. The CAP process we 

are proposing is the same process for 

nonrenewals outlined above and which 

we are proposing at § 422.506 and 

§ 423.507, providing for a more 

structured process and timeframes for 

the development and implementation of 

a CAP. 

Subpart N—Medicare Contract 

Determinations and Appeals 

We propose revisions to subpart N of 

42 CFR part 422 and 42 CFR part 423 

to coordinate and improve the contract 

determination and appeals processes for 

MA organizations and Part D plan 

sponsors. We propose removing the 

reconsideration process for appeals of 

all types of contract determinations. We 

also propose to make the appeals 

process consistent for all three types of 

contract determinations (terminations, 

nonrenewals, and decisions by us not to 

enter into a contract with an applicant). 

In addition, we propose that the MA 

organization or Part D plan sponsor 

have the burden of proof in appealing a 

contract determination. Below is a more 

detailed explanation of our proposals. 

We propose removing the provisions 

regarding the reconsideration process 

for appeals of contract determinations at 

§ 422.648, § 422.650, § 422.652, 

§ 422.654, § 422.656, § 422.658, 

§ 423.644, § 423.645, § 423.646, 

§ 423.647, § 423.648, and § 423.649. 

Section 1857(h) of the Act requires only 

that we provide an organization with 

notice and an opportunity for a hearing 

before terminating a contract. The 

reconsideration process is not required 

by statute. Eliminating the 

reconsideration process would expedite 

the appeals process which would 

benefit MA organizations and Part D 

plan sponsors as well as CMS. We 

welcome comments on the proposal to 

eliminate the reconsideration process 

for appeals or contract determinations. 

Sections 422.644 and 423.642—Notice 

of Contract Determination 

We are proposing to make conforming 

changes to § 422.644(b)(2) and 

§ 423.642(b)(2) as a result of the changes 

we are making to the immediate 

termination process. Consistent with the 

proposed revisions we have previously 

described, we propose to revise 

§ 422.644(c) and § 423.642(c) to state 

that we would determine the effective 

date of an expedited termination. We 

also propose adding the reference 

§ 422.510(a)(4) as a basis for which we 

may undertake an expedited 

termination. 

We also propose to revise the 

provisions at § 422.644(d) and 

§ 423.642(d) to conform to the proposed 

change previously described whereby 

we would provide notice of nonrenewal 

to MA organizations or Part D plan 

sponsors by September 1, rather than 

the current May 1. We welcome 

comments on the proposal to shift the 

date of the notice of nonrenewal from 

May 1 to September 1. 

Sections 422.646 and 423.643—Effect of 

Contract Determination 

We propose making conforming 

changes to the provisions at § 422.646 

and § 423.643 to reflect our proposal to 

eliminate the reconsideration process. 

The current regulations state that a 

contract determination is final unless an 

MA organization or Part D plan sponsor 

requests reconsideration. Since we have 

proposed eliminating the 

reconsideration process, we are 

proposing a conforming change to 

indicate that a contract determination 

would be a final decision unless a 

timely request for a hearing is filed. 

Sections 422.660 and 423.650—Right to 

a Hearing and Burden of Proof 

We also propose making conforming 

changes to the provisions at § 422.660(a) 

and 423.650(a) to reflect our proposal to 

eliminate the reconsideration process. 

These provisions would then state that 

if we determine that an applicant is not 

qualified to enter into a contract with us 

and the applicant chooses to appeal the 

determination, a hearing before a CMS 

hearing officer would be the first step in 

the appeal process. We propose to make 

similar conforming changes to 

§ 422.660(b) and § 423.650(b), to 

indicate that a hearing before a CMS 

hearing officer would be the first step in 

appealing a nonrenewal determination 

or a termination decision. 

We propose to add a new provision at 

§ 422.660(c) and at § 423.650(c) to 

clarify that the burden of proof would 

be on the MA organization or Part D 

plan sponsor at a hearing appealing a 

CMS contract determination. We believe 

case law supports our decision to place 

the burden of proof on the affected party 

in an administrative hearing on a 

contract determination involving a Part 

D plan sponsor or MA organization. The 

DAB has previously held that in a 

termination proceeding by the 

Secretary, the facility bears the ultimate 

burden of proving it is in compliance 

with program requirements. (See 

Hillman Rehabilitation Center, DAB No. 

1611 (1990), aff’d Hillman 

Rehabilitation Center v. United States, 

No. 98–3789 (GEB)(D.N.J. May 

13,1999).) We require that MA 

organizations and Part D sponsors are in 

compliance with our program 

requirements during the entire contract 

period. When we provide a notice of 

nonrenewal or termination, the basis for 

the notice is noncompliance with 

contractual and regulatory provisions. 

Once we have determined that the MA 

organization or Part D plan sponsor is 

out of compliance, the MA organization 

or Part D plan sponsor has the burden 

to prove it was in compliance. In 

addition, we also propose to specify that 

the MA organization or Part D plan 

sponsor must demonstrate substantial 

compliance with the relevant MA or 

Part D plan requirements as of the 

earliest of the following dates: (1) The 

date the organization or sponsor 

received written notice of the contract 

determination; (2) the date of the most 

recent on-site audit conducted as the 

basis of the termination; (3) or the date 

of the alleged breach of the current 

contract or past substantial 

noncompliance as determined by CMS. 

We welcome comments on these 

proposed changes. 

Based on our experience with appeals 

of contract determinations, we have 

found the current regulations do not 

provide hearing officers with a 

particular ‘‘compliance date’’ to use as 

a reference point in issuing a ruling. 

This creates the potential for 

inconsistency in the decisions issued by 

hearing officers. We believe our 

proposal to provide a framework for 

hearing officers to use in establishing a 

compliance date as a reference point 

will lessen the potential for such 

inconsistency. By requiring the 

compliance date to be the earliest of the 

three possible dates, the hearing will 

reflect that circumstances may differ on 

a case by case basis. For example, where 

an onsite audit was conducted or where 

a significant breach occurred, we think 

it is appropriate for us to base our 

decision to terminate a plan’s contract 

on the date of either the audit or the 

breach. However, where an onsite audit 

did not occur, or where the basis of our 

termination decision is not one major 

breach, we think it is appropriate to use 

the date we notified the MA 

organization or Part D sponsor of our 

intent to terminate as a reference point. 

Without a specific date as a reference 

point for evaluating compliance, the 

hearing officer lacks the information 

necessary to arrive at a determination. 

We welcome comments on these 

proposed changes. 

Sections 422.662 and 423.651—Request 

for a Hearing 

We propose to revise § 422.662(b) and 

§ 423.651(b) to conform to our proposed 


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change to eliminate the reconsideration 

process. These provisions would specify 

that a request for a hearing must be filed 

within 15 days after the date of the 

initial determination. 

Sections 422.664 and 423.652—

Postponement of Effective Date of a 

Contract Determination When a Request 

for a Hearing is Filed Timely 

We propose to revise § 422.664 and 

§ 423.652 to postpone the effective date 

of a contract determination when an MA 

organization or Part D sponsor timely 

requests a hearing to appeal the contract 

determination. However, the 

postponement would not override the 

requirement that any final decision in 

favor of the plan or sponsor must be 

issued by July 15 for an initial contract 

to be effective for the upcoming year. 

Thus, if an organization’s application is 

not approved and the hearing officer’s 

decision is not provided until August, 

the applicant would not be able to have 

a contract for the next year. This is 

consistent with our current process. We 

do not currently postpone the effective 

date of termination in cases of 

immediate termination, and we are not 

proposing any change in policy with 

respect to expedited terminations. 

Sections 422.670 and 423.655—Time 

and Place of Hearing 

We propose revising § 422.670(a) and 

§ 423.655(a), to require the hearing 

officer to send written notice to the 

parties specifying the general and 

specific issues to be resolved at the 

hearing, outlining the burden of proof 

and providing any information about 

the hearing procedures. In addition, the 

notice would inform the parties that 

they may conduct formal discovery. 

Sections 422.682 and 423.661—

Discovery 

We propose revising § 422.682 and 

§ 423.661, to clarify the scope of 

permissible discovery, and to require 

the hearing officer to conclude 

discovery and provide all documents to 

both the hearing officer and the 

opposing party at least 10 days prior to 

the hearing. It has been our experience 

that such a deadline, which is not set 

out in the existing regulations, is 

necessary to provide enough time for 

the parties or the hearing officer to 

review documents prior to the hearing. 

We welcome comments on these 

proposed changes. 

Sections 422.684 and 423.662—

Prehearing and Summary Judgment 

We propose to amend the provisions 

at § 422.684 and § 423.662 (and revise 

the section heading accordingly) to 

permit the hearing officer to rule on a 

motion for summary judgment filed by 

either of the parties to the hearing. In 

ruling on such a motion, we propose 

that the hearing officer would be bound 

by CMS regulations and general 

instructions. Where no factual dispute 

exists, the hearing officer may make a 

decision on the papers, without the 

need for a hearing. This would be more 

efficient and cost effective for both 

parties when no factual dispute exists. 

We welcome comments on these 

proposed changes. 

Sections 422.692 and 423.666—Review 

by the Administrator 

The existing regulations only 

explicitly permit Administrator review 

of a hearing officer’s decision in appeals 

of a contract termination. We clarify that 

this review is available for all appeals of 

CMS contract terminations, including 

decisions not to contract with an 

applicant and nonrenewals. 

We propose revising the provisions at 

§ 422.692(a) and § 423.666(a) to allow us 

to request Administrator review of a 

hearing officer’s decision regarding a 

contract determination. The existing 

regulations permit only the MA 

organization or Part D sponsor to 

request Administrator review. In 

addition, we propose to amend the same 

provisions to permit both the parties to 

submit written arguments to the 

Administrator. 

We propose revising the provisions at 

§ 422.692(b) and § 423.666(b), to permit 

the Administrator, upon receipt of a 

request for Administrator review, to 

accept or decline to review the hearing 

decision. The existing regulations 

require the Administrator to review the 

decision when a request for review is 

received. We believe that providing the 

Administrator with the discretion to 

accept or decline the request for review 

would lead to a more expeditious 

resolution of appeals of contract 

determinations. 

We propose redesignating § 422.692(c) 

as § 422.692(e) and redesignating 

§ 423.666(c) as § 423.666(e). 

We propose adding a new § 422.692(c) 

and § 423.666(c), to require the 

Administrator to make a determination 

as to whether to accept or decline the 

request for review within 30 days of the 

request of the review. The failure of the 

Administrator to make a determination 

within 30 days of the request would be 

treated as a decision to decline the 

request for review. We believe that 

providing this timeline would assist all 

parties in reaching a final decision in an 

expeditious manner. We welcome 

comments on these proposed changes. 

In addition, we propose amending our 

existing regulations to add a new 

paragraph at § 422.692(d) and 

§ 423.666(d) which specifies that 

Administrator review is based on the 

hearing record and any written 

arguments submitted by the parties. 

However, review would not be based on 

any new evidence, such as evidence that 

was not before the hearing officer. We 

believe the specified sources provide a 

sufficient basis for the Administrator to 

make a determination. 

If the Administrator declines to 

review the hearing officer’s decision, the 

decision of the hearing officer would 

become final and binding. 

Sections 422.696 and 423.668—

Reopening of Initial Contract 

Determination or Intermediate Sanction 

or Decision of a Hearing Officer of the 

Administrator 

We propose to revise the section 

headings for § 422.696 and § 423.668 

from ‘‘Reopening of a contract or 

reconsidered determination or decision 

of a hearing officer or the 

Administrator’’ to ‘‘Reopening of an 

initial contract determination or 

decision of a hearing officer or the 

Administrator’’ to conform to our 

proposed elimination of the 

reconsideration process described 

above. 

Sections 422.698 and 423.669—Effect of 

Revised Determination 

We propose making a conforming 

change to reflect our proposed 

elimination of the reconsideration 

process by removing in its entirety 

§ 422.698 and § 423.669, ‘‘Effect of 

revised determination.’’

Subpart O—Intermediate Sanctions 

We are proposing several changes to 

our regulations in Subpart O—

Intermediate Sanctions in 42 CFR Part 

422 and 42 CFR Part 423, to clarify our 

policies and procedures for imposing 

intermediate sanctions and Civil Money 

Penalties (CMPs) on MA organizations 

and Part D sponsors. Specifically, we 

propose to modify the appeals 

procedures for intermediate sanctions 

and clarify which set of procedures 

affected parties should use to appeal a 

CMP. We are soliciting public comment 

on our proposed changes to subpart O. 

Sections 422.750 and 423.750—Types of 

Intermediate Sanctions and Civil 

Monetary Penalties 

We propose reorganizing § 422.750 

and § 423.750, to distinguish the three 

different types of intermediate sanctions 

from CMPs. We also propose to clarify 

that each of the three intermediate 


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sanctions, (suspension of enrollment, 

suspension of payment, and suspension 

of marketing) would remain in effect 

until we are satisfied that the reasons for 

the initial suspensions have been 

corrected and are not likely to reoccur. 

This revision reflects our current policy 

and practice. 

For clarity, we propose specifying at 

§ 422.750(b) and § 423.750(b) that we 

may impose CMPs in the dollar amounts 

specified in § 422.760 and § 423.760. We 

propose to remove the prior reference at 

§ 422.750(a)(1) and § 423.750(a)(1) to the 

range of CMPs because it is confusing. 

Sections 422.752 and 423.752—Basis for 

Imposing Intermediate Sanctions and 

Civil Money Penalties 

At § 422.752 and § 423.752, we are 

proposing to reorganize the regulation to 

clarify the breakdown of responsibility 

between CMS and the OIG for imposing 

intermediate sanctions and CMPs based 

on the type of violation involved. 

Specifically, we clarify that CMS may 

impose a suspension of enrollment, 

payment, or marketing on an MA 

organization or Part D sponsor for 

violations specified in § 422.752(a)(1) 

through (a)(8) and for violations 

specified in § 423.752(a)(1) through 

(a)(6). 

As part of the reorganization to the 

regulation, we also are proposing to add 

a new § 422.752(c) and § 423.752(c), to 

clarify that in addition to the 

intermediate sanctions, we continue to 

have authority to impose CMPs for 

contract determinations made under 

§ 422.510(a) and § 423.509(a). However, 

as specified in § 422.752(c)(2) and 

§ 423.752(c)(2), OIG would continue to 

have sole authority to impose CMPs for 

any determinations concerning the MA 

organization or the Part D sponsor 

committing or participating in false, 

fraudulent, or abusive activities 

affecting the Medicare program, 

including the submission of false or 

fraudulent data, as stated in 

§ 422.510(a)(4) and § 423.509(a)(4). 

Sections 422.756 and 423.756—

Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

At § 422.756 and § 423.756 we 

propose to eliminate the existing 

informal reconsideration process used 

for review of a decision by CMS to 

impose an intermediate sanction, and 

allow an MA organization or Part D 

sponsor to proceed directly to a hearing, 

pursuant to the same procedures used to 

appeal contract determinations in 

Subpart N. (See § 422.660 through 

§ 422.698 and § 423.650 through 

§ 423.669.) We believe it would be more 

efficient and effective to allow the MA 

organization or Part D sponsor to 

proceed to a hearing in appealing an 

intermediate sanction. We note that a 

request to appeal an intermediate 

sanction before a hearing officer does 

not delay the intermediate sanction 

from taking effect on the date specified 

in the sanction notice. We welcome 

comments on these proposed changes. 

Because we propose to eliminate the 

informal reconsideration step, we 

propose that an MA organization or Part 

D sponsor have an opportunity to 

present information to us that may affect 

our decision to impose an intermediate 

sanction prior to the sanction taking 

effect. We recognize there may be 

occasions when we receive information 

that we previously did not have when 

making a decision to impose an 

intermediate sanction. Therefore, we 

propose that MA organizations and Part 

D sponsors have an opportunity to 

submit a written rebuttal statement as 

specified at § 422.756(a)(2) and 

§ 423.756(a)(2), and to require the 

rebuttal statement be provided to us 

within ten (10) calendar days after the 

MA organization or sponsor receives 

notice of the intermediate sanction. The 

10 calendar days begin the day after the 

notice of intermediate sanction is 

mailed to the plan. A notice of 

intermediate sanction is sent by 

overnight mail and by e-mail or fax. 

In some cases we may decide to 

impose multiple sanctions, for example, 

contract termination, intermediate 

sanction, or CMP, against an MA 

organization or Part D sponsor. We 

propose to have the CMP appeal process 

go to an ALJ while the other actions 

such as an intermediate sanction or a 

termination go to a CMS hearing official. 

Although the same underlying conduct 

may be the basis for both actions we 

believe that the separate processes 

would result in more consistent 

decision making by hearing officers and 

ALJs. 

Sections 422.758 and 423.758—

Collection of Civil Money Penalties 

Imposed by CMS 

At § 422.758 and § 423.758 we 

propose to revise the section heading 

‘‘Maximum amount of civil money 

penalties imposed by CMS’’ to read 

‘‘Collection of civil money penalties 

imposed by CMS.’’ In addition, we 

propose to revise § 422.758 and 

§ 423.758. Specifically, we propose that 

we would initiate collection of the 

CMPs if the MA organization or Part D 

sponsor does not timely request a 

hearing, or if our decision to impose a 

CMP is upheld by an ALJ. 

Sections 422.760 and 423.760—

Determinations Regarding the Amount 

of Civil Money Penalties and 

Assessment Imposed by CMS 

We propose redesignating the existing 

§ 422.760 as § 422.764 and redesignating 

the existing § 423.760 as § 423.764 

because in this rule we have made 

explicit which provisions of section 

1128A of the Act apply to CMP appeals 

procedures in proposed subpart T in 

parts 422 and 423. 

We propose adding a new § 422.760 

and § 423.760 to clarify that we use the 

statutory factors in section 1128(A) of 

the Act in determining the appropriate 

amount of civil money penalties or 

assessments to impose on an MA 

organization or Part D sponsor. These 

factors, if applicable, include the nature 

of the conduct, the degree of culpability, 

the prior history of offenses, the 

financial condition of the MA 

organization or Medicare Part D sponsor 

presenting the claims, and other matters 

as fair administration may require. 

These factors are based on the same 

statutory factors used in other Medicare 

enforcement programs, including those 

in the nursing facility enforcement 

context. 

We also propose to clarify in 

§ 422.760(b) and § 423.760(b), the 

amounts that may be assessed for CMPs 

that we impose. We welcome comments 

on these proposed changes. 

Sections 422.762 and 423.762—

Settlement of Penalties 

We propose to add a new § 422.762 

and § 423.762 to clarify that in 

accordance with section 1128A(f) of the 

Act, we have the authority to settle 

CMPs imposed by us. This provision 

would make it explicit what the parties 

may agree to settle the dispute instead 

of litigating an appeal. We welcome 

comments on these proposed changes. 

Sections 422.764 and 423.764—Other 

Applicable Provisions 

We propose to redesignate § 422.760 

and § 423.760 as § 422.764 and 

§ 423.764 respectively to conform to the 

changes proposed at the new § 422.760 

and § 423.760. No substantive changes 

to the text have been made. 

Subpart T—Appeal Procedures for Civil 

Money Penalties 

We propose to reserve subparts P, Q, 

R, and S in Part 422. In addition, we 

propose to add a new subpart T in Part 

422 and Part 423, respectively. These 

new subparts would outline the CMP 

appeal procedures for MA organizations 

and Part D sponsors. 

Our current MA and Part D 

regulations do not specify which 


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procedures an MA organization or Part 

D sponsor must use to appeal a CMSimposed penalty under either of these 

two programs. The regulations at 42 

CFR part 422.760 and 42 CFR part 

423.760 state only that the provisions of 

section 1128A of the Act (except 

paragraphs (a) and (b)) apply to civil 

money penalties under this subpart to 

the same extent that they apply to a civil 

money penalty or procedure under 

section 1128A of the Act. Nor have we 

issued any guidance directing parties to 

the appropriate appeals procedures for 

MA and Part D CMPs. 

Therefore, to ensure a consistent 

approach in this area, we are proposing 

incorporating appeals procedures for 

parties to use when appealing a CMP 

imposed under the MA or Part D 

program in a new subpart T in Parts 422 

and 423 respectively. 

Based on certain statutory 

requirements and policy considerations, 

we are proposing to adopt CMP appeals 

procedures almost identical to those in 

part 498 of Title 42, which are used by 

certain Medicare providers and 

suppliers to challenge adverse agency 

enforcement decisions. Part 498 sets 

forth the rules for administrative and 

judicial review of CMS determinations 

that affect participation in the Medicare 

and Medicaid programs for a wide array 

of medical providers of services. These 

rules, issued on June 12, 1987 (52 FR 

22446), have been used by CMS for 

almost 20 years and provide established 

appeals procedures for various types of 

adverse agency determinations, 

including civil money penalties 

imposed on nursing facilities. We 

welcome comments on the proposed 

changes to adopt most aspects of 42 CFR 

498 into the 42 CFR 422 and 42 CFR 423 

proposed regulations. 

The statute authorizing CMPs in the 

MA and Part D programs require the 

provisions of section 1128A of the Act, 

(except for subsection (a) and (b)), to 

apply to MA and Part D CMP 

proceedings, in the ‘‘same manner’’ as 

such provisions apply to other CMPs 

imposed under section 1128A. (See 

section 1857(g)(4) of the Act.) CMPs 

imposed on nursing facilities are also 

authorized under section 1128A of the 

Act. (See section 1819(h)(2)(B)(ii) of the 

Act (SNFs) and section 1919(h)(3)(C)(ii) 

of the Act (NFs), which state that ‘‘[t]he 

provisions of the section 1128A (other 

than subsections (a) and (b)) shall apply 

to a civil money penalty[] in the same 

manner as such provisions apply to a 

penalty or proceeding under section 

1128A(a).’’) Based on this common 

statutory basis, we believe using the Part 

498 procedures to hear CMP appeals in 

the MA and Part D programs is 

consistent with Congress’ intent. 

We also believe that relying on Part 

498 appeals procedures for CMP appeals 

in the MA and Part D programs make 

sense for policy reasons. We have 

substantial experience using these 

procedures and they provide an 

established infrastructure and wellvetted process for hearing CMP appeals. 

The bases on which we may impose 

CMP in the MA and Part D programs are 

also somewhat similar to those used in 

the nursing facility context. For 

example, CMPs can be imposed on MA 

organization and Part D sponsors for a 

wide range of regulatory and/or 

contractual violations, which may be 

brought to the agency’s attention based 

on audit findings. We believe the part 

498 appeals procedures are the most 

appropriate procedures to use for 

hearing disputes involving a wide range 

of violations. We welcome your 

comments on our proposal to adopt the 

part 498 procedures as our CMP appeals 

procedures. 

While the statute authorizing CMPs in 

the MA and Part D programs requires 

the provisions of section 1128A of the 

Act, (except for subsections (a) and (b)), 

to apply to MA and Part D CMP 

proceedings, it does not require that 

section 1128A’s provisions apply to 

other CMP appeals procedures in the 

exact same manner, or without some 

consideration for the MA or Part D 

program’s unique characteristics. In fact, 

section 1857(g)’s ‘‘same manner’’

language appears throughout the Act 

and serves as the statutory basis for 

several different types of CMP 

enforcement and appeals procedures. In 

the past, we have used our discretion to 

tailor certain hearing procedures to the 

particular type when developing other 

CMP appeals proceedings. Since the MA 

and Part D programs differ from the 

nursing facility program, we are 

proposing modifying certain sections of 

part 498 to take into account some of 

these differences. 

For example, we have proposed 

removing the reconsideration step in the 

MA and Part D CMP appeals procedures 

since this step in part 498 only applies 

to initial determinations made for 

prospective providers entering the 

Medicare or Medicaid program and is 

not applicable to CMP appeals. 

Removing the reconsideration step in 

subpart T would also help expedite the 

CMP appeals process. 

Since it is not clearly stated in part 

498’s regulations, we are proposing to 

make explicit in our regulations that in 

a hearing of a CMP appeal before an ALJ 

or the Departmental Appeals Board 

(DAB), the ultimate burden of 

persuasion would rest on the MA 

organization or Part D sponsor. The 

DAB has previously held that in a 

provider termination proceeding by the 

Secretary, the facility bears the ultimate 

burden of proving it is in compliance 

with program requirements. (See 

Hillman Rehabilitation Center, DAB No. 

1611 (1990), aff’d Hillman 

Rehabilitation Center v. United States, 

No. 98–3789 (GEB) (D.N.J. May 13, 

1999).) The DAB has also held that the 

same allocation of the burden of proof 

is appropriate where a CMP has been 

imposed on a nursing facility 

participating in Medicare. (See Batavia 

Nursing and Convalescent Center, DAB 

No. 1904 (2004).) We believe the 

administrative caselaw supports our 

decision to place the burden of proof on 

the affected party in an administrative 

hearing on the imposition of MA and 

Part D CMPs. As discussed above, 

noncompliance with requirements for 

MA and Part D organizations who 

participate in Medicare is analogous to 

noncompliance by providers (including 

nursing facilities) who participate in the 

program. Moreover, like the providers in 

the cited cases, an MA or Part D 

organization is party in possession of 

the most complete evidence of the state 

of its compliance. Thus, placing the 

ultimate burden of persuasion on the 

organization is fair. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 60-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the Office of 

Management and Budget (OMB) for 

review and approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

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

The following information collection 

requirements included in this proposed 

rule and their associated burdens are 

subject to the PRA. 

We are soliciting public comment on 

each of the issues for the following 

sections of this document that contain 


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information collection requirements and 

are not currently approved by the OMB. 

Section 422.503 General Provisions 

Sections 422.503(b)(4)(vi)(C) and 

(b)(4)(vi)(D) require a MA organization 

to have a compliance plan, which 

includes measures to detect, correct, 

and prevent fraud, waste, and abuse. 

The compliance plan shall include 

effective training and education 

between the compliance officer and the 

MA organization’s employees, managers 

and directors, the MA organization’s 

first tier, downstream, and related 

entities; and, effective lines of 

communication between the compliance 

officer, members of the compliance 

committee, the MA organization’s 

employees, managers and directors, and 

the MA organization’s first tier, 

downstream, and related entities. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to prepare 

a compliance plan that meets the 

requirements of this section. While this 

requirement is subject to the PRA, it is 

currently approved under OMB #0938–

1004. 

Section 422.503(b)(4)(vi)(G)(3) would 

require a MA organization to have 

procedures in place for mandatory selfreporting of potential fraud or 

misconduct related to the MA program 

to the appropriate government 

authority. The MA organization would 

be required to report potential fraud or 

misconduct related to the MA program 

to the appropriate government 

authority. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to 

implement procedures for mandatory 

self-reporting. We estimate it would take 

one MA organization 40 hours to fulfill 

this requirement. The total number of 

MA organizations affected by this 

requirement is 393. The total one-time 

burden for this requirement would be 

15,720 hours. We cannot anticipate how 

many plans will need to report any 

potentially fraudulent activities to CMS. 

However, based on historical evidence, 

we believe that less than 10 MA 

organizations would be required to selfreport potential fraud or misconduct 

related to the MA program. While this 

burden is subject to the PRA, we expect 

that less than 10 entities will be 

affected. Therefore, we believe these 

collection requirements are exempt as 

specified at 5 CFR 1320.3(c)(4). 

Section 422.504 Contract Provisions 

Section 422.504(e)(2) requires MA 

organizations to agree to allow HHS, the 

Comptroller General, or their designees 

to audit, evaluate, or inspect any books, 

contracts, medical records, patient care 

documentation, and other records of the 

MA organization, its first tier, 

downstream, related entity, or its 

transferee that pertain to any aspect of 

services performed, reconciliation of 

benefit liabilities, and determination of 

amounts payable under the contract, or 

as the Secretary may deem necessary to 

enforce the contract. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to 

maintain appropriate records and 

documentation. While this requirement 

is subject to the PRA, it is currently 

approved under OMB #0938–1004. 

Section 422.504(i)(2) requires the MA 

organization to require all first tier, 

downstream, and related entities to 

agree that HHS, the Comptroller 

General, or their designees have the 

right to inspect, evaluate, and audit any 

pertinent contracts, books, documents, 

papers, and records of the first tier, 

downstream, and related entities 

involving transactions related to CMS’

contract with the MA organization. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization’s first tier, 

downstream, and related entities to 

maintain appropriate records and 

documentation. While the burden 

associated with this requirement is 

subject to the PRA, it is currently 

approved under OMB #0938–1004. 

Section 422.505 Effective Date and 

Term of Contract 

Section 422.505(c) requires MA 

organizations who wish not to renew 

their contract to submit a notice of 

intent to CMS. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to prepare 

the notice and submit it to CMS. While 

this requirement is subject to the PRA, 

it is currently approved under OMB 

#0938–0753. 

Section 422.506 Nonrenewal of 

Contract 

Section 422.506 requires an MA 

organization to develop and submit a 

CAP to correct the deficiencies that are 

the basis of the termination decision. 

The MA organization must submit the 

CAP within 45 days of receiving notice 

of termination. 

The burden associated with this 

requirement is the time and effort it 

would take for the MA organization to 

develop and submit a CAP. While this 

requirement is subject to the PRA, we 

expect less than 10 entities will be 

affected; therefore, we believe these 

collection requirements are exempt as 

specified at 5 CFR 1320.3(c)(4). 

Section 423.504 General Provisions 

Sections 423.504(b)(4)(vi)(C) and 

(b)(4)(vi)(D) require Part D Sponsors to 

have a compliance plan, which includes 

measures to detect, correct, and prevent 

fraud, waste, and abuse. The 

compliance plan shall include effective 

training and education between the 

compliance officer and the Part D 

sponsor’s employees, managers and 

directors, and the Part D plan sponsor’s 

first tier, downstream, and related 

entities; and effective lines of 

communication between the compliance 

officer, members of the compliance 

committee, the Part D sponsor’s 

employees, managers and directors, and 

the Part D sponsor’s first tier, 

downstream, and related entities. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to prepare 

a compliance plan that meets the 

requirements of this section. While this 

requirement is subject to the PRA, it is 

currently approved under OMB #0938–

1000. 

Section 423.504(b)(4)(vi)(G)(3) would 

require a Part D sponsor to have 

procedures in place for mandatory selfreporting of potential fraud or 

misconduct related to the Part D 

program to the appropriate government 

authority. The Part D sponsor would be 

required to report potential fraud or 

misconduct related to the Part D 

program to the appropriate government 

authority. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to 

implement procedures for mandatory 

self-reporting. We estimate it would take 

one Part D sponsor 40 hours annually to 

fulfill this requirement. The total 

number of Part D sponsors affected by 

this requirement is 91. The total onetime burden would be 3,640 hours. We 

cannot anticipate how many plans will 

need to report any potentially 

fraudulent activities to CMS. However, 

in the event a Part D sponsor needed to 

self-report potential fraud or 

misconduct related to the Part D 

sponsor the total burden would be 5 

hours annually. If every sponsor had to 

report potential fraud or misconduct, 

the total burden would be 455 annual 

hours. 

Section 423.505 Contract Provisions 

Section 423.505(e)(2) requires Part D 

sponsors to make available its premises, 

physical facilities, equipment, and 

records that relate to its Medicare 

enrollees, and any additional relevant 


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information that CMS may require. The 

Part D sponsor also agrees to make 

available any books, contracts, medical 

records, patient care documentation, 

and other records of the Part D sponsor, 

first tier, downstream and related 

entity(s), or its transferee. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to make 

available records that relate to its 

Medicare enrollees. The burden 

associated with this requirement is 

currently approved under OMB #0938–

1000. 

Section 423.505(i)(2) requires the Part 

D sponsor to require all first tier, 

downstream, and related entities to 

agree that HHS, the Comptroller 

General, or their designees have the 

right to inspect, evaluate, and audit any 

pertinent contracts, books, documents, 

papers, and records of the first tier, 

downstream, and related entities 

involving transactions related to CMS’

contract with the Part D sponsor. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor’s first tier, 

downstream, and related entities to 

maintain appropriate records and 

documentation. While this requirement 

is subject to the PRA, it is currently 

approved under OMB #0938–1000. 

However, we have prepared the 

following analysis of the costs and 

burden associated with our proposal to 

require sponsors to include a provision 

in their contracts requiring their first 

tier and downstream entities to produce 

or make available their books and 

records. 

In the January 28, 2005 final rule that 

implemented the Medicare Prescription 

Drug Program (70 FR 4194), we noted 

that ‘‘The administrative cost estimates 

are based on taking into account the 

normal fixed costs associated with 

administering a prescription drug 

benefit, for example, such functions as 

claims processing, responding to 

customer inquiries, information, 

dissemination, appeals processes, 

pharmacy network negotiations, and 

contracting. The other factor taken into 

account when developing our estimate 

is that Prescription Drug Plans (PDPs) 

and Medicare Advantage Prescription 

Drug Plans (MA–PDs) will likely incur 

slightly higher administrative costs 

during the initial few years of the Part 

D benefit due to start-up costs related to 

implementation and initial operation for 

a new benefit.’’ The narrative explains 

that the average administrative costs 

associated with insurance products are 

typically expressed as a percentage 

relative to net standard benefit expenses 

and that the administrative load is 

expected to decline slightly over time. 

For purposes of this analysis, the impact 

is presented in burden hours and broken 

out into requests for purposes of: 

1. Provision in Contracts; 

2. BI Audit; and 

3. Investigation of complaints. 

1. Provision in contracts 

Ultimately, this additional provision 

would have to be discussed like all 

other provisions of a contract between a 

Part D sponsor and its first tier, 

downstream, and related entities. Since 

we have the authority to request this 

information and the Part D sponsor has 

attested to providing this data, we do 

not believe that this issue would be 

contentious or constitute negotiation 

discussion. We believe that, at the most, 

this provision would require 1 hour of 

attorney time to draft and discuss the 

provision. 

2. BI Audit 

Currently, there are a total of 650 Part 

D contracts (90 of those contracts 

represent PDPs and the remainder, 560 

contracts, represents MA–PDs and 

employer groups). A further breakdown 

of those numbers out to the plan level 

would be: 4,927 total MA–PDs and PDP 

plans (including employer groups). We 

note that if employer groups are 

excluded, the actual number drops to 

4,191. 

Based on this information, it is 

believed that 16 percent of the plans 

will be audited during the course of a 

contract year. Of the plans audited, it is 

estimated that approximately 10 percent 

of the plans will be required to produce 

evidence or other supporting 

documentation related to ‘‘first tier, 

downstream and other related entities.’’

It is further asserted that the labor hours 

required to produce the required 

documentation for those entities would 

be estimated at 10 hours per plan. 

Therefore, based on the number of Part 

D plans, the percentage of organizations 

that might be required to produce 

documentation for ‘‘first tier, 

downstream, and other related entities’’

and the number of labor hours required 

to produce this documentation we 

expect that the total impact would be 

140 hours in administrative costs. The 

following table summarizes our 

calculation of the burden estimate for 

Part D plans: 

Total number of Part D plans (PDP, MA–PD & Employer Groups) ............................................................................................................. 650 

Percentage of plans to be audited (16%) ..................................................................................................................................................... 104 

Percentage of plans audited that would be required to produce additional documentation for ‘‘first tier, downstream and related entities’’ (10%) ................................................................................................................................................................................................. 10 

Burden hours required to assemble documentation and submit to CMS (10 hours/plan) ........................................................................... 100 

3. Investigation of complaints 

Based on the past 18 months, we 

assume that investigation of complaints 

that require contacting a Part D plan to 

request documentation from first tier, 

downstream, and related entities would 

be approximately six instances. In the 

following table, we show our estimate of 

burden hours for downstream entities: 

Total number of Part D plans (PDP, MA–PD & Employer Groups) ............................................................................................................. 650 

Percentage of plans to be audited (16%) ..................................................................................................................................................... 104 

Percentage of plans audited that would be required to produce additional documentation for ‘‘first tier, downstream and related entities’’ (10%) ................................................................................................................................................................................................. 10 

Average number of ‘‘downstream entities’’ (e.g. pharmacy network): 

Retail ....................................................................................................................................................................................................... 55,000 

Mail Order ............................................................................................................................................................................................... 1 

Home Infusion ........................................................................................................................................................................................ 150 

Long Term Care ..................................................................................................................................................................................... 593 

I/T/U ........................................................................................................................................................................................................ 329 

Total burden hours required for downstream entities to assemble and submit documentation to the Part D organizations (hours/organization) at 3 hrs/downstream entity ............................................................................................................................................................. 166,440 


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Section 423.506 Effective Date and 

Term of Contract 

This section states that an entity is 

determined qualified to renew its 

contract annually only if the Part D 

sponsor has not provided CMS with a 

notice of intention not to renew and 

CMS has not provided the Part D 

sponsor with a notice of intention not to 

renew. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to prepare 

a notice of intent not to renew and 

submit it to CMS. While this 

requirement is subject to the PRA, it is 

currently approved under OMB #0938–

0964. 

Section 423.507 Nonrenewal of 

Contract 

Section 423.507 requires a Part D Plan 

Sponsor to develop and submit a 

corrective action plan (CAP) to correct 

the deficiencies that are the basis of the 

termination decision. The Part D 

Sponsor must submit the CAP within 45 

days of receiving notice of termination. 

The burden associated with this 

requirement is the time and effort it 

would take for the Part D Sponsor to 

develop and submit a CAP. While this 

requirement is subject to the PRA, we 

expect less than 10 entities will be 

affected; therefore, we believe these 

collection requirements are exempt as 

specified at 5 CFR 1320.3(c)(4). 

As reflected in the table that follows, 

the aggregate annual burden associated 

with the collection of information 

section totals 73,236 hours. 

OMB No. Requirements Number of 

respondents Burden hours Total annual burden 

0938–1004 ..................................... 422.503(b)(4)(vi)(C) and 

(b)(4)(vi)(D), 422.504(e)(2) & 

422.504(i)(2).

393 ................... 96 hours ........... 12,576 hours (based on 131 responses per year). 

None-requesting OMB approval .... 422.503(b)(4)(vi)(G)(3) ................ 393 ................... 40 hours ........... 15,720 hours (based on every 

plan reporting fraud or misconduct). 

0938–0753 ..................................... 422.505(c) ................................... 5–10 ................. 2 hours per notice.20 hours (estimated using 10 respondents). 

None/Exempt ................................. 422.506 ....................................... Less than 10 .... N/A ................... N/A. 

0938–1000* .................................... 423.504(b)(4)(vi)(C) and 

(b)(4)(vi)(D), 423.505(e)(2), & 

423.505(i)(2).

430 ................... 96 hours ........... 41,280 hours. 

None-requesting OMB approval .... 423.504(b)(4)(vi)(G)(3) ................ 91 ..................... 40 hours ........... 3,640 hours. 

Exemption mentioned in 0938–

0964.

423.506 ....................................... Less than 10 ..... N/A ................... N/A. 

None/Exempt ................................. 423.507 ....................................... Less than 10 .... N/A ................... N/A. 

Total Annual Burden ............... ...................................................... ........................... ........................... 73,236 hours. 

*This package will be revised to reflect new respondent numbers & annual burden, which are previously discussed in this section (166,440 

hours). The total annual burden of 73,236 hours includes 19,360 new hours, which added to 166,440 gives a total new burden of 185,800 hours 

which have not previously been approved. 

If you comment on any of these 

information collection and 

recordkeeping requirements, please mail 

copies directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development Group, 

Attn.: Melissa Musotto, CMS–4124–P, 

Room C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–

1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: Carolyn Lovett, CMS 

Desk Officer, (CMS–4124–P), 

carolyn_lovett@omb.eop.gov. Fax 

(202) 395–6974. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Statement 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This rule does not reach 

the economic threshold and thus is not 

considered a major rule. The provisions 

of this proposed rule would require MA 

and Part D sponsors to spend a total of 

approximately 186,000 additional hours 

on the functions addressed in this 

proposed rule. This includes our 

reestimates of burden. The details 

behind these estimates are presented in 

the preceding Paperwork Reduction Act 

section. 

Assuming an average cost to plans 

and downstream entities of $37.50 an 

hour for staff time spent on auditing and 

related functions covered by this 

proposed rule, the total net incremental 

cost of this proposal would be 

approximately $7 million ($37.50 × 

185,000 hours), far below the $100 

million threshold for a major rule. This 

cost would be spread more or less 

evenly across participating plans, and 

hence would impose negligible burden 

on any plan in relation to existing 

administrative costs. 

In the Regulatory Impact Analysis of 

the January 28, 2005 final rule that 

implemented the Medicare Prescription 

Drug Program (70 FR 4194), we noted 

that ‘‘The administrative cost estimates 

are based on taking into account the 

normal fixed costs associated with 

administering a prescription drug 


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benefit, for example, such functions as 

claims processing, responding to 

customer inquiries, information, 

dissemination, appeals processes, 

pharmacy network negotiations, and 

contracting.’’ This estimate included 

audit and related costs. The estimate 

was that administrative costs would 

constitute about one tenth of the cost of 

the program, or about $5 billion a year. 

(Similar estimates were prepared for the 

Medicare Advantage program’s final 

rule.) Accordingly, the estimated cost of 

this proposed rule adds negligibly to the 

total administrative costs of these 

programs. 

With respect to economic benefits, we 

have no reliable basis for estimating the 

effects of these proposals. It is important 

to understand that MA and Part D 

sponsors—not the government—bear the 

direct consequences of all their program 

costs, including unnecessary costs 

created by downstream entities. These 

plans are paid on a capitated basis and 

the amounts paid are not adjusted for 

realized costs. Hence, these plans 

already have strong incentives to 

prevent all forms of waste, including 

fraud and abuse. Accordingly, we 

estimate the benefits of these proposals 

as likely to be small, though larger than 

the costs involved. These benefits will 

accrue primarily to the plans themselves 

and, over time, to the participants who 

pay lower premiums as a result of plans’

cost-reducing incentives. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6 million to $29 million in any 1 

year. Individuals and States are not 

included in the definition of a small 

entity. As explained above, this 

proposed rule will not impose 

consequential costs on affected entities. 

Accordingly, we have determined that 

this proposed rule will not have a 

significant economic impact on a 

substantial number of small entities, 

and are not preparing an initial 

regulatory flexibility analysis. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined 

that this rule will not have a significant 

impact on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $120 million. This rule 

will have no consequential effect on 

State, local, or tribal governments or on 

the private sector. 

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. 

List of Subjects 

42 CFR Part 422 

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 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Medicare, 

Penalties, Privacy, Reporting and 

recordkeeping. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services would amend 42 CFR 

chapter IV as set forth below: 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

1. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

Subpart A—General Provisions 

2. Section 422.2 is amended by 

adding the definitions ‘‘Downstream 

entity’’, ‘‘First tier entity’’, and ‘‘Related 

entity’’ to read as follows: 

§ 422.2 Definitions. 

* * * * * 

Downstream entity means any party 

that enters into a written arrangement, 

acceptable to CMS, below the level of 

the arrangement between an MA 

organization (or applicant) and a first 

tier entity. These written arrangements 

continue down to the level of the 

ultimate provider of both health and 

administrative services. 

First tier entity means any party that 

enters into a written arrangement, 

acceptable to CMS, with an MA 

organization or applicant to provide 

administrative services or health care 

services for a Medicare eligible 

individual under the MA program. 

* * * * * 

Related entity means any entity that is 

related to the MA organization by 

common ownership or control and 

(1) Performs some of the MA 

organization’s management functions 

under contract or delegation; 

(2) Furnishes services to Medicare 

enrollees under an oral or written 

agreement; or 

(3) Leases real property or sells 

materials to the MA organization at a 

cost of more than $2,500 during a 

contract period. 

* * * * * 

Subpart K—Contracts With Medicare 

Advantage Organizations 

3. Amend § 422.503 by—

A. Revising paragraph (b)(4)(vi) 

introductory text. 

B. Revising paragraphs (b)(4)(vi)(C) 

and (b)(4)(vi)(D). 

C. Adding paragraph (b)(4)(vi)(G)(3) 

D. Removing paragraph (b)(4)(vi)(H). 

The revisions and additions read as 

follows: 

§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) A compliance plan, which must 

include measures to detect, correct, and 

prevent fraud, waste, and abuse, shall 

include the following elements: 

* * * * * 

(C) Effective training and education 

between the compliance officer and the 

MA organization’s employees, managers 

and directors, and the MA 

organization’s first tier, downstream, 

and related entities. 

(D) Effective lines of communication 

between the compliance officer, 

members of the compliance committee, 

the MA organization’s employees, 

managers and directors, and the MA 

organization’s first tier, downstream, 

and related entities. 

* * * * * 

(G) * * * 

(3) The MA organization must have 

procedures for mandatory self-reporting 

of potential fraud or misconduct related 


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to the MA program to the appropriate 

government authority. The MA 

organization is required to report 

potential fraud or misconduct related to 

the MA program to the appropriate 

government authority. 

* * * * * 

4. Amend § 422.504 by—

A. Republishing paragraph (e) 

introductory text. 

B. Revising paragraph (e)(1) 

introductory text 

C. Revising paragraph (i) introductory 

text and (i)(1). 

D. Revising paragraph (i)(2) 

introductory text. 

E. Revising paragraph (i)(2)(i). 

F. Revising paragraph (i)(3) 

introductory text. 

G. Revising paragraph (i)(3)(ii). 

H. Revising paragraph (i)(3)(iii) 

I. Revising paragraph (i)(4) 

introductory text. 

The revisions and additions read as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(e) Access to facilities and records. 

The MA organization agrees to the 

following: 

(1) HHS, the Comptroller General, or 

their designee may evaluate, through 

inspection, audit, or other means—

* * * * * 

(2) HHS, the Comptroller General, or 

their designees may audit, evaluate, or 

inspect any books, contracts, medical 

records, patient care documentation, 

and other records of the MA 

organization, its first tier, downstream, 

related entity, or its transferee that 

pertain to any aspect of services 

performed, reconciliation of benefit 

liabilities, and determination of 

amounts payable under the contract, or 

as the Secretary may deem necessary to 

enforce the contract. 

* * * * * 

(i) MA organization relationship with 

first tier, downstream, and related 

entities. (1) Notwithstanding any 

relationship(s) that the MA organization 

may have with first tier, downstream, 

and related entities, the MA 

organization maintains ultimate 

responsibility for adhering to and 

otherwise fully complying with all 

terms and conditions of its contract with 

CMS. 

(2) The MA organization agrees to 

require all first tier, downstream, and 

related entities to agree that—

(i) HHS, the Comptroller General, or 

their designees have the right to inspect, 

evaluate, and audit any pertinent 

contracts, books, documents, papers, 

and records of the first tier, 

downstream, and related entities 

involving transactions related to CMS’

contract with the MA organization. 

* * * * * 

(3) All contracts or written 

arrangements between MA 

organizations and providers, related 

entities, first tier and downstream 

entities must contain the following: 

* * * * * 

(ii) Accountability provisions that 

indicate that the MA organization may 

only delegate activities or functions to a 

provider, first tier, downstream, or 

related entity, in a manner consistent 

with the requirements set forth at 

paragraph (i)(4) of this section. 

(iii) A provision requiring that any 

services or other activity performed by 

a related entity, first-tier, or downstream 

entity in accordance with a contract or 

written agreement are consistent and 

comply with the MA organization’s 

contractual obligations. 

(4) If any of the MA organizations’

activities or responsibilities under its 

contract with CMS are delegated to 

other parties, the following 

requirements apply to any provider or 

first tier, downstream and related entity: 

* * * * * 

5. Amend § 422.505 by revising 

paragraph (c) to read as follows: 

§ 422.505 Effective date and term of 

contract. 

* * * * * 

(c) Renewal of contract. In accordance 

with § 422.506, contracts are renewed 

annually only if the MA organization 

has not provided CMS with a notice of 

intention not to renew and CMS has not 

provided the MA organization with a 

notice of intention not to renew. 

* * * * * 

6. Amend § 422.506 by—

A. Revising paragraph (b)(2) 

introductory text. 

B. Revising paragraph (b)(2)(i). 

C. Redesignating paragraph (b)(3) as 

(b)(4). 

D. Adding a new paragraph (b)(3). 

The revisions and additions read as 

follows: 

§ 422.506 Nonrenewal of contract. 

* * * * * 

(b) * * * 

(2) Notice of non-renewal. CMS 

provides notice of its decision not to 

authorize renewal of a contract as 

follows: 

(i) To the MA organization by 

September 1 of the contract year. 

* * * * * 

(3) Corrective action plan. (i) Before 

nonrenewing a contract, CMS will 

provide the MA organization with a 

reasonable opportunity to develop and 

submit a corrective action plan (CAP). 

(ii) The MA organization must 

develop and submit the CAP within 45 

days of receiving a request for a CAP. 

(iii) If CMS determines the CAP is 

unacceptable, CMS will provide the MA 

organization with an additional 30 days 

to submit a revised CAP. 

(iv) If CMS determines the CAP is 

acceptable, CMS will notify the MA 

organization of a deadline by which the 

CAP must be fully implemented. CMS 

has sole discretion on whether the CAP 

is fully implemented. 

(v) Failure to develop and implement 

a CAP within the timeframes specified 

in paragraphs (3)(i) through (3)(iii) of 

this section may result in the 

nonrenewal of the MA contract. 

* * * * * 

7. Amend § 422.510 by—

A. Republishing paragraph (a) 

introductory text. 

B. Revising paragraph (a)(1). 

C. Revising paragraph (b) introductory 

text. 

D. Revising paragraph (b)(2) heading. 

E. Revising paragraph (b)(2)(i). 

F. Revising paragraph (c). 

The revisions read as follows: 

§ 422.510 Termination of contract by CMS. 

(a) Termination by CMS. CMS may 

terminate a contract for any of the 

following reasons: 

(1) The MA organization has failed 

substantially to carry out the terms of—

(i) Its current contract term with CMS, 

or 

(ii) Its contract with CMS from the 

preceding contract term. 

* * * * * 

(b) Notice. If CMS decides to 

terminate a contract for reasons other 

than the grounds specified in 

§ 422.510(a)(4) or § 422.510(a)(5), it 

gives notice of the termination as 

follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. (i) For terminations based on 

violations prescribed in § 422.510(a)(4) 

or § 422.510(a)(5), CMS notifies the MA 

organization in writing that its contract 

will be terminated on a date specified 

by CMS. If termination is effective in the 

middle of a month, CMS has the right 

to recover the prorated share of the 

capitation payments made to the MA 

organization covering the period of the 

month following the contract 

termination. 

* * * * * 

(c) Corrective action plan.—(1) 

General. Before terminating a contract 

for reasons other than the grounds 

specified in paragraphs (a)(4) or (a)(5) of 


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this section, CMS will provide the MA 

organization with a reasonable 

opportunity to develop and submit a 

corrective action plan (CAP). 

(i) The MA organization must develop 

and submit the CAP within 45 days of 

receiving a request for a CAP. 

(ii) If CMS determines the CAP is 

unacceptable, CMS will provide the MA 

organization with an additional 30 days 

to submit a revised CAP. 

(iii) If CMS determines the CAP is 

acceptable, CMS will notify the MA 

organization of a deadline by which the 

CAP must be fully implemented. CMS 

has sole discretion on whether the CAP 

is fully implemented. 

(iv) Failure to develop and implement 

a CAP within the timeframes specified 

in paragraphs (c)(1)(i) through (c)(1)(iii) 

may result in the termination of the MA 

contract. 

(2) Exceptions. If a contract is 

terminated under § 422.510(a)(4) or 

§ 422.510(a)(5), the MA organization 

will not have the opportunity to submit 

a CAP. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

8. Amend § 422.644 by—

A. Republishing paragraph (b) 

introductory text. 

B. Revising paragraph (b)(2). 

C. Revising paragraph (c). 

D. Revising paragraph (d). 

The revisions read as follows: 

§ 422.644 Notice of contract determination. 

* * * * * 

(b) The notice specifies—

(1) * * * 

(2) The MA organization’s right to 

request a hearing. 

(c) For CMS-initiated terminations, 

CMS mails notice to the MA 

organization 90 days before the 

anticipated effective date of the 

termination. For terminations based on 

determinations described at 

§ 422.510(a)(4) or § 422.510(a)(5) CMS 

notifies the MA organization of the date 

that it will terminate the organization’s 

MA contract. 

(d) When CMS determines that it will 

not authorize a contract renewal, CMS 

mails the notice to the MA organization 

by September 1 of the current contract 

year. 

9. Section 422.646 is revised to read 

as follows: 

§ 422.646 Effect of contract determination. 

The contract determination is final 

and binding unless a timely request for 

a hearing is filed under § 422.662. 

§ 422.648 [Removed] 

10. Section 422.648 is removed. 

§ 422.650 [Removed] 

11. Section 422.650 is removed. 

§ 422.652 [Removed] 

12. Section 422.652 is removed. 

§ 422.654 [Removed] 

13. Section 422.654 is removed. 

§ 422.656 [Removed] 

14. Section 422.656 is removed. 

§ 422.658 [Removed] 

15. Section 422.658 is removed. 

16. Revise § 422.660 to read as 

follows: 

§ 422.660 Right to a hearing and burden of 

proof. 

(a) The following parties are entitled 

to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS under Part C 

of Title XVIII of the Act pursuant to 

§ 422.501. 

(2) An MA organization whose 

contract has been terminated pursuant 

to § 422.510. 

(3) An MA organization whose 

contract has not been renewed pursuant 

to § 422.506. 

(4) An MA organization who has had 

an intermediate sanction imposed 

pursuant to § 422.752(a) through (b). 

(b) The MA organization bears the 

burden of proof to demonstrate that it 

was in substantial compliance with the 

requirements of the MA program on the 

earliest of the following three dates: 

(1) The date the organization received 

written notice of the contract 

determination or intermediate sanction. 

(2) The date of the most recent on-site 

audit conducted by CMS. 

(3) The date of the alleged breach of 

the current contract or past substantial 

noncompliance as determined by CMS. 

(c) Notice of any decision favorable to 

the MA organization appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by July 15 for the contract in 

question to be effective on January 1 of 

the following year. 

17. Amend § 422.662 by revising 

paragraph (b) to read as follows: 

§ 422.662 Request for hearing. 

* * * * * 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

days from the date CMS notifies the MA 

organization of its determination. 

* * * * * 

18. Revise § 422.664 to read as 

follows: 

§ 422.664 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

(a) Hearing. When a request for a 

hearing is timely filed, CMS will 

postpone the proposed effective date of 

the contract determination listed at 

§ 422.641 until a hearing decision is 

reached and affirmed by the 

Administrator following review 

according to § 422.692 in instances 

where an MA organization or CMS 

requests Administrator review and the 

Administrator accepts the matter for 

review. 

(b) Exceptions: (1) If a final decision 

is not reached on CMS’ determination 

for an initial contract by July 15, CMS 

will not enter into a contract with the 

applicant for the following year. 

(2) A contract terminated in 

accordance with § 422.510(a)(4) or 

§ 422.510(a)(5) will be terminated on the 

date specified by CMS and will not be 

postponed if a hearing is requested. 

19. Amend § 422.670 by revising 

paragraph (a) to read as follows: 

§ 422.670 Time and place of hearing. 

(a) The hearing officer fixes a time 

and place for the hearing, which is not 

to exceed 30 days from the receipt of 

request for the hearing, and sends 

written notice to the parties. The notice 

informs the parties of—

(1) The general and specific issues to 

be resolved, the burden of proof, and 

information about the hearing 

procedure, and 

(2) The ability to conduct formal 

discovery. 

* * * * * 

20. Revise § 422.682 to read as 

follows: 

§ 422.682 Discovery. 

(a) Either party may make a request to 

another party for the production of 

documents for inspection and copying 

which are relevant and material to the 

issues before the hearing officer. 

(b) The hearing officer will provide 

the parties with a reasonable time for 

inspection and reproduction of 

documents, provided that discovery is 

concluded at least 10 calendar days 

prior to the hearing. 

(c) The hearing officer’s order on 

discovery matters is final. 

21. Revise § 422.684 to read as 

follows: 

§ 422.684 Prehearing and summary 

judgment. 

(a) Prehearing. The hearing officer 

may schedule a prehearing conference if 

he or she believes that a conference 

would more clearly define the issues. 

(b) Summary judgment. Either party 

to the hearing may ask the hearing 


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officer to rule on a motion for summary 

judgment. 

22. Amend § 422.692 by—

A. Revising paragraph (a). 

B. Revising paragraph (b). 

C. Redesignating paragraph (c) as 

paragraph (e). 

D. Adding a new paragraph (c). 

E. Adding a new paragraph (d). 

The revisions and additions read as 

follows: 

§ 422.692 Review by Administrator. 

(a) Request for review by 

Administrator. CMS or an MA 

organization that has received a hearing 

decision regarding a contract 

determination may request review by 

the Administrator within 15 calendar 

days of receiving the hearing decision as 

provided under § 422.690(b). Both the 

MA organization and CMS may provide 

written arguments to the Administrator 

for review. 

(b) Decision to review the hearing 

decision. After receiving a request for 

review, the Administrator has the 

discretion to elect to review the hearing 

decision in accordance with paragraph 

(d) of this section or to decline to review 

the hearing decision. 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 days of 

receiving the request for review. If the 

Administrator declines to review the 

hearing decision or the Administrator 

does not make a determination 

regarding review within 30 days, the 

decision of the hearing officer is final. 

(d) Review by the Administrator. If the 

Administrator elects to review the 

hearing decision regarding a contract 

determination, the Administrator shall 

review the hearing officer’s decision and 

determine, based upon this decision, the 

hearing record, and any written 

arguments submitted by the MA 

organization or CMS, whether the 

determination should be upheld, 

reversed, or modified. 

* * * * * 

23. Amend § 422.696 by—

A. Revising the section heading. 

B. Revising paragraph (a). 

The revisions read as follows: 

§ 422.696 Reopening of an initial contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Initial determination. CMS may 

reopen and revise an initial 

determination upon its own motion. 

* * * * * 

§ 422.698 [Removed] 

24. Section 422.698 is removed. 

Subpart O—Intermediate Sanctions 

25. Revise § 422.750 to read as 

follows: 

§ 422.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiency on which the 

determination was based has been 

corrected and is not likely to reoccur: 

(1) Suspension of enrollment of 

Medicare beneficiaries. 

(2) Suspension of payment to the MA 

organization for Medicare beneficiaries 

who are enrolled in the MA plan. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by 

an MA organization for all MA plans. 

(b) CMS may impose civil money 

penalties as specified in § 422.760. 

26. Amend § 422.752 by—

A. Revising the section heading. 

B. Revising paragraph (a) introductory 

text. 

C. Revising paragraph (b). 

D. Adding a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 422.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph, CMS 

may impose one or more of the 

sanctions as specified in § 422.750(a) on 

any MA organization that has a contract 

in effect. The MA organization may also 

be subject to other applicable remedies 

available under law. 

* * * * * 

(b) Suspension of enrollment and 

marketing. If CMS makes a 

determination that could lead to a 

contract termination under § 422.510(a), 

CMS may impose the intermediate 

sanctions at § 422.750(a)(1) and (a)(3). 

(c) Civil Money Penalties. 

(1) CMS. In addition to, or in place of, 

any intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in § 422.760 for any 

of the determinations at § 422.510(a), 

except § 422.510(a)(4). 

(2) OIG. In addition to, or in place of 

any intermediate sanctions imposed by 

CMS, the OIG, in accordance with 

section 1003 of this chapter, may 

impose civil money penalties for the 

following: 

(i) Violations listed at § 422.752(a). 

(ii) Determinations made pursuant to 

§ 422.510(a)(4). 

27. Amend § 422.756 by—

A. Revising the section heading. 

B. Revising paragraph (a). 

C. Revising paragraph (b). 

D. Revising paragraph (f). 

The revisions read as follows: 

§ 422.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(a) Notice of intermediate sanction 

and opportunity to respond.—(1) Notice 

of intent. Before imposing the 

intermediate sanction, CMS—

(i) Sends a written notice to the MA 

organization stating the nature and basis 

of the proposed intermediate sanction 

and the MA organization’s right to a 

hearing as specified in paragraph (b); 

and 

(ii) Sends the OIG a copy of the 

notice. 

(2) Opportunity to respond. CMS 

allows the MA organization 10 calendar 

days from receipt of the notice to 

provide a written rebuttal. CMS 

considers receipt of notice as the day 

after notice is sent by fax, e-mail, or 

submitted for overnight mail. 

(b) Hearing. The MA organization 

may request a hearing before a CMS 

hearing officer. A written request must 

be received by CMS within 15 calendar 

days of the MA organization receiving 

the notice of intent to impose an 

intermediate sanction. A request for a 

hearing under § 422.660 does not delay 

the date specified by CMS when the 

sanction becomes effective. The MA 

organization must follow the right to a 

hearing procedure as specified at 

§ 422.660 through § 422.684. 

* * * * * 

(f) Notice to impose civil money 

penalties. 

(1) CMS notice to OIG. If CMS 

determines that an MA organization has 

failed to comply with a requirement as 

described in § 422.752, CMS notifies the 

OIG of this determination. OIG may 

impose a civil money penalty upon an 

MA organization as specified at 

§ 422.752(c)(2). 

(2) CMS notice of civil money 

penalties to MA organizations. If CMS 

makes a determination to impose a CMP 

as described in § 422.752(c)(1), CMS 

will send a written notice of the 

Agency’s decision to impose a civil 

money penalty to include—

(i) A description of the basis for the 

determination. 

(ii) The basis for the penalty. 

(iii) The amount of the penalty. 

(iv) The date the penalty is due. 

(v) The MA organization’s right to a 

hearing under subpart T. 

(vi) Information about where to file 

the request for hearing. 

28. Revise § 422.758 to read as 

follows: 


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§ 422.758 Collection of civil money 

penalties imposed by CMS. 

(a) When an MA organization does 

not request a hearing, CMS initiates 

collection of the civil money penalty 

following the expiration of the 

timeframe for requesting an ALJ hearing 

as specified in Subpart T. 

(b) If an MA organization requests a 

hearing and CMS’ decision to impose a 

civil money penalty is upheld, CMS 

may initiate collection of the civil 

money penalty once the administrative 

decision is final. 

29. Amend § 422.760 by—

A. Redesignating § 422.760 as 

§ 422.764. 

B. Adding a new § 422.760 to read as 

follows: 

§ 422.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) Determining the appropriate 

amount of any penalty. In determining 

the amount of penalty imposed under 

§ 422.752(c)(1), CMS will consider as 

appropriate: 

(1) The nature of the conduct; 

(2) The degree of culpability of the 

MA organization; 

(3) The harm which resulted or could 

have resulted from the conduct of MA 

organization; 

(4) The financial condition of the MA 

organization; 

(5) The history of prior offenses by the 

MA organization or principals of the 

MA organization; and, 

(6) Such other matters as justice may 

require. 

(b) Amount of penalty. CMS may 

impose civil money penalties in the 

following amounts: 

(1) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more MA enrollees—up to $25,000 for 

each determination. 

(2) For each week that a deficiency 

remains uncorrected after the week in 

which the MA organization receives 

CMS’ notice of the determination—up to 

$10,000. 

(3) If CMS makes a determination that 

a MA organization has terminated its 

contract other than in a manner 

described under § 422.512 and that the 

MA organization has therefore failed to 

substantially carry out the terms of the 

contract—$250 per Medicare enrollee 

from the terminated MA plan or plans 

at the time the MA organization 

terminated its contract, or $100,000, 

whichever is greater. 

30. Adding a new § 422.762 to read as 

follows: 

§ 422.762 Settlement of penalties. 

For civil money penalties imposed by 

CMS, CMS may settle civil money 

penalty cases at any time before a final 

decision is rendered. 

Subpart P—[Reserved] 

31. Subpart P is reserved. 

Subpart Q—[Reserved] 

32. Subpart Q is reserved. 

Subpart R—[Reserved] 

33. Subpart R is reserved. 

Subpart S—[Reserved] 

34. Subpart S is reserved. 

35. A new subpart T is added to read 

as follows: 

Subpart T—Appeal Procedures for Civil 

Money Penalties 

Sec. 

422.1000 Basis and scope. 

422.1002 Definitions. 

422.1004 Scope and applicability. 

422.1006 Appeal rights. 

422.1008 Appointment of representatives. 

422.1010 Authority of representatives. 

422.1012 Fees for services of 

representatives. 

422.1014 Charge for transcripts. 

422.1016 Filing of briefs with the 

Administrative Law Judge or 

Departmental Appeals Board, and 

opportunity for rebuttal. 

422.1018 Notice and effect of initial 

determinations. 

422.1020 Request for hearing. 

422.1022 Parties to the hearing. 

422.1024 Designation of hearing official. 

422.1026 Disqualification of Administrative 

Law Judge. 

422.1028 Prehearing conference. 

422.1030 Notice of prehearing conference. 

422.1032 Conduct of prehearing conference. 

422.1034 Record, order, and effect of 

prehearing conference. 

422.1036 Time and place of hearing. 

422.1038 Change in time and place of 

hearing. 

422.1040 Joint hearing. 

422.1042 Hearing on new issues. 

422.1044 Subpoenas. 

422.1046 Conduct of hearing. 

422.1048 Evidence. 

422.1050 Witnesses. 

422.1052 Oral and written summation. 

422.1054 Record of hearing. 

422.1056 Waiver of right to appear and 

present evidence. 

422.1058 Dismissal of request for hearing. 

422.1060 Dismissal for abandonment. 

422.1062 Dismissal for cause. 

422.1064 Notice and effect of dismissal and 

right to request review. 

422.1066 Vacating a dismissal of request for 

hearing. 

422.1068 Administrative Law Judge’s 

decision. 

422.1070 Removal of hearing to 

Departmental Appeals Board. 

422.1072 Remand by the Administrative 

Law Judge. 

422.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

422.1076 Request for Departmental Appeals 

Board review. 

422.1078 Departmental Appeals Board 

action on request for review. 

422.1080 Procedures before the 

Departmental Appeals Board on review. 

422.1082 Evidence admissible on review. 

422.1084 Decision or remand by the 

Departmental Appeals Board. 

422.1086 Effect of Departmental Appeals 

Board Decision. 

422.1088 Extension of time for seeking 

judicial review. 

422.1090 Basis, timing, and authority for 

reopening an Administrative Law Judge 

or Board decision. 

422.1092 Revision of reopened decision. 

422.1094 Notice and effect of revised 

decision. 

Subpart T—Appeal procedures for 

Civil Money Penalties 

§ 422.1000 Basis and scope. 

(a) Statutory basis. 

(1) Section 1128A(c)(2) of the Act 

provides that the Secretary may not 

collect a civil money penalty until the 

affected party has had notice and 

opportunity for a hearing. 

(2) Section 1857(g) of the Act provides 

that, for MA organizations out of 

compliance with the requirements in 

part 422 specified remedies may be 

imposed instead of, or in addition to, 

termination of the MA organization’s 

contract. Section 1857(g)(4) of the Act 

makes certain provisions of section 

1128A of the Act applicable to civil 

money penalties imposed on MA 

organizations. 

(b) [Reserved] 

§ 422.1002 Definitions. 

As used in this subpart—

Affected party means an MA 

organization impacted by an initial 

determination or if applicable, by any 

subsequent determination or decision 

issued under this part. For this 

definition, ‘‘party’’ means the affected 

party or CMS, as appropriate. 

ALJ stands for Administrative Law 

Judge. 

Departmental Appeals Board or Board 

means a Board established in the Office 

of the Secretary to provide impartial 

review of disputed decisions made by 

the operating components of the 

Department. 

MA organization has the meaning 

given the term in § 422.2 of this title. 

§ 422.1004 Scope and applicability. 

(a) Scope. (1) This subpart sets forth 

procedures for reviewing initial 

determinations that CMS makes with 


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respect to the matters specified in 

paragraph (b) of this section. 

(2) The determinations listed in this 

section affect participation in the 

Medicare program. 

(3) The following provisions in this 

subpart specify the applicability of the 

provisions of part 422, subpart O to civil 

money penalties or remedies imposed 

on the indicated entities on MA 

organizations and MA–Part DD 

organizations. 

(b) Initial determinations by CMS. 

CMS makes initial determinations with 

respect to the imposition of civil money 

penalties in accordance with part 422, 

subpart O. 

§ 422.1006 Appeal rights. 

(a) Appeal rights of MA organizations. 

(1) Any MA organization dissatisfied 

with an initial determination as 

specified in § 422.1004, has a right to a 

hearing before an ALJ in accordance 

with this subpart and may request 

Departmental Appeals Board review of 

the ALJ decision. 

(2) MA organizations may request 

judicial review of the Departmental 

Appeals Board’s decision that imposes a 

CMP. 

(b) [Reserved] 

§ 422.1008 Appointment of 

representatives. 

(a) An affected party may appoint as 

its representative anyone not 

disqualified or suspended from acting as 

a representative in proceedings before 

the Secretary or otherwise prohibited by 

law. 

(b) If the representative appointed is 

not an attorney, the party must file 

written notice of the appointment with 

the ALJ or the Departmental Appeals 

Board. 

(c) If the representative appointed is 

an attorney, the attorney’s statement 

that he or she has the authority to 

represent the party is sufficient. 

§ 422.1010 Authority of representatives. 

(a) A representative appointed and 

qualified in accordance with § 422.1008 

may, on behalf of the represented 

party—

(1) Give and accept any notice or 

request pertinent to the proceedings set 

forth in this part; 

(2) Present evidence and allegations 

as to facts and law in any proceedings 

affecting that party to the same extent as 

the party; and 

(3) Obtain information to the same 

extent as the party. 

(b) A notice or request may be sent to 

the affected party, to the party’s 

representative, or to both. A notice or 

request sent to the representative has 

the same force and effect as if it had 

been sent to the party. 

§ 422.1012 Fees for services of 

representatives. 

Fees for any services performed on 

behalf of an affected party by an 

attorney appointed and qualified in 

accordance with § 422.1008 are not 

subject to the provisions of section 206 

of Title II of the Act, which authorizes 

the Secretary to specify or limit those 

fees. 

§ 422.1014 Charge for transcripts. 

A party that requests a transcript of 

prehearing or hearing proceedings or 

Board review must pay the actual or 

estimated cost of preparing the 

transcript unless, for good cause shown 

by that party, the payment is waived by 

the ALJ or the Departmental Appeals 

Board, as appropriate. 

§ 422.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

(a) Filing of briefs and related 

documents. If a party files a brief or 

related document such as a written 

argument, contention, suggested finding 

of fact, conclusion of law, or any other 

written statement, it must submit an 

original and 1 copy to the ALJ or the 

Departmental Appeals Board, as 

appropriate. The material may be filed 

by mail or in person and must include 

a statement certifying that a copy has 

been furnished to the other party. 

(b) Opportunity for rebuttal. (1) The 

other party will have 20 days from the 

date of mailing or personal service to 

submit any rebuttal statement or 

additional evidence. If a party submits 

a rebuttal statement or additional 

evidence, it must file an original and 1 

copy with the ALJ or the Board and 

furnish a copy to the other party. 

(2) The ALJ or the Board will grant an 

opportunity to reply to the rebuttal 

statement only if the party shows good 

cause. 

§ 422.1018 Notice and effect of initial 

determinations. 

(a) Notice of initial determination.—

CMS, as required under 422.756(f)(2) in 

Subpart O, mails notice of an initial 

determination to the affected party, 

setting forth the basis or reasons for the 

determination, the effect of the 

determination, and the party’s right to a 

hearing, and information about where to 

file the request for hearing. 

(b) Effect of initial determination. An 

initial determination is binding unless—

(1) The affected party requests a 

hearing; or 

(2) CMS revises its decision. 

§ 422.1020 Request for hearing. 

(a) Manner and timing of request. 

(1) An MA organization is entitled to 

a hearing as specified in § 422.1006 and 

may file a request for a hearing with the 

Departmental Appeals Board office 

specified in the initial determination. 

(2) The MA organization or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days from 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

(b) Content of request for hearing. The 

request for hearing must—

(1) Identify the specific issues, and 

the findings of fact and conclusions of 

law with which the affected party 

disagrees; and 

(2) Specify the basis for each 

contention that the finding or 

conclusion of law is incorrect. 

§ 422.1022 Parties to the hearing. 

The parties to the hearing are the 

affected party and CMS, as appropriate. 

§ 422.1024 Designation of hearing official. 

(a) The Chair of the Departmental 

Appeals Board, or his or her delegate 

designates an ALJ or a member or 

members of the Departmental Appeals 

Board to conduct the hearing. 

(b) If appropriate, the Chair or the 

delegate may substitute another ALJ or 

another member or other members of 

the Departmental Appeals Board to 

conduct the hearing. 

(c) As used in this part, ‘‘ALJ’’

includes a member or members of the 

Departmental Appeals Board who are 

designated to conduct a hearing. 

§ 422.1026 Disqualification of 

Administrative Law Judge. 

(a) An ALJ may not conduct a hearing 

in a case in which he or she is 

prejudiced or partial to the affected 

party or has any interest in the matter 

pending for decision. 

(b) A party that objects to the ALJ 

designated to conduct the hearing must 

give notice of its objections at the 

earliest opportunity. 

(c) The ALJ will consider the 

objections and decide whether to 

withdraw or proceed with the hearing. 

(1) If the ALJ withdraws, another ALJ 

will be designated to conduct the 

hearing. 

(2) If the ALJ does not withdraw, the 

objecting party may, after the hearing, 

present its objections to the 

Departmental Appeals Board as reasons 


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for changing, modifying, or reversing 

the ALJ’s decision or providing a new 

hearing before another ALJ. 

§ 422.1028 Prehearing conference. 

(a) At any time before the hearing, the 

ALJ may call a prehearing conference 

for the purpose of delineating the issues 

in controversy, identifying the evidence 

and witnesses to be presented at the 

hearing, and obtaining stipulations 

accordingly. 

(b) On the request of either party or 

on his or her own motion, the ALJ may 

adjourn the prehearing conference and 

reconvene at a later date. 

§ 422.1030 Notice of prehearing 

conference. 

(a) Timing of notice. The ALJ will fix 

a time and place for the prehearing 

conference and mail written notice to 

the parties at least 10 days before the 

scheduled date. 

(b) Content of notice. The notice will 

inform the parties of the purpose of the 

conference and specify what issues are 

sought to be resolved, agreed to, or 

excluded. 

(c) Additional issues. Issues other 

than those set forth in the notice of 

determination or the request for hearing 

may be considered at the prehearing 

conference if—

(1) Either party gives timely notice to 

that effect to the ALJ and the other 

party; or 

(2) The ALJ raises the issues in the 

notice of prehearing conference or at the 

conference. 

§ 422.1032 Conduct of prehearing 

conference. 

(a) The prehearing conference is open 

to the affected party or its 

representative, to the CMS 

representatives and their technical 

advisors, and to any other persons 

whose presence the ALJ considers 

necessary or proper. 

(b) The ALJ may accept the agreement 

of the parties as to the following: 

(1) Facts that are not in controversy. 

(2) Questions that have been resolved 

favorably to the affected party after the 

determination in dispute. 

(3) Remaining issues to be resolved. 

(c) The ALJ may request the parties to 

indicate the following: 

(1) The witnesses that will be present 

to testify at the hearing. 

(2) The qualifications of those 

witnesses. 

(3) The nature of other evidence to be 

submitted. 

§ 422.1034 Record, order, and effect of 

prehearing conference. 

(a) Record of prehearing conference. 

(1) A record is made of all agreements 

and stipulations entered into at the 

prehearing conference. 

(2) The record may be transcribed at 

the request of either party or the ALJ. 

(b) Order and opportunity to object. 

(1) The ALJ issues an order setting 

forth the results of the prehearing 

conference, including the agreements 

made by the parties as to facts not in 

controversy, the matters to be 

considered at the hearing, and the issues 

to be resolved. 

(2) Copies of the order are sent to all 

parties and the parties have 10 days to 

file objections to the order. 

(3) After the 10 days have elapsed, the 

ALJ settles the order. 

(c) Effect of prehearing conference. 

The agreements and stipulations entered 

into at the prehearing conference are 

binding on all parties, unless a party 

presents facts that, in the opinion of the 

ALJ, would make an agreement 

unreasonable or inequitable. 

§ 422.1036 Time and place of hearing. 

(a) The ALJ fixes a time and place for 

the hearing and gives the parties written 

notice at least 10 days before the 

scheduled date. 

(b) The notice informs the parties of 

the general and specific issues to be 

resolved at the hearing. 

§ 422.1038 Change in time and place of 

hearing. 

(a) The ALJ may change the time and 

place for the hearing either on his or her 

own initiative or at the request of a 

party for good cause shown, or may 

adjourn or postpone the hearing. 

(b) The ALJ may reopen the hearing 

for receipt of new evidence at any time 

before mailing the notice of hearing 

decision. 

(c) The ALJ gives the parties 

reasonable notice of any change in time 

or place or any adjournment or 

reopening of the hearing. 

§ 422.1040 Joint hearings. 

When two or more affected parties 

have requested hearings and the same or 

substantially similar matters are at 

issue, the ALJ may, if all parties agree, 

fix a single time and place for the 

prehearing conference or hearing and 

conduct all proceedings jointly. If joint 

hearings are held, a single record of the 

proceedings is made and a separate 

decision issued with respect to each 

affected party. 

§ 422.1042 Hearing on new issues. 

(a) Basic rules. (1) Within the time 

limits specified in paragraph (b), the 

ALJ may, at the request of either party, 

or on his or her own motion, provide a 

hearing on new issues that impinge on 

the rights of the affected party. 

(2) The ALJ may consider new issues 

even if CMS has not made initial or 

reconsidered determinations on them, 

and even if they arose after the request 

for hearing was filed or after a 

prehearing conference. 

(3) The ALJ may give notice of hearing 

on new issues at any time after the 

hearing request is filed and before the 

hearing record is closed. 

(b) Notice and conduct of hearing on 

new issues. (1) Unless the affected party 

waives its right to appear and present 

evidence, notice of the time and place 

of hearing on any new issue will be 

given to the parties in accordance with 

§ 422.1036. 

(2) After giving notice, the ALJ will, 

except as provided in paragraph (c) of 

this section, proceed to hearing on new 

issues in the same manner as on an 

issue raised in the request for hearing. 

(c) Remand to CMS. At the request of 

either party, or on his or her own 

motion, in lieu of a hearing under 

paragraph (b) of this section, the ALJ 

may remand the case to CMS for 

consideration of the new issue and, if 

appropriate, a determination. If 

necessary, the ALJ may direct CMS to 

return the case to the ALJ for further 

proceedings. 

§ 422.1044 Subpoenas. 

(a) Basis for issuance. The ALJ, upon 

his or her own motion or at the request 

of a party, may issue subpoenas if they 

are reasonably necessary for the full 

presentation of a case. 

(b) Timing of request by a party. The 

party must file a written request for a 

subpoena with the ALJ at least 5 days 

before the date set for the hearing. 

(c) Content of request. The request 

must: 

(1) Identify the witnesses or 

documents to be produced; 

(2) Describe their addresses or 

location with sufficient particularity to 

permit them to be found; and 

(3) Specify the pertinent facts the 

party expects to establish by the 

witnesses or documents, and indicate 

why those facts could not be established 

without use of a subpoena. 

(d) Method of issuance. Subpoenas 

are issued in the name of the Secretary. 

§ 422.1046 Conduct of hearing. 

(a) Participants in the hearing. The 

hearing is open to the parties and their 

representatives and technical advisors, 

and to any other persons whose 

presence the ALJ considers necessary or 

proper. 

(b) Hearing procedures. (1) The ALJ 

inquires fully into all of the matters at 

issue, and receives in evidence the 

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documents that are relevant and 

material. 

(2) If the ALJ believes that there is 

relevant and material evidence available 

which has not been presented at the 

hearing, he may, at any time before 

mailing of notice of the decision, reopen 

the hearing to receive that evidence. 

(3) The ALJ decides the order in 

which the evidence and the arguments 

of the parties are presented and the 

conduct of the hearing. 

(4) CMS has the burden of coming 

forward with evidence related to 

disputed findings that is sufficient 

(together with any undisputed findings 

and legal authority) to establish a prima 

facie case that CMS has a legally 

sufficient basis for its determination. 

(5) The affected party has the burden 

of coming forward with evidence 

sufficient to establish the elements of 

any affirmative argument or defense 

which it offers. 

(6) The affected party bears the 

ultimate burden of persuasion. To 

prevail, the affected party must prove by 

a preponderance of the evidence on the 

record as a whole that there is no basis 

for the determination. 

(c) Review of the penalty. When an 

administrative law judge finds that the 

basis for imposing a civil money penalty 

exists, as specified in § 422.752, the 

administrative law judge may not—

(1) Set a penalty of zero or reduce a 

penalty to zero, or 

(2) Review the exercise of discretion 

by CMS to impose a civil money 

penalty. 

§ 422.1048 Evidence. 

Evidence may be received at the 

hearing even though inadmissible under 

the rules of evidence applicable to court 

procedure. The ALJ rules on the 

admissibility of evidence. 

§ 422.1050 Witnesses. 

Witnesses at the hearing testify under 

oath or affirmation. The representative 

of each party is permitted to examine 

his or her own witnesses subject to 

interrogation by the representative of 

the other party. The ALJ may ask any 

questions that he or she deems 

necessary. The ALJ rules upon any 

objection made by either party as to the 

propriety of any question. 

§ 422.1052 Oral and written summation. 

The parties to a hearing are allowed 

a reasonable time to present oral 

summation and to file briefs or other 

written statements of proposed findings 

of fact and conclusions of law. Copies 

of any briefs or other written statements 

must be sent in accordance with 

§ 422.1016. 

§ 422.1054 Record of hearing. 

A complete record of the proceedings 

at the hearing is made and transcribed 

in all cases. 

§ 422.1056 Waiver of right to appear and 

present evidence. 

(a) Waiver procedures. (1) If an 

affected party wishes to waive its right 

to appear and present evidence at the 

hearing, it must file a written waiver 

with the ALJ. 

(2) If the affected party wishes to 

withdraw a waiver, it may do so, for 

good cause, at any time before the ALJ 

mails notice of the hearing decision. 

(b) Effect of waiver. If the affected 

party waives the right to appear and 

present evidence, the ALJ need not 

conduct an oral hearing except in one of 

the following circumstances: 

(1) The ALJ believes that the 

testimony of the affected party or its 

representatives or other witnesses is 

necessary to clarify the facts at issue. 

(2) CMS shows good cause for 

requiring the presentation of oral 

evidence. 

(c) Dismissal for failure to appear. If, 

despite the waiver, the ALJ sends notice 

of hearing and the affected party fails to 

appear, or to show good cause for the 

failure, the ALJ will dismiss the appeal 

in accordance with § 422.1060. 

(d) Hearing without oral testimony. 

When there is no oral testimony, the 

ALJ will—

(1) Make a record of the relevant 

written evidence that was considered in 

making the determination being 

appealed, and of any additional 

evidence submitted by the parties; 

(2) Furnish to each party copies of the 

additional evidence submitted by the 

other party; and 

(3) Give both parties a reasonable 

opportunity for rebuttal. 

(e) Handling of briefs and related 

statements. If the parties submit briefs 

or other written statements of evidence 

or proposed findings of facts or 

conclusions of law, those documents 

will be handled in accordance with 

§ 422.1016. 

§ 422.1058 Dismissal of request for 

hearing. 

(a) The ALJ may, at any time before 

mailing the notice of the decision, 

dismiss a hearing request if a party 

withdraws its request for a hearing or 

the affected party asks that its request be 

dismissed. 

(b) An affected party may request a 

dismissal by filing a written notice with 

the ALJ. 

§ 422.1060 Dismissal for abandonment. 

(a) The ALJ may dismiss a request for 

hearing if it is abandoned by the party 

that requested it. 

(b) The ALJ may consider a request for 

hearing to be abandoned if the party or 

its representative—

(1) Fails to appear at the prehearing 

conference or hearing without having 

previously shown good cause for not 

appearing; and 

(2) Fails to respond, within 10 days 

after the ALJ sends a ‘‘show cause’’

notice, with a showing of good cause. 

§ 422.1062 Dismissal for cause. 

On his or her own motion, or on the 

motion of a party to the hearing, the ALJ 

may dismiss a hearing request either 

entirely or as to any stated issue, under 

any of the following circumstances: 

(a) Res judicata. There has been a 

previous determination or decision with 

respect to the rights of the same affected 

party on the same facts and law 

pertinent to the same issue or issues 

which has become final either by 

judicial affirmance or, without judicial 

consideration, because the affected 

party did not timely request 

reconsideration, hearing, or review, or 

commence a civil action with respect to 

that determination or decision. 

(b) No right to hearing. The party 

requesting a hearing is not a proper 

party or does not otherwise have a right 

to a hearing. 

(c) Hearing request not timely filed. 

The affected party did not file a hearing 

request timely and the time for filing 

has not been extended. 

§ 422.1064 Notice and effect of dismissal 

and right to request review. 

(a) Notice of the ALJ’s dismissal 

action is mailed to the parties. The 

notice advises the affected party of its 

right to request that the dismissal be 

vacated as provided in § 422.1066. 

(b) The dismissal of a request for 

hearing is binding unless it is vacated 

by the ALJ or the Departmental Appeals 

Board. 

§ 422.1066 Vacating a dismissal of request 

for hearing. 

An ALJ may vacate any dismissal of 

a request for hearing if a party files a 

request to that effect within 60 days 

from receipt of the notice of dismissal 

and shows good cause for vacating the 

dismissal. 

§ 422.1068 Administrative Law Judge’s 

decision. 

(a) Timing, basis and content. As soon 

as practical after the close of the 

hearing, the ALJ issues a written 

decision in the case. The decision is 

based on the evidence of record and 


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contains separate numbered findings of 

fact and conclusions of law. 

(b) Notice and effect. A copy of the 

decision is mailed to the parties and is 

binding on them unless—

(1) A party requests review by the 

Departmental Appeals Board within the 

time period specified in § 422.846, and 

the Board reviews the case; 

(2) The Departmental Appeals Board 

denies the request for review and the 

party seeks judicial review by filing an 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; 

(3) The decision is revised by an ALJ 

or the Departmental Appeals Board; or 

(4) The decision is a recommended 

decision directed to the Board. 

§ 422.1070 Removal of hearing to 

Departmental Appeals Board. 

(a) At any time before the ALJ receives 

oral testimony, the Board may remove 

itself from any pending request for a 

hearing. 

(b) Notice of removal is mailed to 

each party. 

(c) The Board conducts the hearing in 

accordance with the rules that apply to 

ALJ hearings under this subpart. 

§ 422.1072 Remand by the Administrative 

Law Judge. 

(a) If CMS requests remand, and the 

affected party concurs in writing or on 

the record, the ALJ may remand any 

case properly before him or her to CMS 

for a determination satisfactory to the 

affected party. 

(b) The ALJ may remand at any time 

before notice of hearing decision is 

mailed. 

§ 422.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

Either of the parties has a right to 

request Departmental Appeals Board 

review of the ALJ’s decision or 

dismissal order, and the parties are so 

informed in the notice of the ALJ’s 

action. 

§ 422.1076 Request for Departmental 

Appeals Board review. 

(a) Manner and time of filing. (1) Any 

party that is dissatisfied with an ALJ’s 

decision or dismissal of a hearing 

request, may file a written request for 

review by the Departmental Appeals 

Board. 

(2) The requesting party or its 

representative or other authorized 

official must file the request with the 

DAB within 60 calendar days from 

receipt of the notice of decision or 

dismissal, unless the Board, for good 

cause shown by the requesting party, 

extends the time for filing. 

(b) Content of request for review. A 

request for review of an ALJ decision or 

dismissal must specify the issues, the 

findings of fact or conclusions of law 

with which the party disagrees, and the 

basis for contending that the findings 

and conclusions are incorrect. 

§ 422.1078 Departmental Appeals Board 

action on request for review. 

(a) Request by CMS. The Departmental 

Appeals Board may dismiss, deny, or 

grant a request made by CMS for review 

of an ALJ decision or dismissal. 

(b) Request by the affected party. The 

Board may deny or grant the affected 

party’s request for review or may 

dismiss the request for one of the 

following reasons: 

(1) The affected party requests 

dismissal of its request for review. 

(2) The affected party did not file 

timely or show good cause for late 

filing. 

(3) The affected party does not have 

a right to review. 

(4) A previous determination or 

decision, based on the same facts and 

law, and regarding the same issue, has 

become final through judicial 

affirmance or because the affected party 

failed to timely request reconsideration, 

hearing, Board review, or judicial 

review, as appropriate. 

(c) Effect of dismissal. The dismissal 

of a request for Departmental Appeals 

Board review is binding and not subject 

to further review. 

(d) Review panel. If the Board grants 

a request for review of the ALJ’s 

decision, the review will be conducted 

by a panel of three members of the 

Board, designated by the Chair or 

Deputy Chair. 

§ 422.1080 Procedures before the 

Departmental Appeals Board on review. 

The parties are given, upon request, a 

reasonable opportunity to file briefs or 

other written statements as to fact and 

law, and to appear before the 

Departmental Appeals Board to present 

evidence or oral arguments. Copies of 

any brief or other written statement 

must be sent in accordance with 

§ 422.1016. 

§ 422.1082 Evidence admissible on review. 

(a) The Departmental Appeals Board 

may admit evidence into the record in 

addition to the evidence introduced at 

the ALJ hearing, (or the documents 

considered by the ALJ if the hearing was 

waived), if the Board considers that the 

additional evidence is relevant and 

material to an issue before it. 

(b) If it appears to the Board that 

additional relevant evidence is 

available, the Board will require that it 

be produced. 

(c) Before additional evidence is 

admitted into the record—

(1) Notice is mailed to the parties 

(unless they have waived notice) stating 

that evidence will be received regarding 

specified issues; and 

(2) The parties are given a reasonable 

time to comment and to present other 

evidence pertinent to the specified 

issues. 

(d) If additional evidence is presented 

orally to the Board, a transcript is 

prepared and made available to any 

party upon request. 

§ 422.1084 Decision or remand by the 

Departmental Appeals Board. 

(a) When the Departmental Appeals 

Board reviews an ALJ’s decision or 

order of dismissal, or receives a case 

remanded by a court, the Board may 

either issue a decision or remand the 

case to an ALJ for a hearing and 

decision or a recommended decision for 

final decision by the Board. 

(b) In a remanded case, the ALJ 

initiates additional proceedings and 

takes other actions as directed by the 

Board in its order of remand, and may 

take other action not inconsistent with 

that order. 

(c) Upon completion of all action 

called for by the remand order and any 

other consistent action, the ALJ 

promptly makes a decision or, as 

specified by the Board, certifies the case 

to the Board with a recommended 

decision. 

(d) The parties have 20 days from the 

date of a notice of a recommended 

decision to submit to the Board any 

exception, objection, or comment on the 

findings of fact, conclusions of law, and 

recommended decision. 

(e) After the 20-day period, the Board 

issues its decision adopting, modifying 

or rejecting the ALJ’s recommended 

decision. 

(f) If the Board does not remand the 

case to an ALJ, the following rules 

apply: 

(1) The Board’s decision—

(i) Is based upon the evidence in the 

hearing record and any further evidence 

that the Board receives during its 

review; 

(ii) Is in writing and contains separate 

numbered findings of fact and 

conclusions of law; and 

(iii) May modify, affirm, or reverse the 

ALJ’s decision. 

(2) A copy of the Board’s decision is 

mailed to each party. 

§ 422.1086 Effect of Departmental Appeals 

Board Decision. 

(a) General rule. The Board’s decision 

is binding unless—

(1) The affected party has a right to 

judicial review and timely files a civil 


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action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; or 

(2) The Board reopens and revises its 

decision in accordance with § 422.862. 

(b) Right to judicial review. Section 

422.1006 specifies the circumstances 

under which an affected party has a 

right to seek judicial review. 

(c) Special rules: Civil money penalty. 

(1) Finality of Board’s decision. When 

CMS imposes a civil money penalty, 

notice of the Board’s decision (or denial 

of review) is the final administrative 

action that initiates the 60-day period 

for seeking judicial review. 

§ 422.1088 Extension of time for seeking 

judicial review. 

(a) Any affected party that is 

dissatisfied with a Departmental 

Appeals Board decision and is entitled 

to judicial review must commence civil 

action within 60 calendar days from 

receipt of the notice of the Board’s 

decision, unless the Board extends the 

time in accordance with paragraph (c) of 

this section. 

(b) The request for extension must be 

filed in writing with the Board before 

the 60-day period ends. 

(c) For good cause shown, the Board 

may extend the time for commencing 

civil action. 

§ 422.1090 Basis, timing, and authority for 

reopening an ALJ or Board decision. 

(a) Basis and timing for reopening. An 

ALJ of Departmental Appeals Board 

decision may be reopened, within 60 

days from the date of the notice of 

decision, upon the motion of the ALJ or 

the Board or upon the petition of either 

party to the hearing. 

(b) Authority to reopen. (1) A decision 

of the Departmental Appeals Board may 

be reopened only by the Departmental 

Appeals Board. 

(2) A decision of an ALJ may be 

reopened by that ALJ, by another ALJ if 

that one is not available, or by the 

Departmental Appeals Board. For 

purposes of this paragraph, an ALJ is 

considered to be unavailable if the ALJ 

has died, terminated employment, or 

been transferred to another duty station, 

is on leave of absence, or is unable to 

conduct a hearing because of illness. 

§ 422.1092 Revision of reopened decision. 

(a) Revision based on new evidence. If 

a reopened decision is to be revised on 

the basis of new evidence that was not 

included in the record of that decision, 

the ALJ or the Departmental Appeals 

Board—

(1) Notifies the parties of the proposed 

revision; and 

(2) Unless the parties waive their right 

to hearing or appearance—

(i) Grants a hearing in the case of an 

ALJ revision; and 

(ii) Grants opportunity to appear in 

the case of a Board revision. 

(b) Basis for revised decision and right 

to review. 

(1) If a revised decision is necessary, 

the ALJ or the Departmental Appeals 

Board, as appropriate, renders it on the 

basis of the entire record. 

(2) If the decision is revised by an 

ALJ, the Departmental Appeals Board 

may review that revised decision at the 

request of either party or on its own 

motion. 

§ 422.1094 Notice and effect of revised 

decision. 

(a) Notice. The notice mailed to the 

parties states the basis or reason for the 

revised decision and informs them of 

their right to Departmental Appeals 

Board review of an ALJ revised 

decision, or to judicial review of a Board 

reviewed decision. 

(b) Effect—(1) ALJ revised decision. 

An ALJ revised decision is binding 

unless it is reviewed by the 

Departmental Appeals Board. 

(2) Departmental Appeals Board 

revised decision. A Board revised 

decision is binding unless a party files 

a civil action in a district court of the 

United States within the time frames 

specified in § 422.858. 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

36. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

Act (42 U.S.C. 1302, 1395w–101 through 

1395w–152, and 1395hh). 

Subpart A—General Provisions 

37. Section 423.4 is amended by 

adding the definitions of ‘‘Downstream 

entity’’, ‘‘First tier entity’’, and ‘‘Related 

entities’’ to read as follows: 

§ 423.4 Definitions. 

* * * * * 

Downstream entity means any party 

that enters into a written arrangement, 

acceptable to CMS, below the level of 

the arrangement between a Part D plan 

sponsor (or applicant) and a first tier 

entity. These written arrangements 

continue down to the level of the 

ultimate provider of both health and 

administrative services. 

* * * * * 

First tier entity means any party that 

enters into a written arrangement, 

acceptable to CMS, with a Part D plan 

sponsor or applicant to provide 

administrative services or health care 

services for a Medicare eligible 

individual under Part D. 

* * * * * 

Related entity means any entity that is 

related to the Part D sponsor by 

common ownership or control and 

(1) Performs some of the Part D plan 

sponsor’s management functions under 

contract or delegation; 

(2) Furnishes services to Medicare 

enrollees under an oral or written 

agreement; or 

(3) Leases real property or sells 

materials to the Part D plan sponsor at 

a cost of more than $2,500 during a 

contract period. 

* * * * * 

Subpart K—Application Procedures 

and Contracts With Part D Plan 

Sponsors 

39. Amend § 423.504 by—

A. Revising paragraph (b)(4)(vi) 

introductory text. 

B. Revising paragraphs (b)(4)(vi)(C) 

and (b)(4)(vi)(D). 

C. Adding paragraph (b)(4)(vi)(G)(3). 

D. Removing paragraph (b)(4)(vi)(H). 

The revisions read as follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) A compliance plan, which must 

include measures to detect, correct, and 

prevent fraud, waste, and abuse, shall 

include the following elements: 

* * * * * 

(C) Effective training and education 

between the compliance officer, and the 

Part D plan sponsor’s employees, 

managers and directors, and the Part D 

plan sponsor’s first tier, downstream, 

and related entities. 

(D) Effective lines of communication 

between the compliance officer, 

members of the compliance committee, 

the Part D plan sponsor’s employees, 

managers and directors, and the Part D 

plan sponsor’s first tier, downstream, 

and related entities. 

* * * * * 

(G) * * * 

(3) The Part D plan sponsor must have 

procedures for mandatory self-reporting 

of potential fraud or misconduct related 

to the Part D program to the appropriate 

government authority. The Part D 

sponsor is required to report potential 

fraud or misconduct related to the Part 

D program to the appropriate 

government authority. 

40. Amend § 423.505 by—

A. Republishing paragraph (b) 

introductory text. 

B. Revising paragraph (b)(10). 

C. Republishing paragraph (e) 

introductory text. 


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D. Revising paragraph (e)(1) 

introductory text. 

E. Revising paragraph (e)(2). 

F. Revising paragraph (i) introductory 

text and (i)(1). 

G. Revising paragraph (i)(2) 

introductory text. 

H. Revising paragraph (i)(2)(i). 

I. Revising paragraph (i)(3) 

introductory text. 

J. Revising paragraph (i)(3)(ii). 

K. Revising paragraph (i)(3)(iii) 

L. Adding paragraphs (i)(3)(iv) and 

(v). 

M. Revising paragraph (i)(4) 

introductory text. 

N. Revising paragraph (i)(4)(iv). 

O. Redesignating (i)(4)(iv) as (i)(4)(v). 

The revisions and additions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) Requirements for contracts. The 

Part D plan sponsor agrees to—

* * * * * 

(10) Allow CMS to inspect and audit 

any books and records of a Part D plan 

sponsor and its delegated first tier, 

downstream and related entities, that 

pertain to the information regarding 

costs provided to CMS under paragraph 

(b)(9) of this section, or, if a fallback 

entity, the information submitted under 

subpart Q. 

* * * * * 

(e) Access to facilities and records. 

The Part D plan sponsor agrees to the 

following: 

(1) HHS, the Comptroller General, or 

their designee may evaluate, through 

audit, inspection, or other means—

* * * * * 

(2) The Part D plan sponsor agrees to 

make available to HHS, the Comptroller 

General, or their designees, for the 

purposes specified in paragraph (d) of 

this section, its premises, physical 

facilities and equipment, records 

relating to its Medicare enrollees, and 

any additional relevant information that 

CMS may require. The Part D plan 

sponsor also agrees to make available 

any books, contracts, medical records, 

patient care documentation, and other 

records of the Part D plan sponsor, first 

tier, downstream and related entity(s), 

or its transferee that pertain to any 

aspect of services performed, 

reconciliation of benefit liabilities, and 

determination of amounts payable 

under the contract, or as the Secretary 

may deem necessary to enforce the 

contract. 

* * * * * 

(i) Relationship with first tier, 

downstream, and related entities. (1) 

Notwithstanding any relationship(s) that 

the Part D plan sponsor may have with 

first tier, downstream, and related 

entities, the Part D sponsor maintains 

ultimate responsibility for adhering to 

and otherwise fully complying with all 

terms and conditions of its contract with 

CMS. 

(2) The Part D sponsor agrees to 

require all first tier, downstream, and 

related entities to agree that—

(i) HHS, the Comptroller General, or 

their designees have the right to inspect, 

evaluate, and audit any pertinent 

contracts, books, documents, papers, 

and records of the first tier, 

downstream, and related entities 

involving transactions related to CMS’

contract with the Part D sponsor. 

* * * * * 

(3) All contracts or written 

arrangements between Part D sponsors 

and pharmacies or other providers, 

related entities, first tier and 

downstream entities must contain the 

following: 

* * * * * 

(ii) Accountability provisions that 

indicate that the Part D sponsor may 

delegate activities or functions to a 

pharmacy, first tier, downstream, and 

related entity, only in a manner 

consistent with requirements set forth at 

paragraph (i)(4) of this section. 

(iii) A provision requiring that any 

services or other activity performed by 

a related entity, first tier, downstream, 

and related entity in accordance with a 

contract or written agreement are 

consistent and comply with the Part D 

plan sponsor’s contractual obligations. 

(iv) A provision requiring the Part D 

sponsor’s first tier, downstream, and 

related entities to produce upon request 

by CMS or its designees any pertinent 

contracts, books, documents, papers, 

and records relating to the Part D 

program to either the sponsor or directly 

to CMS or its designees. 

(v) All contracts or written 

arrangements must specify that the 

related entity, contractor, or 

subcontractor must comply with all 

applicable Federal laws, regulations, 

and CMS instructions. 

(4) If any of the Part D plan sponsors’

activities or responsibilities under its 

contract with CMS is delegated to other 

parties, the following requirements 

apply to any first tier, downstream, and 

related entity, or pharmacy: 

* * * * * 

(v) All contracts or written 

arrangements must specify that the first 

tier, downstream, or related entity, or 

pharmacy must comply with all 

applicable Federal laws, regulations, 

and CMS instructions. 

* * * * * 

41. Amend § 423.506 by revising 

paragraph (c) to read as follows: 

§ 423.506 Effective date and term of 

contract. 

* * * * * 

(c) Qualification to renew a contract. 

In accordance with § 423.507 of this 

subpart, an entity is determined 

qualified to renew its contract annually 

only if the Part D plan sponsor has not 

provided CMS with a notice of intention 

not to renew and CMS has not provided 

the Part D organization with a notice of 

intention not to renew. 

* * * * * 

42. Amend § 423.507 by—

A. Revising paragraph (b)(2) 

introductory text. 

B. Revising paragraph (b)(2)(i). 

C. Redesignating paragraph (b)(3) as 

(b)(4). 

D. Adding a new paragraph (b)(3). 

The revisions and additions read as 

follows: 

§ 423.507 Nonrenewal of contract. 

* * * * * 

(b) * * * 

(2) Notice of non-renewal. CMS 

provides notice of its decision not to 

authorize renewal of a contract as 

follows: 

(i) To the Part D plan sponsor by 

September 1 of the contract year. 

* * * * * 

(3) Corrective action plan. (i) Before 

nonrenewing a contract, CMS will 

provide the Part D sponsor with a 

reasonable opportunity to develop and 

submit a corrective action plan (CAP). 

(ii) The Part D sponsor must develop 

and submit the CAP within 45 days of 

receiving a request for a CAP. 

(iii) If CMS determines the CAP is 

unacceptable, CMS will provide the Part 

D sponsor with an additional 30 days to 

submit a revised CAP. 

(iv) If CMS determines the CAP is 

acceptable, CMS will notify the Part D 

sponsor of a deadline by which the CAP 

must be fully implemented. CMS has 

sole discretion on whether the CAP is 

fully implemented. 

(v) Failure to develop and implement 

a CAP within the timeframes specified 

in paragraphs (3)(i) through (3)(iii) of 

this section may result in the 

nonrenewal of the Part D contract. 

* * * * * 

43. Section 423.509 is amended by—

A. Revising paragraph (a)(1). 

B. Revising paragraph (b) introductory 

text. 

C. Revising paragraph (b)(2). 

D. Revising paragraph (c). 

The revisions read as follows: 

§ 423.509 Termination of contract by CMS. 

(a) * * * 


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(1) The Part D plan sponsor has failed 

substantially to carry out the terms of—

(i) Its current contract term with CMS, 

or 

(ii) Its contract with CMS from the 

preceding contract term. 

* * * * * 

(b) Notice. If CMS decides to 

terminate a contract for reasons other 

than the grounds specified 

§ 423.509(a)(4) or § 423.509(a)(5), it 

gives notice of the termination as 

follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. (i) For terminations based on 

violations prescribed in § 423.509(a)(4) 

or § 423.509(a)(5), CMS notifies the Part 

D plan sponsor in writing that its 

contract will be terminated on a date 

specified by CMS. If termination is 

effective in the middle of a month, CMS 

has the right to recover the prorated 

share of the capitation payments made 

to the Part D plan sponsor covering the 

period of the month following the 

contract termination. 

* * * * * 

(c) Corrective action plan.—(1) 

General. Before terminating a contract 

for reasons other than the grounds 

specified in paragraphs (a)(4) or (a)(5) of 

this section, CMS will provide the MA 

organization with a reasonable 

opportunity to develop and submit a 

corrective action plan (CAP). 

(i) The Part D plan sponsor must 

develop and submit the CAP within 45 

days of receiving a request for a CAP. 

(ii) If CMS determines the CAP is 

unacceptable to CMS, the Part D plan 

sponsor will have an additional 30 days 

to submit a revised CAP. 

(iii) If CMS determines the CAP is 

acceptable, CMS will notify the Part D 

plan sponsor of a deadline by which the 

CAP must be fully implemented. CMS 

has sole discretion on whether the CAP 

is fully implemented. 

(iv) Failure to develop and implement 

a CAP within the timeframes specified 

in paragraphs (c)(1)(i) through (c)(1)(iii) 

of this section, may result in the 

termination of the Part D contract. 

(2) Exceptions. If a contract is 

terminated under § 423.509(a)(4) or 

§ 423.509(a)(5), the Part D plan sponsor 

will not have the opportunity to submit 

a CAP. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

44. Amend § 423.642 by—

A. Republishing paragraph (b) 

introductory text. 

B. Revising paragraph (b)(2). 

C. Revising paragraph (c). 

D. Revising paragraph (d). 

The revisions read as follows: 

§ 423.642 Notice of contract determination. 

* * * * * 

(b) The notice specifies the—

(1) * * * 

(2) The Part D sponsor’s right to 

request a hearing. 

(c) For CMS-initiated terminations, 

CMS mails notice to the Part D sponsor 

90 days before the anticipated effective 

date of the termination. For 

terminations based on determinations 

described at § 423.509(a)(4) or 

§ 423.509(a)(5), CMS notifies the Part D 

sponsor of the date that it will terminate 

the organization’s Part D contract. 

(d) When CMS determines that it will 

not authorize a contract renewal, CMS 

mails the notice to the Part D sponsor 

by September 1 of the current contract 

year. 

45. Section 423.643 is revised to read 

as follows: 

§ 423.643 Effect of contract determination. 

The contract determination is final 

and binding unless a timely request for 

a hearing is filed under § 423.651. 

§ 423.644 [Removed] 

46. Section 423.644 is removed. 

§ 423.645 [Removed] 

47. Section 423.645 is removed. 

§ 423.646 [Removed] 

48. Section 423.646 is removed. 

§ 423.647 [Removed] 

49. Section 423.647 is removed. 

§ 423.648 [Removed] 

50. Section 423.648 is removed. 

§ 423.649 [Removed] 

51. Section 423.649 is removed. 

52. Revise § 423.650 to read as 

follows: 

§ 423.650 Right to a hearing and burden of 

proof. 

(a) The following parties are entitled 

to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS pursuant to 

§ 423.503. 

(2) A Part D sponsor whose contract 

has been terminated pursuant to 

§ 423.509. 

(3) A Part D sponsor whose contract 

has not been renewed pursuant to 

§ 423.507. 

(4) A Part D sponsor who has had an 

intermediate sanction imposed 

according to § 423.752(a) and 

§ 423.752(b). 

(b) The Part D sponsor bears the 

burden of proof to demonstrate that it 

was in substantial compliance with the 

requirements of the Part D program on 

the earliest of the following three dates: 

(1) The date the sponsor received 

written notice of the contract 

determination or intermediate sanction. 

(2) The date of the most recent on-site 

audit conducted by CMS. 

(3) The date of the alleged breach of 

the current contract or past substantial 

noncompliance as determined by CMS. 

(c) Notice of any decision favorable to 

the Part D sponsor appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by July 15 for the contract in 

question to be effective on January 1 of 

the following year. 

53. Amend § 423.651 by revising 

paragraph (b) to read as follows: 

§ 423.651 Request for hearing. 

* * * * * 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

days from the date CMS notifies the Part 

D sponsor of its determination. 

* * * * * 

54. Revise § 423.652 to read as 

follows: 

§ 423.652 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

(a) Hearing. When a request for a 

hearing is timely filed, CMS will 

postpone the proposed effective date of 

the contract determination listed at 

§ 423.641 until a hearing decision is 

reached and affirmed by the 

Administrator following review 

pursuant to § 423.666 in instances 

where a Part D sponsor or CMS requests 

Administrator review and the 

Administrator accepts the matter for 

review. 

(b) Exceptions: (1) If a final decision 

is not reached on CMS’s for an initial 

contract by July 15, CMS will not enter 

into a contract with the applicant for the 

following year. 

(2) A contract terminated in 

accordance with § 423.509(a)(4) or 

§ 423.509(a)(5) will be terminated on the 

date specified by CMS and will not be 

postponed if a hearing is requested. 

55. Amend § 423.655 by revising 

paragraph (a) to read as follows: 

§ 423.655 Time and place of hearing. 

(a) The hearing officer fixes a time 

and place for the hearing, which is not 

to exceed 30 days from the receipt of 

request for the hearing, and sends 

written notice to the parties. The notice 

informs the parties of—

(1) The general and specific issues to 

be resolved, the burden of proof, and 

information about the hearing 

procedure, and 


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(2) The ability to conduct formal 

discovery. 

* * * * * 

56. Revise § 423.661 to read as 

follows: 

§ 423.661 Discovery. 

(a) Either party may make a request to 

another party for the production of 

documents for inspection and copying 

which are relevant and material to the 

issues before the hearing office. 

(b) The hearing officer will provide 

the parties with a reasonable time for 

inspection and reproduction of 

documents, provided that discovery 

concluded at least 10 calendar days 

prior to the hearing. 

(c) The hearing officer’s order on 

discovery matters is final. 

57. Revise § 423.662 to read as 

follows: 

§ 423.662 Prehearing and summary 

judgment. 

(a) Prehearing. The hearing officer 

may schedule a prehearing conference if 

he or she believes that a conference 

would more clearly define the issues. 

(b) Summary judgment. Either party 

to the hearing, may ask the hearing 

officer to rule on a motion for summary 

judgment. 

58. Amend § 423.666 by—

A. Revising paragraph (a). 

B. Revising paragraph (b). 

C. Redesignating paragraph (c) as 

paragraph (e). 

D. Adding a new paragraph (c). 

E. Adding a new paragraph (d). 

The revisions and additions read as 

follows: 

§ 423.666 Review by Administrator. 

(a) Request for review by 

Administrator. CMS or a Part D sponsor 

that has received a hearing decision 

regarding a contract determination may 

request review by the Administrator 

within 15 calendar days of receiving the 

hearing decision as provided under 

§ 423.665(b). Both the Part D sponsor 

and CMS may provide written 

arguments to the Administrator for 

review. 

(b) Decision to review the hearing 

decision. After receiving a request for 

review, the Administrator has the 

discretion to elect to review the hearing 

determination in accordance with 

paragraph (d) of this section or to 

decline to review the hearing decision. 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 days of 

receiving the request for review. If the 

Administrator declines to review the 

hearing decision or the Administrator 

does not make a determination 

regarding review within 30 days, the 

decision of the hearing officer is final. 

(d) Review by the Administrator. If the 

Administrator elects to review the 

hearing decision regarding a contract 

determination, the Administrator shall 

review the hearing officer’s decision and 

determine, based upon this decision, the 

hearing record, and any written 

arguments submitted by the Part D 

sponsor or CMS, whether the 

determination should be upheld, 

reversed, or modified. 

* * * * * 

59. Amend § 423.668 by—

A. Revising the section heading. 

B. Revising paragraph (a). 

The revisions read as follows: 

§ 423.668 Reopening of an initial contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Initial determination. CMS may 

reopen and revise an initial 

determination upon its own motion. 

* * * * * 

§ 423.669 [Removed] 

60. Section 423.669 is removed. 

Subpart O—Intermediate Sanctions 

61. Revise § 423.750 to read as 

follows: 

§ 423.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiency on which the 

determination was based has been 

corrected and is not likely to reoccur. 

(1) Suspension of enrollment of 

Medicare beneficiaries. 

(2) Suspension of payment to the Part 

D plan sponsor for Medicare 

beneficiaries who are enrolled in the 

Part D plan. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by a 

Part D plan sponsor for all Part D plans. 

(b) CMS may impose civil money 

penalties as specified in § 423.760. 

62. Amend § 423.752 by—

A. Revising the section heading. 

B. Revising paragraph (a) introductory 

text. 

C. Revising paragraph (b). 

D. Adding a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 423.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph (a), 

CMS may impose one, or more, of the 

sanctions as specified in § 423.750(a) on 

any Part D plan sponsor that has a 

contract in effect. The Part D plan 

sponsor may also be subject to other 

applicable remedies available under 

law. 

* * * * * 

(b) Suspension of enrollment and 

marketing. If CMS makes a 

determination that could lead to a 

contract termination under § 423.509(a), 

CMS may impose the intermediate 

sanctions at § 423.750(a)(1) and (a)(3). 

(c) Civil Money Penalties. (1) CMS. In 

addition to, or in place of, any 

intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in § 423.760, for any 

of the determinations at § 423.509(a), 

except § 423.509(a)(4). 

(2) OIG. In addition to, or in place of 

any intermediate sanctions imposed by 

CMS, the OIG, in accordance with 

section 1003 of this chapter, may 

impose civil money penalties for the 

following: 

(i) Violations listed at § 423.752(a). 

(ii) Determinations made pursuant to 

§ 423.509(a)(4). 

63. Amend § 423.756 by—

A. Revising the section heading. 

B. Revising paragraph (a). 

C. Revising paragraph (b). 

D. Revising paragraph (f). 

The revisions read as follows: 

§ 423.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(a) Notice of intermediate sanction 

and opportunity to respond.— (1) 

Notice of intent. Before imposing the 

intermediate sanctions, CMS—

(i) Sends a written notice to the Part 

D plan sponsor stating the nature and 

basis of the proposed intermediate 

sanction, and the Part D plan sponsor’s 

right to a hearing as specified in 

paragraph (b) of this section; and 

(ii) Sends the OIG a copy of the 

notice. 

(2) Opportunity to respond. CMS 

allows the Part D plan sponsor 10 days 

from receipt of the notice to provide a 

written rebuttal. CMS considers receipt 

of notice as the day after notice is sent 

by fax, e-mail, or submitted for 

overnight mail. 

(b) Hearing. The Part D sponsor may 

request a hearing before a CMS hearing 

officer. A written request must be 

received by CMS within 15 calendar 

days of the Part D sponsor receiving the 

notice of intent to impose an 

intermediate sanction. A request for a 

hearing under § 423.650 does not delay 

the date specified by CMS when the 

sanction becomes effective. The Part D 

sponsor must follow the right to a 


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hearing procedure as specified at 

§ 423.650 through § 423.662. 

* * * * * 

(f) Notice to impose civil money 

penalties. (1) CMS notice to OIG. If CMS 

determines that a Part D sponsor has 

committed an act or failed to comply 

with a requirement as described in 

§ 423.752, CMS notifies the OIG of this 

determination. OIG may impose a civil 

monetary penalty upon a Part D sponsor 

as specified at § 423.752(c)(2) 

(2) CMS notice of civil money 

penalties to Part D plan sponsors. If 

CMS makes a determination to impose 

a CMP described in § 423.509(c)(1), 

CMS will send a written notice of the 

Agency’s decision to impose a civil 

money penalty to include—

(i) A description of the basis for the 

determination. 

(ii) The basis for the penalty. 

(iii) The amount of the penalty. 

(iv) The date the penalty is due. 

(v) The Part D sponsor’s right to a 

hearing as specified under § 423.650. 

(vi) Information about where to file 

the request for hearing. 

64. Revise § 423.758 to read as 

follows: 

§ 423.758 Collection of civil money 

penalties imposed by CMS. 

(a) When a Part D plan sponsor does 

not request a hearing CMS initiates 

collection of the civil money penalty 

following the expiration of the 

timeframe for requesting an ALJ hearing 

as specified in Subpart T. 

(b) If a Part D sponsor requests a 

hearing and CMS’s decision to impose 

a civil money penalty is upheld, CMS 

may initiate collection of the civil 

money penalty once the administrative 

decision is final. 

65. Amend § 423.760 by—

A. Redesignating § 423.760 as 

§ 423.764. 

B. Adding a new § 423.760 to read as 

follows: 

§ 423.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) Determining the appropriate 

amount of any penalty. In determining 

the amount of penalty imposed under 

§ 423.752(c)(1), CMS will consider as 

appropriate: 

(1) The nature of the conduct; 

(2) The degree of culpability of the 

Part D sponsor; 

(3) The harm which resulted or could 

have resulted from the conduct of the 

Part D sponsor; 

(4) The financial condition of the Part 

D sponsor; 

(5) The history of prior offenses by the 

Part D sponsor or principals of the Part 

D sponsor; and, 

(6) Such other matters as justice may 

require. 

(b) Amount of penalty. CMS may 

impose civil money penalties in the 

following amounts: 

(1) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more Part D enrollees—up to $25,000 

for each determination. 

(2) For each week that a deficiency 

remains uncorrected after the week in 

which the Part D sponsor receives CMS’

notice of the determination—up to 

$10,000. 

(3) If CMS makes a determination that 

a Part D sponsor has terminated its 

contract other than in a manner 

described under § 423.510 and that the 

Part D sponsor has therefore failed to 

substantially carry out the terms of the 

contract, $250 per Medicare enrollee 

from the terminated Part D sponsor or 

plans at the time the Part D sponsor 

terminated its contract, or $100,000, 

whichever is greater. 

66. Adding a new § 423.762 to read as 

follows: 

§ 423.762 Settlement of penalties. 

For civil money penalties imposed by 

CMS, CMS may settle civil money 

penalty cases at any time before a final 

decision is rendered. 

67. A new subpart T is added to read 

as follows: 

Subpart T—Appeal Procedures for Civil 

Money Penalties 

Sec. 

423.1000 Basis and scope. 

423.1002 Definitions. 

423.1004 Scope and applicability. 

423.1006 Appeal rights. 

423.1008 Appointment of representatives. 

423.1010 Authority of representatives. 

423.1012 Fees for services of representative. 

423.1014 Charge for transcripts. 

423.1016 Filing of briefs with the 

Administrative Law Judge or 

Departmental Appeals Board, and 

opportunity for rebuttal. 

423.1018 Notice and effect of initial 

determinations. 

423.1020 Request for hearing. 

423.1022 Parties to the hearing. 

423.1024 Designation of hearing official. 

423.1026 Disqualification of Administrative 

Law Judge. 

423.1028 Prehearing conference. 

423.1030 Notice of prehearing conference. 

423.1032 Conduct of prehearing conference. 

423.1034 Record, order, and effect of 

prehearing conference. 

423.1036 Time and place of hearing. 

423.1038 Change in time and place of 

hearing. 

423.1040 Joint hearings. 

423.1042 Hearing on new issues. 

423.1044 Subpoenas. 

423.1046 Conduct of hearing. 

423.1048 Evidence. 

423.1050 Witnesses. 

423.1052 Oral and written summation. 

423.1054 Record of hearing. 

423.1056 Waiver of right to appear and 

present evidence. 

423.1058 Dismissal of request for hearing. 

423.1060 Dismissal for abandonment. 

423.1062 Dismissal for cause. 

423.1064 Notice and effect of dismissal and 

right to request review. 

423.1066 Vacating a dismissal of request for 

hearing. 

423.1068 Administrative Law Judge’s 

decision. 

423.1070 Removal of hearing to 

Departmental Appeals Board. 

423.1072 Remand by the Administrative 

Law Judge. 

423.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

423.1076 Request for Departmental Appeals 

Board review. 

423.1078 Departmental Appeals Board 

action on request for review. 

423.1080 Procedures before the 

Departmental Appeals Board on review. 

423.1082 Evidence admissible on review. 

423.1084 Decision or remand by the 

Departmental Appeals Board. 

423.1086 Effect of Departmental Appeals 

Board Decision. 

423.1088 Extension of time for seeking 

judicial review. 

423.1090 Basis, timing, and authority for 

reopening an Administrative Law Judge 

or Board decision. 

423.1092 Revision of reopened decision. 

423.1094 Notice and effect of revised 

decision. 

Subpart T—Appeal procedures for Civil 

Money Penalties 

§ 423.1000 Basis and scope. 

(a) Statutory basis. (1) Section 

1128A(c)(2) of the Act provides that the 

Secretary may not collect a civil money 

penalty until the affected party has had 

notice and opportunity for a hearing. 

(2) Section 1857(g) of the Act provides 

that, for Part D sponsors found to be out 

of compliance with the requirements in 

part 423, specified remedies may be 

imposed instead of, or in addition to, 

termination of the Part D sponsor’s 

contract. Section 1857(g)(4) of the Act 

makes certain provisions of section 

1128A of the Act applicable to civil 

money penalties imposed on Part D 

sponsors. 

(b) [Reserved] 

§ 423.1002 Definitions. 

As used in this subpart—

Affected party means a Part D sponsor 

impacted by an initial determination or 

if applicable, by any subsequent 

determination or decision issued under 

this part, and ‘‘party’’ means the 

affected party or CMS, as appropriate. 

ALJ stands for Administrative Law 

Judge. 


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Departmental Appeals Board or Board 

means a Board established in the Office 

of the Secretary to provide impartial 

review of disputed decisions made by 

the operating components of the 

Department. 

Part D sponsor has the meaning given 

the term in § 423.4. 

§ 423.1004 Scope and applicability. 

(a) Scope. (1) This subpart sets forth 

procedures for reviewing initial 

determinations that CMS makes with 

respect to the matters specified in 

paragraph (b). 

(2) The determinations listed in this 

section affect participation in the 

Medicare program. 

(3) The following provisions in this 

subpart specify the applicability of the 

provisions of part 423, subpart O to civil 

money penalties or remedies imposed 

on the indicated entities on Part D 

sponsors 

(b) Initial determinations by CMS. 

CMS makes initial determinations with 

respect to the imposition of civil money 

penalties in accordance with part 423, 

subpart T. 

§ 423.1006 Appeal rights. 

(a) Appeal rights of Part D sponsors. 

(1) Any Part D sponsor dissatisfied with 

an initial determination as specified in 

§ 423.1004, has a right to a hearing 

before an ALJ in accordance with this 

subpart and may request Departmental 

Appeals Board review of the ALJ 

decision. 

(2) Part D sponsors may request 

judicial review of the Departmental 

Appeals Board’s decision that imposes a 

CMP. 

(b) [Reserved] 

§ 423.1008 Appointment of 

representatives. 

(a) An affected party may appoint as 

its representative anyone not 

disqualified or suspended from acting as 

a representative in proceedings before 

the Secretary or otherwise prohibited by 

law. 

(b) If the representative appointed is 

not an attorney, the party must file 

written notice of the appointment with 

the ALJ or the Departmental Appeals 

Board. 

(c) If the representative appointed is 

an attorney, the attorney’s statement 

that he or she has the authority to 

represent the party is sufficient. 

§ 423.1010 Authority of representatives. 

(a) A representative appointed and 

qualified in accordance with § 423.1008 

may, on behalf of the represented 

party—

(1) Give and accept any notice or 

request pertinent to the proceedings set 

forth in this part; 

(2) Present evidence and allegations 

as to facts and law in any proceedings 

affecting that party to the same extent as 

the party; and 

(3) Obtain information to the same 

extent as the party. 

(b) A notice or request may be sent to 

the affected party, to the party’s 

representative, or to both. A notice or 

request sent to the representative has 

the same force and effect as if it had 

been sent to the party. 

§ 423.1012 Fees for services of 

representatives. 

Fees for any services performed on 

behalf of an affected party by an 

attorney appointed and qualified in 

accordance with § 423.1008 are not 

subject to the provisions of section 206 

of Title II of the Act, which authorizes 

the Secretary to specify or limit those 

fees. 

§ 423.1014 Charge for transcripts. 

A party that requests a transcript of 

prehearing or hearing proceedings or 

Board review must pay the actual or 

estimated cost of preparing the 

transcript unless, for good cause shown 

by that party, the payment is waived by 

the ALJ or the Departmental Appeals 

Board, as appropriate. 

§ 423.1016 Filing of briefs with the ALJ or 

Departmental Appeals Board, and 

opportunity for rebuttal. 

(a) Filing of briefs and related 

documents. If a party files a brief or 

related document such as a written 

argument, contention, suggested finding 

of fact, conclusion of law, or any other 

written statement, it must submit an 

original and 1 copy to the ALJ or the 

Departmental Appeals Board, as 

appropriate. The material may be filed 

by mail or in person and must include 

a statement certifying that a copy has 

been furnished to the other party. 

(b) Opportunity for rebuttal. (1) The 

other party will have 20 days from the 

date of mailing or personal service to 

submit any rebuttal statement or 

additional evidence. If a party submits 

a rebuttal statement or additional 

evidence, it must file an original and 1 

copy with the ALJ or the Board and 

furnish a copy to the other party. 

(2) The ALJ or the Board will grant an 

opportunity to reply to the rebuttal 

statement only if the party shows good 

cause. 

§ 423.1018 Notice and effect of initial 

determinations. 

(a) Notice of initial determination—(1) 

General rule. CMS, as required under 

422.756(f)(2), mails notice of an initial 

determination to the affected party, 

setting forth the basis or reasons for the 

determination, the effect of the 

determination, the party’s right to a 

hearing, and information about where to 

file the request for a hearing. 

(b) Effect of initial determination. An 

initial determination is binding unless—

(1) The affected party requests a 

hearing; or 

(2) CMS revises its decision. 

§ 423.1020 Request for hearing. 

(a) Manner and timing of request. (1) 

An Part D sponsor is entitled to a 

hearing as specified in § 423.1006 and 

may file a request with the 

Departmental Appeals Board office 

specified in the initial determination. 

(2) The Part D sponsor or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days from 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

(b) Content of request for hearing. The 

request for hearing must—

(1) Identify the specific issues, and 

the findings of fact and conclusions of 

law with which the affected party 

disagrees; and 

(2) Specify the basis for each 

contention that a CMS finding or 

conclusion of law is incorrect. 

§ 423.1022 Parties to the hearing. 

The parties to the hearing are the 

affected party and CMS, as appropriate. 

§ 423.1024 Designation of hearing official. 

(a) The Chair of the Departmental 

Appeals Board, or his or her delegate, 

designates an ALJ or a member or 

members of the Departmental Appeals 

Board to conduct the hearing. 

(b) If appropriate, the Chair or the 

delegate may substitute another ALJ or 

another member or other members of 

the Departmental Appeals Board to 

conduct the hearing. 

(c) As used in this part, ‘‘ALJ’’

includes a member or members of the 

Departmental Appeals Board who are 

designated to conduct a hearing. 

§ 423.1026 Disqualification of 

Administrative Law Judge. 

(a) An ALJ may not conduct a hearing 

in a case in which he or she is 

prejudiced or partial to the affected 

party or has any interest in the matter 

pending for decision. 

(b) A party that objects to the ALJ 

designated to conduct the hearing must 


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give notice of its objections at the 

earliest opportunity. 

(c) The ALJ will consider the 

objections and decide whether to 

withdraw or proceed with the hearing. 

(1) If the ALJ withdraws, another ALJ 

will be designated to conduct the 

hearing. 

(2) If the ALJ does not withdraw, the 

objecting party may, after the hearing, 

present its objections to the 

Departmental Appeals Board as reasons 

for changing, modifying, or reversing 

the ALJ’s decision or providing a new 

hearing before another ALJ. 

§ 423.1028 Prehearing conference. 

(a) At any time before the hearing, the 

ALJ may call a prehearing conference 

for the purpose of delineating the issues 

in controversy, identifying the evidence 

and witnesses to be presented at the 

hearing, and obtaining stipulations 

accordingly. 

(b) On the request of either party or 

on his or her own motion, the ALJ may 

adjourn the prehearing conference and 

reconvene at a later date. 

§ 423.1030 Notice of prehearing 

conference. 

(a) Timing of notice. The ALJ will fix 

a time and place for the prehearing 

conference and mail written notice to 

the parties at least 10 days before the 

scheduled date. 

(b) Content of notice. The notice will 

inform the parties of the purpose of the 

conference and specify what issues are 

sought to be resolved, agreed to, or 

excluded. 

(c) Additional issues. Issues other 

than those set forth in the notice of 

determination or the request for hearing 

may be considered at the prehearing 

conference if—

(1) Either party gives timely notice to 

that effect to the ALJ and the other 

party; or 

(2) The ALJ raises the issues in the 

notice of prehearing conference or at the 

conference. 

§ 423.1032 Conduct of prehearing 

conference. 

(a) The prehearing conference is open 

to the affected party or its 

representative, to the CMS 

representatives and their technical 

advisors, and to any other persons 

whose presence the ALJ considers 

necessary or proper. 

(b) The ALJ may accept the agreement 

of the parties as to the following: 

(1) Facts that are not in controversy. 

(2) Questions that have been resolved 

favorably to the affected party after the 

determination in dispute. 

(3) Remaining issues to be resolved. 

(c) The ALJ may request the parties to 

indicate the following: 

(1) The witnesses that will be present 

to testify at the hearing. 

(2) The qualifications of those 

witnesses. 

(3) The nature of other evidence to be 

submitted. 

§ 423.1034 Record, order, and effect of 

prehearing conference. 

(a) Record of prehearing conference. 

(1) A record is made of all agreements 

and stipulations entered into at the 

prehearing conference. 

(2) The record may be transcribed at 

the request of either party or the ALJ. 

(b) Order and opportunity to object. 

(1) The ALJ issues an order setting forth 

the results of the prehearing conference, 

including the agreements made by the 

parties as to facts not in controversy, the 

matters to be considered at the hearing, 

and the issues to be resolved. 

(2) Copies of the order are sent to all 

parties and the parties have 10 days to 

file objections to the order. 

(3) After the 10 days have elapsed, the 

ALJ settles the order. 

(c) Effect of prehearing conference. 

The agreements and stipulations entered 

into at the prehearing conference are 

binding on all parties, unless a party 

presents facts that, in the opinion of the 

ALJ, would make an agreement 

unreasonable or inequitable. 

§ 423.1036 Time and place of hearing. 

(a) The ALJ fixes a time and place for 

the hearing and gives the parties written 

notice at least 10 days before the 

scheduled date. 

(b) The notice informs the parties of 

the general and specific issues to be 

resolved at the hearing. 

§ 423.1038 Change in time and place of 

hearing. 

(a) The ALJ may change the time and 

place for the hearing either on his or her 

own initiative or at the request of a 

party for good cause shown, or may 

adjourn or postpone the hearing. 

(b) The ALJ may reopen the hearing 

for receipt of new evidence at any time 

before mailing the notice of hearing 

decision. 

(c) The ALJ gives the parties 

reasonable notice of any change in time 

or place or any adjournment or 

reopening of the hearing. 

§ 423.1040 Joint hearings. 

When two or more affected parties 

have requested hearings and the same or 

substantially similar matters are at 

issue, the ALJ may, if all parties agree, 

fix a single time and place for the 

prehearing conference or hearing and 

conduct all proceedings jointly. If joint 

hearings are held, a single record of the 

proceedings is made and a separate 

decision issued with respect to each 

affected party. 

§ 423.1042 Hearing on new issues. 

(a) Basic rules. (1) Within the time 

limits specified in paragraph (b) of this 

section, the ALJ may, at the request of 

either party, or on his or her own 

motion, provide a hearing on new issues 

that impinge on the rights of the affected 

party. 

(2) The ALJ may consider new issues 

even if CMS has not made initial or 

reconsidered determinations on them, 

and even if they arose after the request 

for hearing was filed or after a 

prehearing conference. 

(3) The ALJ may give notice of hearing 

on new issues at any time after the 

hearing request is filed and before the 

hearing record is closed. 

(b) Notice and conduct of hearing on 

new issues. 

(1) Unless the affected party waives 

its right to appear and present evidence, 

notice of the time and place of hearing 

on any new issue will be given to the 

parties in accordance with § 423.1036. 

(2) After giving notice, the ALJ will, 

except as provided in paragraph (c), 

proceed to hearing on new issues in the 

same manner as on an issue raised in 

the request for hearing. 

(c) Remand to CMS. At the request of 

either party, or on his or her own 

motion, in lieu of a hearing under 

paragraph (b), the ALJ may remand the 

case to CMS for consideration of the 

new issue and, if appropriate, a 

determination. If necessary, the ALJ may 

direct CMS to return the case to the ALJ 

for further proceedings. 

§ 423.1044 Subpoenas. 

(a) Basis for issuance. The ALJ, upon 

his or her own motion or at the request 

of a party, may issue subpoenas if they 

are reasonably necessary for the full 

presentation of a case. 

(b) Timing of request by a party. The 

party must file a written request for a 

subpoena with the ALJ at least 5 days 

before the date set for the hearing. 

(c) Content of request. The request 

must: 

(1) Identify the witnesses or 

documents to be produced; 

(2) Describe their addresses or 

location with sufficient particularity to 

permit them to be found; and 

(3) Specify the pertinent facts the 

party expects to establish by the 

witnesses or documents, and indicate 

why those facts could not be established 

without use of a subpoena. 

(d) Method of issuance. Subpoenas 

are issued in the name of the Secretary. 


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§ 423.1046 Conduct of hearing. 

(a) Participants in the hearing. The 

hearing is open to the parties and their 

representatives and technical advisors, 

and to any other persons whose 

presence the ALJ considers necessary or 

proper. 

(b) Hearing procedures. (1) The ALJ 

inquires fully into all of the matters at 

issue, and receives in evidence the 

testimony of witnesses and any 

documents that are relevant and 

material. 

(2) If the ALJ believes that there is 

relevant and material evidence available 

which has not been presented at the 

hearing, he may, at any time before 

mailing of notice of the decision, reopen 

the hearing to receive that evidence. 

(3) The ALJ decides the order in 

which the evidence and the arguments 

of the parties are presented and the 

conduct of the hearing. 

(4) CMS has the burden of coming 

forward with evidence related to 

disputed findings that is sufficient 

(together with any undisputed findings 

and legal authority) to establish a prima 

facie case that CMS has a legally 

sufficient basis for its determination. 

(5) The affected party has the burden 

of coming forward with evidence 

sufficient to establish the elements of 

any affirmative argument or defense 

which it offers. 

(6) The affected party bears the 

ultimate burden of persuasion. To 

prevail, the affected party must prove by 

a preponderance of the evidence on the 

record as a whole that there is no basis 

for the determination. 

(c) Review of the penalty. When an 

ALJ finds that the basis for imposing a 

civil money penalty exists, as specified 

in § 423.752, the ALJ may not—

(1) Set a penalty of zero or reduce a 

penalty to zero, or 

(2) Review the exercise of discretion 

by CMS to impose a civil money 

penalty. 

§ 423.1048 Evidence. 

Evidence may be received at the 

hearing even though inadmissible under 

the rules of evidence applicable to court 

procedure. The ALJ rules on the 

admissibility of evidence. 

§ 423.1050 Witnesses. 

Witnesses at the hearing testify under 

oath or affirmation. The representative 

of each party is permitted to examine 

his or her own witnesses subject to 

interrogation by the representative of 

the other party. The ALJ may ask any 

questions that he or she deems 

necessary. The ALJ rules upon any 

objection made by either party as to the 

propriety of any question. 

§ 423.1052 Oral and written summation. 

The parties to a hearing are allowed 

a reasonable time to present oral 

summation and to file briefs or other 

written statements of proposed findings 

of fact and conclusions of law. Copies 

of any briefs or other written statements 

must be sent in accordance with 

§ 423.1016. 

§ 423.1054 Record of hearing. 

A complete record of the proceedings 

at the hearing is made and transcribed 

in all cases. 

§ 423.1056 Waiver of right to appear and 

present evidence. 

(a) Waiver procedures. (1) If an 

affected party wishes to waive its right 

to appear and present evidence at the 

hearing, it must file a written waiver 

with the ALJ. 

(2) If the affected party wishes to 

withdraw a waiver, it may do so, for 

good cause, at any time before the ALJ 

mails notice of the hearing decision. 

(b) Effect of waiver. If the affected 

party waives the right to appear and 

present evidence, the ALJ need not 

conduct an oral hearing except in one of 

the following circumstances: 

(1) The ALJ believes that the 

testimony of the affected party or its 

representatives or other witnesses is 

necessary to clarify the facts at issue. 

(2) CMS shows good cause for 

requiring the presentation of oral 

evidence. 

(c) Dismissal for failure to appear. If, 

despite the waiver, the ALJ sends notice 

of hearing and the affected party fails to 

appear, or to show good cause for the 

failure, the ALJ will dismiss the appeal 

in accordance with § 423.1058. 

(d) Hearing without oral testimony. 

When there is no oral testimony, the 

ALJ will—

(1) Make a record of the relevant 

written evidence that was considered in 

making the determination being 

appealed, and of any additional 

evidence submitted by the parties; 

(2) Furnish to each party copies of the 

additional evidence submitted by the 

other party; and 

(3) Give both parties a reasonable 

opportunity for rebuttal. 

(e) Handling of briefs and related 

statements. If the parties submit briefs 

or other written statements of evidence 

or proposed findings of facts or 

conclusions of law, those documents 

will be handled in accordance with 

§ 423.1016. 

§ 423.1058 Dismissal of request for 

hearing. 

(a) The ALJ may, at any time before 

mailing the notice of the decision, 

dismiss a hearing request if a party 

withdraws its request for a hearing or 

the affected party asks that its request be 

dismissed. 

(b) An affected party may request a 

dismissal by filing a written notice with 

the ALJ. 

§ 423.1060 Dismissal for abandonment. 

(a) The ALJ may dismiss a request for 

hearing if it is abandoned by the party 

that requested it. 

(b) The ALJ may consider a request for 

hearing to be abandoned if the party or 

its representative—

(1) Fails to appear at the prehearing 

conference or hearing without having 

previously shown good cause for not 

appearing; and 

(2) Fails to respond, within 10 days 

after the ALJ sends a ‘‘show cause’’

notice, with a showing of good cause. 

§ 423.1062 Dismissal for cause. 

On his or her own motion, or on the 

motion of a party to the hearing, the ALJ 

may dismiss a hearing request either 

entirely or as to any stated issue, under 

any of the following circumstances: 

(a) Res judicata. There has been a 

previous determination or decision with 

respect to the rights of the same affected 

party on the same facts and law 

pertinent to the same issue or issues 

which has become final either by 

judicial affirmance or, without judicial 

consideration, because the affected 

party did not timely request 

reconsideration, hearing, or review, or 

commence a civil action with respect to 

that determination or decision. 

(b) No right to hearing. The party 

requesting a hearing is not a proper 

party or does not otherwise have a right 

to a hearing. 

(c) Hearing request not timely filed. 

The affected party did not file a hearing 

request timely and the time for filing 

has not been extended. 

§ 423.1064 Notice and effect of dismissal 

and right to request review. 

(a) Notice of the ALJ’s dismissal 

action is mailed to the parties. The 

notice advises the affected party of its 

right to request that the dismissal be 

vacated as provided in § 423.1066. 

(b) The dismissal of a request for 

hearing is binding unless it is vacated 

by the ALJ or the Departmental Appeals 

Board. 

§ 423.1066 Vacating a dismissal of request 

for hearing. 

An ALJ may vacate any dismissal of 

a request for hearing if a party files a 

request to that effect within 60 days 

from receipt of the notice of dismissal 

and shows good cause for vacating the 

dismissal. 


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§ 423.1068 Administrative Law Judge’s 

decision. 

(a) Timing, basis and content. As soon 

as practical after the close of the 

hearing, the ALJ issues a written 

decision in the case. The decision is 

based on the evidence of record and 

contains separate numbered findings of 

fact and conclusions of law. 

(b) Notice and effect. A copy of the 

decision is mailed to the parties and is 

binding on them unless—

(1) A party requests review by the 

Departmental Appeals Board within the 

time period specified in § 423.1076, and 

the Board reviews the case; 

(2) The Departmental Appeals Board 

denies the request for review and the 

party seeks judicial review by filing an 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; 

(3) The decision is revised by an ALJ 

or the Department Appeals Board; or 

(4) The decision is a recommended 

decision directed to the Board. 

§ 423.1070 Removal of hearing to 

Departmental Appeals Board. 

(a) At any time before the ALJ receives 

oral testimony, the Board may remove 

itself any pending request for a hearing. 

(b) Notice of removal is mailed to 

each party. 

(c) The Board conducts the hearing in 

accordance with the rules that apply to 

ALJ hearings under this subpart. 

§ 423.1072 Remand by the Administrative 

Law Judge. 

(a) If CMS requests remand, and the 

affected party concurs in writing or on 

the record, the ALJ may remand any 

case properly before him or her to CMS 

for a determination satisfactory to the 

affected party. 

(b) The ALJ may remand at any time 

before notice of hearing decision is 

mailed. 

§ 423.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

Either of the parties has a right to 

request Departmental Appeals Board 

review of the ALJ’s decision or 

dismissal order, and the parties are so 

informed in the notice of the ALJ’s 

action. 

§ 423.1076 Request for Departmental 

Appeals Board review. 

(a) Manner and time of filing. (1) Any 

party that is dissatisfied with an ALJ’s 

decision or dismissal of a hearing 

request, may file a written request for 

review by the Departmental Appeals 

Board. 

(2) The requesting party or its 

representative or other authorized 

official must file the request with the 

DAB within 60 calendar days from 

receipt of the notice of decision or 

dismissal, unless the Board, for good 

cause shown by the requesting party, 

extends the time for filing. 

(b) Content of request for review. A 

request for review of an ALJ decision or 

dismissal must specify the issues, the 

findings of fact or conclusions of law 

with which the party disagrees, and the 

basis for contending that the findings 

and conclusions are incorrect. 

§ 423.1078 Departmental Appeals Board 

action on request for review. 

(a) Request by CMS. The Departmental 

Appeals Board may dismiss, deny, or 

grant a request made by CMS for review 

of an ALJ decision or dismissal. 

(b) Request by the affected party. The 

Board may deny or grant the affected 

party’s request for review or may 

dismiss the request for one of the 

following reasons: 

(1) The affected party requests 

dismissal of its request for review. 

(2) The affected party did not file 

timely or show good cause for late 

filing. 

(3) The affected party does not have 

a right to review. 

(4) A previous determination or 

decision, based on the same facts and 

law, and regarding the same issue, has 

become final through judicial 

affirmance or because the affected party 

failed to timely request reconsideration, 

hearing, Board review, or judicial 

review, as appropriate. 

(c) Effect of dismissal. The dismissal 

of a request for Departmental Appeals 

Board review is binding and not subject 

to further review. 

(d) Review panel. If the Board grants 

a request for review of the ALJ’s 

decision, the review will be conducted 

by a panel of three members of the 

Board, designated by the Chair or 

Deputy Chair. 

§ 423.1080 Procedures before the 

Departmental Appeals Board on review. 

The parties are given, upon request, a 

reasonable opportunity to file briefs or 

other written statements as to fact and 

law, and to appear before the 

Departmental Appeals Board to present 

evidence or oral arguments. Copies of 

any brief or other written statement 

must be sent in accordance with 

§ 423.1016. 

§ 423.1082 Evidence admissible on review. 

(a) The Departmental Appeals Board 

may admit evidence into the record in 

addition to the evidence introduced at 

the ALJ hearing, (or the documents 

considered by the ALJ if the hearing was 

waived), if the Board considers that the 

additional evidence is relevant and 

material to an issue before it. 

(b) If it appears to the Board that 

additional relevant evidence is 

available, the Board will require that it 

be produced. 

(c) Before additional evidence is 

admitted into the record—

(1) Notice is mailed to the parties 

(unless they have waived notice) stating 

that evidence will be received regarding 

specified issues; and 

(2) The parties are given a reasonable 

time to comment and to present other 

evidence pertinent to the specified 

issues. 

(d) If additional evidence is presented 

orally to the Board, a transcript is 

prepared and made available to any 

party upon request. 

§ 423.1084 Decision or remand by the 

Departmental Appeals Board. 

(a) When the Departmental Appeals 

Board reviews an ALJ’s decision or 

order of dismissal, or receives a case 

remanded by a court, the Board may 

either issue a decision or remand the 

case to an ALJ for a hearing and 

decision or a recommended decision for 

final decision by the Board. 

(b) In a remanded case, the ALJ 

initiates additional proceedings and 

takes other actions as directed by the 

Board in its order of remand, and may 

take other action not inconsistent with 

that order. 

(c) Upon completion of all action 

called for by the remand order and any 

other consistent action, the ALJ 

promptly makes a decision or, as 

specified by the Board, certifies the case 

to the Board with a recommended 

decision. 

(d) The parties have 20 days from the 

date of a notice of a recommended 

decision to submit to the Board any 

exception, objection, or comment on the 

findings of fact, conclusions of law, and 

recommended decision. 

(e) After the 20-day period, the Board 

issues its decision adopting, modifying 

or rejecting the ALJ’s recommended 

decision. 

(f) If the Board does not remand the 

case to an ALJ, the following rules 

apply: 

(1) The Board’s decision—

(i) Is based upon the evidence in the 

hearing record and any further evidence 

that the Board receives during its 

review; 

(ii) Is in writing and contains separate 

numbered findings of fact and 

conclusions of law; and 

(iii) May modify, affirm, or reverse the 

ALJ’s decision. 

(2) A copy of the Board’s decision is 

mailed to each party. 


ycherry on PROD1PC64 with PROPOSALS2
29402 Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed Rules 

§ 423.1086 Effect of Departmental Appeals 

Board Decision. 

(a) General rule. The Board’s decision 

is binding unless—

(1) The affected party has a right to 

judicial review and timely files a civil 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; or 

(2) The Board reopens and revises its 

decision in accordance with § 423.1092. 

(b) Right to judicial review. Section 

423.1006 specifies the circumstances 

under which an affected party has a 

right to seek judicial review. 

(c) Special rules: Civil money penalty. 

Finality of Board’s decision. When CMS 

imposes a civil money penalty, notice of 

the Board’s decision (or denial of 

review) is the final administrative action 

that initiates the 60-day period for 

seeking judicial review. 

§ 423.1088 Extension of time for seeking 

judicial review. 

(a) Any affected party that is 

dissatisfied with an Departmental 

Appeals Board decision and is entitled 

to judicial review must commence civil 

action within 60 calendar days from 

receipt of the notice of the Board’s 

decision, unless the Board extends the 

time in accordance with paragraph (c) of 

this section. 

(b) The request for extension must be 

filed in writing with the Board before 

the 60-day period ends. 

(c) For good cause shown, the Board 

may extend the time for commencing 

civil action. 

§ 423.1090 Basis, timing, and authority for 

reopening an ALJ or Board decision. 

(a) Basis and timing for reopening. An 

ALJ of Departmental Appeals Board 

decision may be reopened, within 60 

days from the date of the notice of 

decision, upon the motion of the ALJ or 

the Board or upon the petition of either 

party to the hearing. 

(b) Authority to reopen. (1) A decision 

of the Departmental Appeals Board may 

be reopened only by the Departmental 

Appeals Board. 

(2) A decision of an ALJ may be 

reopened by that ALJ, by another ALJ if 

that one is not available, or by the 

Departmental Appeals Board. For 

purposes of this paragraph, an ALJ is 

considered to be unavailable if the ALJ 

has died, terminated employment, or 

been transferred to another duty station, 

is on leave of absence, or is unable to 

conduct a hearing because of illness. 

§ 423.1092 Revision of reopened decision. 

(a) Revision based on new evidence. 

If a reopened decision is to be revised 

on the basis of new evidence that was 

not included in the record of that 

decision, the ALJ or the Departmental 

Appeals Board—

(1) Notifies the parties of the proposed 

revision; and 

(2) Unless the parties waive their right 

to hearing or appearance—

(i) Grants a hearing in the case of an 

ALJ revision; and 

(ii) Grants opportunity to appear in 

the case of a Board revision. 

(b) Basis for revised decision and right 

to review. 

(1) If a revised decision is necessary, 

the ALJ or the Departmental Appeals 

Board, as appropriate, renders it on the 

basis of the entire record. 

(2) If the decision is revised by an 

ALJ, the Departmental Appeals Board 

may review that revised decision at the 

request of either party or on its own 

motion. 

§ 423.1094 Notice and effect of revised 

decision. 

(a) Notice. The notice mailed to the 

parties states the basis or reason for the 

revised decision and informs them of 

their right to Departmental Appeals 

Board review of an ALJ revised 

decision, or to judicial review of a Board 

reviewed decision. 

(b) Effect—(1) ALJ revised decision. 

An ALJ revised decision is binding 

unless it is reviewed by the 

Departmental Appeals Board. 

(2) Departmental Appeals Board 

revised decision. A Board revised 

decision is binding unless a party files 

a civil action in a district court of the 

United States within the time frames 

specified in § 423.858. 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Editorial Note: This document was 

received at the Office of the Federal Register 

on May 21, 2007. 

Dated: November 9, 2006. 

Leslie V. Norwalk, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: January 9, 2007. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 07–2579 Filed 5–21–07; 4:20 pm] 

BILLING CODE 4120–01–P 


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