Vol. 79 Friday, 

No. 100 May 23, 2014 

Part II 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 417, 422, 423, et al. 

Medicare Program; Contract Year 2015 Policy and Technical Changes to 

the Medicare Advantage and the Medicare Prescription Drug Benefit 

Programs; Final Rule 


TKELLEY on DSK3SPTVN1PROD with RULES2
29844 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, 423, and 424 

[CMS–4159–F] 

RIN 0938–AR37 

Medicare Program; Contract Year 2015 

Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: The final rule will revise the 

Medicare Advantage (MA) program (Part 

C) regulations and prescription drug 

benefit program (Part D) regulations to 

implement statutory requirements; 

improve program efficiencies; and 

clarify program requirements. The final 

rule also includes several provisions 

designed to improve payment accuracy. 

DATES: Effective Dates: These 

regulations are effective on July 22, 2014 

except for the amendment in instruction 

27 to § 423.100, the amendment in 

instruction 30 to § 423.501, and the 

amendment in instruction 34 to 

§ 423.505, which are effective on 

January 1, 2016. 

Applicability Dates: In the 

SUPPLEMENTARY INFORMATION section of 

this final rule, we provide a table (Table 

1) which lists key changes in this final 

rule that have an applicability date 

other than the effective date of this final 

rule. 

FOR FURTHER INFORMATION CONTACT: 

Christopher McClintick, (410) 786– 

4682, Part C issues. 

Marie Manteuffel, (410) 786–3447, Part 

D issues. 

Kristy Nishimoto, (206) 615–2367, Part 

C and D enrollment and appeals 

issues. 

Whitney Johnson, (410) 786–0490, Part 

C and D payment issues. 

Joscelyn Lissone, (410) 786–5116, Part C 

and D compliance issues. 

Frank Whelan, (410) 786 1302, Part D 

improper prescribing issues. 

SUPPLEMENTARY INFORMATION: Table 1 

lists key changes that have an 

applicability date other than 60 days 

after the date of publication of this final 

rule. The applicability dates are 

discussed in the preamble for each of 

these items. 

TABLE 1—APPLICABILITY DATE OF KEY PROVISIONS OTHER THAN 60 DAYS AFTER THE DATE OF PUBLICATION OF THE

FINAL RULE

Preamble section Section title Applicability date 

III.A.4 ........................ Reducing the Burden of the Compliance Program Training Requirements (§§ 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C)).

01/01/2016 

III.A.7 ........................ Agent/Broker Compensation Requirements (§§ 422.2274 and 423.2274) ............................................... 01/01/2015 

III.A.20 ...................... Enrollment Requirements for the Prescribers of Part D Covered Drugs (§ 423.120(c)(6)) ..................... 06/01/2015 

III.A.24 ...................... Eligibility of Enrollment for Incarcerated Individuals (§§ 417.1, 417.460(b)(2)(i), 417.460(f)(1)(i)(A) 

through (C), 422.74(d)(4)(i)(A), 422.74(d)(4)(v), 423.44(d)(5)(iii) and (iv)).

01/01/2015 

Table of Contents 

I. Executive Summary 

A. Purpose 

B. Summary of the Major Provisions 

1. Modifying the Agent/Broker 

Requirements, Specifically Agent/Broker 

Compensation 

2. Drug Categories or Classes of Clinical 

Concern 

3. Improving Payment Accuracy— 

Implementing Overpayment Provisions 

of Section 1128J (d) of the Social 

Security Act (§§ 422.326 and 423.360). 

4. Risk Adjustment Data Requirements 

(§ 422.310) 

C. Summary of Costs and Benefits 

II. Background 

A. General Overview and Regulatory 

History 

B. Issuance of a Notice of Proposed 

Rulemaking 

C. Public Comments Received in Response 

to the CY 2015 Policy and Technical 

Changes to the Medicare Advantage and 

the Medicare Prescription Drug Benefit 

Programs Proposed Rule 

D. Provisions Not Finalized in this Final 

Rule 

III. Provisions of the Proposed Regulations 

A. Clarifying Various Program 

Participation Requirements 

1. Closing Cost Contract Plans to New 

Enrollment (§§ 422.2 and 22.503) 

2. Authority to Impose Intermediate 

Sanctions and Civil Money Penalties 

(§§ 422.752, 423.752, 422.760 and 

423.760) 

3. Contract Termination Notification 

Requirements and Contract Termination 

Basis (§§ 422.510 and 423.509) 

4. Reducing the Burden of the Compliance 

Program Training Requirements 

(§§ 422.503(b)(4)(vi)(C) and 

423.504(b)(4)(vi)(C)) 

5. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D (§§ 422.756 and 

423.756) 

6. Timely Access to Mail Order Services 

(§ 423.120) 

7. Agent/Broker Requirements, Particularly 

Compensation (§§ 422.2274 and 

423.2274) 

8. Drug Categories or Classes of Clinical 

Concern (§ 423.120(b)(2)(v)) 

9. Medication Therapy Management 

Program (MTMP) under Part D 

(§ 423.153(d)) 

a. Multiple Chronic Diseases 

b. Multiple Part D Drugs 

c. Annual Cost Threshold 

10. Requirement for Applicants or their 

Contracted First Tier, Downstream, or 

Related Entities to Have Experience in 

the Part D Program Providing Key Part D 

Functions (§ 423.504(b)) 

11. Requirement for Applicants for Stand 

Alone Part D Plan Sponsor Contracts to 

Be Actively Engaged in the Business of 

the Administration of Health Insurance 

Benefits (§ 423.504(b)(9)) 

12. Limit Parent Organizations to One 

Prescription Drug Plan (PDP) Sponsor 

Contract Per PDP Region (§ 423.503) 

13. Limit Stand-Alone Prescription Drug 

Plan Sponsors to Offering No More Than 

Two Plans Per PDP Region (§ 423.265) 

14. Applicable Cost-Sharing for Transition 

Supplies: Transition Process Under Part 

D (§ 423.120(b)(3)) 

15. Interpreting the Non Interference 

Provision (§ 423.10) 

16. Pharmacy Price Concessions in 

Negotiated Prices (§ 423.100) 

17. Preferred Cost Sharing (§§ 423.100 and 

423.120) 

18. Prescription Drug Pricing Standards 

and Maximum Allowable Cost 

(§ 423.505(b)(21)) 

19. Any Willing Pharmacy Standard Terms 

& Conditions (§ 423.120(a)(8)) 

20. Enrollment Requirements for 

Prescribers of Part D Covered Drugs 

(§ 423.120(c)(5) and (6)) 

21. Improper Prescribing Practices 

(§§ 424.530 and 424.535) 

a. Background and Program Integrity 

Concerns 

b. Drug Enforcement Administration (DEA) 

Certification of Registration 

c. Patterns or Practices of Prescribing 

22. Broadening the Release of Part D Data 

(§ 423.505) 

23. Establish Authority to Directly Request 

Information From First Tier, 

Downstream, and Related Entities 

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


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24. Eligibility of Enrollment for 

Incarcerated Individuals (§§ 417.1, 

417.422, 417.460, 422.74, and 423.44) 

a. Changes in Definition of Service Area for 

Cost Plans (§§ 417.1 and 417.422(b)) 

b. Involuntary Disenrollment for 

Incarcerated Individuals Enrolled in MA, 

PDP and cost plans (§§ 417.460, 422.74, 

and 423.44) 

25. Rewards and Incentives Program 

Regulations for Part C Enrollees 

(§ 422.134) 

B. Improving Payment Accuracy 

1. Implementing Overpayment Provisions 

of Section 1128J(d) of the Social Security 

Act (§§ 422.326 and 423.360) 

a. Terminology (§§ 422.326(a) and 

423.360(a)) 

b. General Rules for Overpayments 

(§ 422.326(b) through (c); § 423.360(b) 

through (c)) 

c. Look-back Period for Reporting and 

Returning Overpayments 

2. Risk Adjustment Data Requirements 

(§ 422.310) 

3. RADV Appeals 

a. Background 

b. RADV Definitions 

c. Publication of RADV Methodology 

d. Proposal to Update RADV Appeals 

Terminology (§ 422.311) 

e. Proposal to Simplify the RADV Appeals 

Process 

(1) Issues Eligible for RADV Appeal 

(2) Issues Not Eligible for RADV Appeals 

(3) Manner and Timing of a Request for 

RADV Appeal 

(4) Reconsideration Stage 

(5) Hearing Stage 

(6) CMS Administrator Review Stage 

f. Proposal to Expand Scope of RADV 

Audits 

g. Proposal to Clarify the RADV Medical 

Record Review Determination Appeal 

Burden of Proof Standard 

h. Proposal to Change RADV Audit 

Compliance Date 

4. Recovery Audit Contractor (RAC) 

Determination Appeals (Proposed Part 

422 Subpart Z and Part 423 Subpart Z) 

a. Background 

b. Proposed RAC Appeals Process 

(1) Reconsiderations (§§ 422.2605 and 

423.2605) 

(2) Hearing Official Determinations 

(§§ 422.2610 and 423.2610) 

(3) Administrator Review (§§ 422.2615 and 

423.2615) 

C. Implementing Other Technical Changes 

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

a. Combination Products 

b. Barbiturates and Benzodiazepines 

c. Medical Foods 

2. Special Part D Access Rules During 

Disasters or Emergencies (§ 423.126) 

3. Termination of a Contract Under Parts C 

and D (§§ 422.510 and 423.509) 

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

b. Terminology Changes (§§ 422.510 and 

423.509) 

c. Technical Change to Align Paragraph 

Headings (§ 422.510(b)(2)) 

d. Terminology Change 

(§ 423.509(b)(2)(C)(ii)) 

4. Technical Changes Regarding 

Intermediate Sanctions and Civil Money 

Penalties (§§ 422.756 and 423.756) 

a. Technical Changes to Intermediate 

Sanctions Notice Receipt Provisions 

(§§ 422.756(a)(2) and 423.756(a)(2)) 

b. Cross-reference Changes 

(§§ 422.756(b)(4) and 423.756(b)(4)) 

c. Technical Changes (§§ 422.756(d) and 

423.756(d)) 

d. Technical Changes to Align the Civil 

Money Penalty Provision with the 

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

423.760(a)(3)) 

e. Technical Changes to Align the Civil 

Money Penalty Notice Receipt Provisions 

(§§ 422.1020(a)(2), 423.1020(a)(2), 

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

IV. Collection of Information Requirements 

A. ICRs Related to Improper Prescribing 

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

and (14)) 

B. ICRs Related to Applicants or their 

Contracted First Tier, Downstream, or 

Related Entities to Have Experience in 

the Part D Program Providing Key Part D 

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

(iii)) 

C. ICRs Related to Eligibility of Enrollment 

for Incarcerated Individuals (§§ 417.460, 

422.74, and 423.44) 

D. ICRs Related to Rewards and Incentives 

Program Regulations for Part C Enrollees 

(§ 422.134) 

E. ICR Related to Recovery Audit 

Contractor Determinations (Part 422, 

Subpart Z and Part 423, Subpart Z) 

V. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Anticipated Effects 

1. Effects of Closing Cost Contract Plans to 

New Enrollment 

2. Effects of the Authority to Impose 

Intermediate Sanctions and Civil Money 

Penalties 

3. Effects of Contract Termination 

Notification Requirements and Contract 

Termination Basis 

4. Effects of Reducing the Burden of the 

Compliance Program Training 

Requirements 

5. Effects of the Procedures for Imposing 

Intermediate Sanctions and Civil Money 

Penalties under Parts C and D 

6. Effects of Timely Access to Mail Order 

Services 

7. Effects of the Modification of the Agent/ 

Broker Compensation Requirements 

8. Effects of Drug Categories or Classes of 

Clinical Concern 

9. Effects of the Medication Therapy 

Management Program (MTMP) under 

Part D 

10. Effects of the Requirement for 

Applicants or their Contracted First Tier, 

Downstream, or Related Entities to Have 

Experience in the Part D Program 

Providing Key Part D Functions 

11. Effects of Requirement for Applicants 

for Stand Alone Part D Plan Sponsor 

Contracts to Be Actively Engaged in the 

Business of the Administration of Health 

Insurance Benefits 

12. Effects of Limit Parent Organizations to 

One Prescription Drug Plan (PDP) 

Sponsor Contract per PDP Region 

13. Effects of Limit Stand-Alone 

Prescription Drug Plan Sponsors to 

Offering No More Than Two Plans per 

PDP Region 

14. Effects of Applicable Cost-Sharing for 

Transition Supplies: Transition Process 

Under Part D 

15. Effects of Interpreting the NonInterference Provision 

16. Effects of Pharmacy Price Concessions 

in Negotiated Prices 

17. Effects of Preferred Cost Sharing 

18. Effects of Maximum Allowable Cost 

Pricing Standard 

19. Effects of Any Willing Pharmacy 

Standard Terms & Conditions 

20. Effects of Enrollment Requirements for 

Prescribers of Part D Covered Drugs 

21. Effects of Improper Prescribing 

Practices and Patterns 

22. Effects of Broadening the Release of 

Part D Data 

23. Effects of Establish Authority to 

Directly Request Information From First 

Tier, Downstream, and Related Entities 

24. Effects of Eligibility of Enrollment for 

Incarcerated Individuals 

25. Effects of Rewards and Incentives 

Program Regulations for Part C Enrollees 

26. Effects of Improving Payment 

Accuracy: Reporting Overpayments, 

RADV Appeals, and LIS Cost Sharing 

27. Effects of Part C and Part D RAC 

Determination Appeals 

28. Effects of the Technical Changes to the 

Definition of a Part D Drug 

29. Effects of the Special Part D Access 

Rules During Disasters 

30. Effects of Termination of a Contract 

under Parts C and D 

31. Effects of Technical Changes Regarding 

Intermediate Sanctions and Civil Money 

Penalties 

D. Expected Benefits 

1. Drug Categories or Classes of Clinical 

Concern 

2. Medication Therapy Management 

Program under Part D 

E. Alternatives Considered 

1. Modifying the Agent/Broker 

Compensation Requirements 

2. Any Willing Pharmacy Standard Terms 

and Conditions 

3. Pharmacy Price Concessions in 

Negotiated Prices 

4. Special Part D Access Rules During 

Disasters or Emergencies 

5. Drug Categories or Classes of Clinical 

Concern 

6. Medication Therapy Management 

Program (MTM) Under Part D 

7. Requirement for Applicants or their 

Contracted First Tier, Downstream, or 

Related Entities to have Experience in 

the Part D Program Providing Key Part D 

Functions 

F. Accounting Statement and Table 

G. Conclusion 

Regulations Text 

Acronyms 

ADS Automatic Dispensing System 

AEP Annual Enrollment Period 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service–Drug Information 

AHRQ Agency for Health Care Research 

and Quality 


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ALJ Administrative Law Judge 

ANOC Annual Notice of Change 

AO Accrediting Organization 

AOR Appointment of Representative 

BBA Balanced Budget Act of 1997 (Pub. L. 

105–33) 

BBRA [Medicare, Medicaid and State Child 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (Pub. L. 

106–113) 

BIPA [Medicare, Medicaid, and SCHIP] 

Benefits Improvement Protection Act of 

2000 (Pub. L. 106–554) 

BLA Biologics License Application 

CAHPS Consumer Assessment Health 

Providers Survey 

CAP Corrective Action Plan 

CCIP Chronic Care Improvement Program 

CC/MCC Complication/Comorbidity and 

Major Complication/Comorbidity 

CCS Certified Coding Specialist 

CDC Centers for Disease Control 

CHIP Children’s Health Insurance Programs 

CMP Civil Money Penalty 

CMR Comprehensive Medical Review 

CMS Centers for Medicare & Medicaid 

Services 

CMS–HCC CMS Hierarchal Condition 

Category 

CTM Complaints Tracking Module 

COB Coordination of Benefits 

CORF Comprehensive Outpatient 

Rehabilitation Facility 

CPC Certified Professional Coder 

CY Calendar year 

DAB Departmental Appeals Board 

DEA Drug Enforcement Administration 

DIR Direct and Indirect Remuneration 

DME Durable Medical Equipment 

DMEPOS Durable Medical Equipment, 

Prosthetic, Orthotics, and Supplies 

D–SNPs Dual Eligible SNPs 

DOL U.S. Department of Labor 

DUA Data Use Agreement 

DUM Drug Utilization Management 

EAJR Expedited Access to Judicial Review 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

EOC Evidence of Coverage 

ESRD End-Stage Renal Disease 

FACA Federal Advisory Committee Act 

FDA Food and Drug Administration 

FEHBP Federal Employees Health Benefits 

Plan 

FFS Fee-For-Service 

FIDE Fully-integrated Dual Eligible 

FIDE SNPs Fully-integrated Dual Eligible 

Special Needs Plans 

FMV Fair Market Value 

FY Fiscal year 

GAO Government Accountability Office 

HAC Hospital-Acquired Conditions 

HCPP Health Care Prepayment Plans 

HEDIS HealthCare Effectiveness Data and 

Information Set 

HHS [U.S. Department of] Health and 

Human Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

HMO Health Maintenance Organization 

HOS Health Outcome Survey 

HPMS Health Plan Management System 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

ID Identification 

IVC Initial Validation Contractor 

LCD Local Coverage Determination 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LPPO Local Preferred Provider 

Organization 

LTC Long Term Care 

MA Medicare Advantage 

MAAA Member of the American Academy 

of Actuaries 

MA–PD Medicare Advantage–Prescription 

Drug Plan 

MIPPA Medicare Improvements for Patients 

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

275) 

MOC Medicare Options Compare 

MOOP Maximum Out-of-Pocket 

MPDPF Medicare Prescription Drug Plan 

Finder 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MS–DRG Medicare Severity Diagnosis 

Related Group 

MSA Metropolitan Statistical Area 

MSAs Medical Savings Accounts 

MSP Medicare Secondary Payer 

MTM Medication Therapy Management 

MTMP Medication Therapy Management 

Program 

NAIC National Association of Insurance 

Commissioners 

NCD National Coverage Determination 

NCPDP National Council for Prescription 

Drug Programs 

NCQA National Committee for Quality 

Assurance 

NDA New Drug Application 

NDC National Drug Code 

NGC National Guideline Clearinghouse 

NIH National Institutes of Health 

NOMNC Notice of Medicare Non-Coverage 

NPI National Provider Identifier 

NWS National Weather Service 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

OTC Over the Counter 

Part C Medicare Advantage 

Part D Medicare Prescription Drug Benefit 

Program 

PBM Pharmacy Benefit Manager 

PDE Prescription Drug Event 

PDP Prescription Drug Plan 

PFFS Private Fee For Service Plan 

POA Present on Admission (Indicator) 

POS Point-of-Sale 

PPO Preferred Provider Organization 

PPS Prospective Payment System 

P&T Pharmacy & Therapeutics 

QIC Qualified Independent Contractor 

QIO Quality Improvement Organization 

QRS Quality Review Study 

PACE Programs of All Inclusive Care for the 

Elderly 

RADV Risk Adjustment Data Validation 

RAPS Risk Adjustment Payment System 

RPPO Regional Preferred Provider 

Organization 

SCORM Sharable Content Object Reference 

Model 

SEP Special Election Period 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSA Social Security Administration 

SSI Supplemental Security Income 

T&C Terms and Conditions 

TPA Third Party Administrator 

TrOOP True Out-Of-Pocket 

U&C Usual and Customary 

UPIN Uniform Provider Identification 

Number 

USP U.S. Pharmacopoeia 

I. Executive Summary 

A. Purpose 

The purpose of this final rule is to 

make revisions to the Medicare 

Advantage (MA) program (Part C) and 

Prescription Drug Benefit Program (Part 

D) regulations based on our continued 

experience in the administration of the 

Part C and Part D programs and to 

implement certain provisions of the 

Affordable Care Act. This final rule is 

necessary to—(1) clarify various 

program participation requirements; (2) 

improve payment accuracy; and (3) 

make other clarifications and technical 

changes. 

B. Summary of the Major Provisions 

1. Modifying the Agent/Broker 

Requirements, Specifically Agent/

Broker Compensation 

The former regulatory compensation 

structure was comprised of a 6-year 

cycle that ended December 31, 2013. 

Under that structure, MA organizations 

and Part D sponsors provided an initial 

compensation payment to independent 

agents for new enrollees (Year 1), and 

paid a renewal rate (equal to 50 percent 

of the initial year compensation) for 

Years 2 through 6. MA organizations 

and Part D sponsors had the option to 

pay the 50 percent renewal rate for 

CY2014 (year 1). This compensation 

structure proved to be complicated to 

implement and monitor, and also 

created an incentive for agents to move 

beneficiaries as long as the fair market 

value (FMV) continued to increase each 

year. To resolve these issues, we 

proposed to revise the compensation 

structure. Under our proposal, MA 

organizations and Part D sponsors 

would continue to have the discretion to 

decide, on an annual basis, whether or 

not to use independent agents. Also, for 

new enrollments, MA organizations and 

Part D sponsors could determine what 

their initial rate would be, up to the 

CMS designated FMV amount. For 

renewals in Year 2 and subsequent 

years, with no end date, the MA 

organization or Part D sponsor could 

pay up to 35 percent of the current FMV 

amount for that year. We believed that 

revising the existing compensation 


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structure to allow MA organizations or 

Part D sponsors to pay up to 35 percent 

of the FMV for year 2 and subsequent 

years was appropriate based on a couple 

of factors. First, we believed that a 2 

tiered payment system (that is, initial 

and renewal) would be significantly less 

complicated than a 3-tiered system (that 

is, initial, 50 percent renewal for years 

2 through 6, and 25 percent residual for 

years 7 and subsequent years), and 

would reduce administrative burden 

and confusion for plan sponsors. 

Second, our analysis determined that 35 

percent was the renewal compensation 

level at which the present value of 

overall payments under a 2-tiered 

system would be relatively equal to the 

present value of overall payments under 

a 3-tiered system (taking into account 

the estimated life expectancy for several 

beneficiary age cohorts). In addition to 

revising the agent and broker 

compensation structures, we proposed 

to amend the training and testing 

requirements as well as setting limits on 

referral fees ($100) for agents and 

brokers. 

We received more than 140 comments 

from agents, health plans, and trade 

associations opposing the 35 percent 

renewal rate, and instead suggesting that 

CMS maintain the 50 percent renewal 

rate. A number of commenters 

expressed concerns that the proposed 

reduction in compensation would 

represent a significant decrease from the 

current compensation limit, and a rate 

set at 50 percent of FMV would be in 

line with industry standard. They noted 

that the higher compensation amount 

would be particularly important for 

stand-alone prescription drug plans, as 

35 percent would be insufficient to 

cover an agent’s costs associated with 

the renewal transaction and could 

discourage agents from assisting in the 

annual evaluation of a Medicare 

beneficiary’s options. Commenters also 

stated that, compared to current 

practice, the proposed 35 percent 

renewal rate is a reduction since a 

number of MA plans began offering a 

renewal rate of 50 percent for 10 years 

or more at the end of the 6-year cycle 

(2013). The majority of commenters also 

stated that agents play an important role 

in educating beneficiaries about 

Medicare and the proposed reduction in 

the renewal rate could reduce the level 

and quality of services provided to 

beneficiaries, thereby resulting in less 

information sharing and poorer plan 

choices by beneficiaries. Many 

commenters also stated that agents 

spend a significant amount of time in 

training, preparing, and educating 

beneficiaries and that the compensation 

is already low relative to the hours 

spent. Some commenters also expressed 

concern that the lower compensation 

rate would discourage new agents from 

entering the MA market. Many agents 

stated they would have to stop selling 

MA products and instead sell other 

more profitable products. No plans 

strongly supported the 35 percent 

renewal rate. Therefore, we are 

modifying the compensation renewal 

rate from up to 35 percent to up to 50 

percent. These changes will be 

applicable for enrollments effective 

January 2015. Because the proposed rate 

is similar to previous regulatory 

requirements, present CMS guidance, 

and industry practice, we believe this 

implementation timeframe is reasonable 

and appropriate. We are not finalizing 

the proposed changes to agent and 

broker training and testing at this time. 

We are finalizing limits on referral fees 

for agents as proposed. 

2. Drug Categories or Classes of Clinical 

Concern 

We are not finalizing any new criteria 

and will maintain the existing six 

protected classes. 

3. Improving Payment Accuracy— 

Implementing Overpayment Provisions 

of Section 1128J(d) of the Social 

Security Act (§§ 422.326 and 423.360) 

These proposed regulatory provisions 

codify the Affordable Care Act 

requirement establishing section 

1128J(d) of the Act that MA 

organizations and Part D sponsors report 

and return identified Medicare 

overpayments. 

We proposed to adopt the statutory 

definition of overpayment for both Part 

C and Part D, which means any funds 

that an MA organization or Part D 

sponsor has received or retained under 

Title XVIII of the Act to which the MA 

organization or Part D sponsor, after 

applicable reconciliation, is not entitled 

under such title. To reflect the unique 

structure of Part C and Part D payments 

to plan sponsors, we also propose to 

define two terms included in the 

statutory definition of overpayments: 

‘‘funds’’ and ‘‘applicable 

reconciliation.’’ We proposed to define 

funds as payments an MA organization 

or Part D sponsor has received that are 

based on data that these organizations 

submitted to CMS for payment 

purposes. For Part C we proposed that 

applicable reconciliation occurs on the 

annual final risk adjustment data 

submission deadline. For Part D, we 

proposed that applicable reconciliation 

occurs on the date that is the later of 

either the annual deadline for 

submitting prescription drug event 

(PDE) data for the annual Part D 

payment reconciliations referred to in 

§ 423.343(c) and (d) or the annual 

deadline for submitting DIR data. 

In addition, we proposed to state in 

regulation that an MA organization or 

Part D sponsor has identified an 

overpayment if it has actual knowledge 

of the existence of the overpayment or 

acts in reckless disregard or deliberate 

ignorance of the existence of the 

overpayment. An MA organization or 

Part D sponsor must report and return 

any identified overpayment it received 

no later than 60 days after the date on 

which it identified it received an 

overpayment. The MA organization or 

Part D sponsor must notify CMS, using 

a notification process determined by 

CMS, of the amount and reason for the 

overpayment. Finally, we proposed a 

look-back period with an exception for 

overpayments resulting from fraud, 

whereby MA organizations and Part D 

sponsors would be held accountable for 

reporting overpayments within the 6 

most recent completed payment years 

for which the applicable reconciliation 

has been completed. 

We received approximately 30 

comments from organizations and 

individuals. Generally, commenters 

supported establishing separate 

applicable reconciliation dates for Part 

C and Part D. Many commenters 

questioned when the 60-day period for 

reporting and returning begins, and 

what activities constitute reporting and 

returning an overpayment to CMS, 

including questions about estimating an 

amount of overpayment. A number of 

commenters also requested to clarify the 

standards for ‘‘identifying’’ an 

overpayment, including questions about 

the meaning of reasonable diligence. 

Finally, a few commenters 

recommended that we impose the same 

limitation on the look-back period for 

all overpayments, even those relating to 

fraud. 

We are finalizing the provisions at 

§§ 422.326 and 423.360, with the 

following modifications. First, we add at 

the end of paragraph § 422.326(d) the 

phrase ‘‘unless otherwise directed by 

CMS for the purpose of § 422.311.’’ 

Also, to increase clarity we revise 

§§ 422.326(c) and 423.360(c) regarding 

identified overpayments. Finally, we 

strike the following sentence in the 

proposed paragraphs on the 6-year lookback period: ‘‘Overpayments resulting 

from fraud are not subject to this 

limitation of the lookback period.’’ 

4. Risk Adjustment Data Requirements 

We proposed several amendments to 

§ 422.310 to strengthen existing 

regulations related to the accuracy of 


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risk adjustment data, including: (1) A 

requirement that medical record 

reviews, if used, be designed to 

determine the accuracy of diagnoses 

submitted under §§ 422.308(c)(1) and 

422.310(g)(2); (2) a revision in the 

deadlines for submission of risk 

adjustment data; and (3) a limitation on 

the type and purpose of late data 

submissions. We also proposed a 

restructuring of subparagraph (g)(2) as 

part of the revisions. We received 

approximately 25 comments from 

organizations and individuals regarding 

these proposals; many of the comments 

were concerned and critical of the 

proposals, highlighting vagueness and 

the potential for operational instability. 

For reasons discussed in more detail 

below in section III.B.2 of the preamble, 

we are not finalizing the proposed 

amendment regarding the scope of 

medical reviews and we are not 

finalizing at this time the proposal to 

change the date for final risk adjustment 

data submission. We are finalizing as 

proposed the restructuring of 

§§ 422.310(g)(2) and the 422.310(g)(2)(ii) 

provision to prohibit submission of 

diagnoses for additional payment after 

the final risk adjustment data 

submission deadline. 

C. Summary of Costs and Benefits 

TABLE 2—SUMMARY OF COSTS AND BENEFITS

Provision description Total costs Transfers 

Modifying the agent/broker requirements, specifically agent/broker 

compensation.

N/A ............... N/A 

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

Eligibility of Enrollment for Incarcerated Individuals.................. We estimate that this change could save the MA program up to $27 million in 2015, increasing to $103 million in 2024 (total of $650 million over this period), and could save 

the Part D program (includes the Part D portion of MA PD plans) up to $46 million in 

2015, increasing to $153 million in 2024 (total of $965 million over this period). 

II. Background 

A. General Overview and Regulatory 

History 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) created a new 

‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act)) which 

established what is now known as the 

Medicare Advantage (MA) program. The 

Medicare Prescription Drug, 

Improvement, and Modernization Act of 

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

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

D’’ to the Medicare statute (sections 

1860D–1 through 42 of the Act) entitled 

the Medicare Prescription Drug Benefit 

Program (PDP), and made significant 

changes to the existing Part C program, 

which it named the Medicare Advantage 

(MA) Program. The MMA directed that 

important aspects of the Part D program 

be similar to, and coordinated with, 

regulations for the MA program. 

Generally, the provisions enacted in the 

MMA took effect January 1, 2006. The 

final rules implementing the MMA for 

the MA and Part D prescription drug 

programs appeared in the Federal 

Register on January 28, 2005 (70 FR 

4588 through 4741 and 70 FR 4194 

through 4585, respectively). 

Since the inception of both Parts C 

and D, we have periodically revised our 

regulations either to implement 

statutory directives or to incorporate 

knowledge obtained through experience 

with both programs. For instance, in the 

September 18, 2008 and January 12, 

2009 Federal Register (73 FR 54226 and 

74 FR 1494, respectively), we issued 

Part C and D regulations to implement 

provisions in the Medicare 

Improvement for Patients and Providers 

Act (MIPPA) (Pub. L. 110–275). We 

promulgated a separate interim final 

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

address MIPPA provisions related to 

Part D plan formularies. In the final rule 

that appeared in the April 15, 2010 

Federal Register (75 FR 19678), we 

made changes to the Part C and D 

regulations which strengthened various 

program participation and exit 

requirements; strengthened beneficiary 

protections; ensured that plan offerings 

to beneficiaries included meaningful 

differences; improved plan payment 

rules and processes; improved data 

collection for oversight and quality 

assessment; implemented new policies; 

and clarified existing program policy. 

In a final rule that appeared in the 

April 15, 2011 Federal Register (76 FR 

21432), we continued our process of 

implementing improvements in policy 

consistent with those included in the 

April 2010 final rule, and also 

implemented changes to the Part C and 

Part D programs made by recent 

legislative changes. The Patient 

Protection and Affordable Care Act 

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

23, 2010, as passed by the Senate on 

December 24, 2009, and the House on 

March 21, 2010. The Health Care and 

Education Reconciliation Act (Pub. L. 

111–152), which was enacted on March 

30, 2010, modified a number of 

Medicare provisions in Pub. L. 111–148 

and added several new provisions. The 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 

Care and Education Reconciliation Act 

(Pub. L. 111–152) are collectively 

referred to as the Affordable Care Act. 

The Affordable Care Act included 

significant reforms to both the private 

health insurance industry and the 

Medicare and Medicaid programs. 

Provisions in the Affordable Care Act 

concerning the Part C and D programs 

largely focused on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. These provisions 

affected implementation of our policies 

regarding beneficiary cost-sharing, 

assessing bids for meaningful 

differences, and ensuring that costsharing structures in a plan are 

transparent to beneficiaries and not 

excessive. In the April 2011 final rule, 

we revised regulations on a variety of 

issues based on the Affordable Care Act 

and our experience in administering the 

MA and Part D programs. The rule 

covered areas such as marketing, 

including agent/broker training; 

payments to MA organizations based on 

quality ratings; standards for 

determining if organizations are fiscally 

sound; low income subsidy policy 

under the Part D program; payment 

rules for non-contract health care 

providers; extending current network 

adequacy standards to Medicare 

medical savings account (MSA) plans 

that employ a network of providers; 

establishing limits on out-of-pocket 

expenses for MA enrollees; and several 

revisions to the special needs plan 

requirements, including changes 

concerning SNP approvals. 

In a final rule that appeared in the 

April 12, 2012 Federal Register (77 FR 

22072 through 22175), we made several 

changes to the Part C and Part D 


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programs required by statute, including 

the Affordable Care Act, as well as made 

improvements to both programs through 

modifications reflecting experience we 

have obtained administering the Part C 

and Part D programs. Key provisions of 

that final rule implemented changes 

closing the Part D coverage gap, or 

‘‘donut hole,’’ for Medicare beneficiaries 

who do not already receive low-income 

subsidies from us by establishing the 

Medicare Coverage Gap Discount 

Program. We also included provisions 

providing new benefit flexibility for 

fully-integrated dual eligible special 

needs plans, clarifying coverage of 

durable medical equipment, and 

combatting possible fraudulent activity 

by requiring Part D sponsors to include 

an active and valid prescriber National 

Provider Identifier on prescription drug 

event records. 

B. Issuance of a Notice of Proposed 

Rulemaking 

In the proposed rule titled ‘‘Contract 

Year 2015 Policy and Technical 

Changes to the Medicare Advantage and 

the Medicare Prescription Drug Benefit 

Programs,’’ which appeared in the 

January 10, 2014 Federal Register (79 

FR 1918), we proposed to revise the 

Medicare Advantage (MA) program (Part 

C) regulations and prescription drug 

benefit program (Part D) regulations to 

implement statutory requirements; 

strengthen beneficiary protections; 

exclude plans that perform poorly; 

improve program efficiencies; and 

clarify program requirements. The 

proposed rule also included several 

provisions designed to improve 

payment accuracy. 

C. Public Comments Received in 

Response to the CY 2015 Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs 

Proposed Rule 

We received approximately 7,600 

timely pieces of correspondence 

containing multiple comments on the 

CY 2014 proposed rule. While we are 

finalizing several of the provisions from 

the proposed rule, there are a number of 

provisions from the proposed rule (for 

example, enrollment eligibility criteria 

for individuals not lawfully present in 

the United States) that we intend to 

address later and a few which we do not 

intend to finalize. We also note that 

some of the public comments were 

outside of the scope of the proposed 

rule. These out-of-scope public 

comments are not addressed in this final 

rule. Summaries of the public comments 

that are within the scope of the 

proposed rule and our responses to 

those public comments are set forth in 

the various sections of this final rule 

under the appropriate heading. 

However, we note that in this final rule 

we are not addressing comments 

received with respect to the provisions 

of the proposed rule that we are not 

finalizing at this time. Rather, we will 

address them at a later time, in a 

subsequent rulemaking document, as 

appropriate. 

D. Provisions Not Finalized in This 

Final Rule 

As noted previously, some of the 

provisions of the proposed rule will be 

addressed later and, therefore, are not 

being finalized in this rule. Table 3 lists 

the provisions that were proposed but 

are not addressed at this time. We note 

that several provisions that were 

proposed are not being finalized in this 

rule and are effectively being 

withdrawn; those provisions are not 

listed in Table 3. 

TABLE 3—PROVISIONS NOT FINALIZED AT THIS TIME

Proposed 

rule section Topic 

Clarifying Various Program Participation Requirements 

III.A.2 .......... Two-year Limitation on Submitting a New Bid in an Area Where an MA has been Required to Terminate a Low-enrollment MA 

Plan (§ 422.504(a)(19)). 

III.A.6 .......... Changes to Audit and Inspection Authority (§ 422.503(d)(2) and § 423.504(d)(2)). 

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

III.A.10 ........ Enrollment Eligibility for Individuals Not Lawfully Present in the United States (§§ 417.2, 417.420, 417.422, 417.460, 422.1, 

422.50, 422.74, 423.1, 423.30, and 423.44). 

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

III.A.12 ........ Separating the Annual Notice of Change (ANOC) from the Evidence of Coverage (EOC) (§ 422.111(a)(3) and § 423.128(a)(3)). 

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

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

III.A.16 ........ Business Continuity for MA Organizations and PDP Sponsors (§ 422.504(o) and § 423.505(p)). 

III.A.21 ........ Efficient Dispensing in Long Term Care Facilities and Other Changes (§ 423.154). 

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

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

Prescription Drug Plans (§ 423.882). 

III.A.32 ........ Transfer of TrOOP Between PDP Sponsors Due to Enrollment Changes during the Coverage Year (§ 423.464). 

III.A.37 ........ Expand Quality Improvement Program Regulations (§ 422.152). 

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

Support Alignment Procedures (§ 422.60). 

Improving Payment Accuracy 

III.B.2 .......... Determination of Payments (§ 423.329). 

III.B.3 .......... Reopening (§ 423.346). 

III.B.4 .......... Payment Appeals (§ 423.350). 

III.B.5 .......... Payment Processes for Part D Sponsors (§ 423.2320). 

III.B.6 .......... Risk adjustment data requirements—proposal regarding annual deadline for MAO submission of final risk adjustment data 

(§ 422.310(g)(2)(ii)). 

Strengthening Beneficiary Protections 

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

III.C.2 .......... MA-PD Coordination Requirements for Drugs Covered Under Parts A, B, and D (§ 422.112). 


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TABLE 3—PROVISIONS NOT FINALIZED AT THIS TIME—Continued 

Proposed 

rule section Topic 

III.C.3 .......... Good Cause Processes (§ 417.460, § 422.74 and § 423.44). 

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

III.C.5 .......... MA Organizations May Extend Adjudication Timeframes for Organization Determinations and Reconsiderations (§ 422.568, 

§ 422.572, § 422.590, § 422.618, and § 422.619). 

Strengthening Our Ability to Distinguish Stronger Applicants for Part C and D Program Participation and to Remove Consistently Poor 

Performers 

III.D.1 .......... Two-Year Prohibition When Organizations Terminate Their Contracts (§§ 422.502, 422.503, 422.506, 422.508, and 422.512). 

III.D.2 .......... Withdrawal of Stand-Alone Prescription Drug Plan Bid Prior to Contract Execution (§ 423.503). 

III.D.3 .......... Essential Operations Test Requirement for Part D (§§ 423.503(a) and (c), 423.504(b)(10), 423.505(b)(28), and 423.509). 

III.D.4. ......... Termination of the Contracts of Medicare Advantage Organizations Offering PDP for Failure for 3 Consecutive Years to Achieve 

3 Stars on Both Part C and Part D Summary Star Ratings in the Same Contract Year (§ 422.510). 

Implementing Other Technical Changes 

III.E.1 .......... Requirements for Urgently Needed Services (§ 422.113). 

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

III.E.3 .......... Agent and Broker Training and Testing Requirements (§§ 422.2274 and 423.2274). 

III.E.4 .......... Deemed Approval of Marketing Materials (§ 422.2266 and § 423.2266). 

III.E.5 .......... Cross-Reference Change in the Part C Disclosure Requirements (§ 422.111). 

III.E.6 .......... Managing Disclosure and Recusal in P&T Conflicts of Interest: [Formulary] Development and Revision by a Pharmacy and Therapeutics Committee under PDP (§ 423.120(b)(1)). 

III.E.8 .......... Thirty-Six-Month Coordination of Benefits (COB) Limit (§ 423.466(b)). 

III.E.9 .......... Application and Calculation of Daily Cost-Sharing Rates (§ 423.153). 

III.E.10 ........ Technical Change to Align Regulatory Requirements for Delivery of the Standardized Pharmacy Notice (§ 423.562). 

III.E.12 ........ MA Organization Responsibilities in Disasters and Emergencies (§ 422.100). 

III.E.14 ........ Technical Changes to Align Part C and Part D Contract Determination Appeal Provisions (§§ 422.641 and 422.644). 

III.E.15 ........ Technical Changes to Align Parts C and D Appeal Provisions (§§ 422.660 and 423.650). 

III.E.17 ........ Technical Change to the Restrictions on use of Information under Part D (§ 423.322). 

III. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

A. Clarifying Various Program 

Participation Requirements 

1. Closing Cost Contract Plans to New 

Enrollment (§ 422.503(b)(4)) 

To ensure that our original intent is 

realized and to eliminate the potential 

for organizations to move enrollees from 

one of their plans to another based on 

financial or some other interest, we 

proposed to revise paragraph 

§ 422.503(b)(4)(vi)(G)(5) so that an 

‘‘entity seeking to contract as an MA 

organization must [n]ot accept, or share, 

a corporate parent organization with an 

entity that accepts, new enrollees under 

a section 1876 reasonable cost contract 

in any area in which it seeks to offer an 

MA plan.’’ 

In making the proposed revision to 

paragraph § 422.503(b), we also 

proposed to add the definition of 

‘‘parent organization’’ to § 422.2 of the 

MA program definitions, specifying 

that, ‘‘Parent organization means a legal 

entity that owns one or more other 

subsidiary legal entities.’’ Although the 

MA program regulations do not 

currently define the term ‘‘parent 

organization,’’ our proposed definition 

is consistent with the way the term is 

currently used in the context of the MA 

program, for example, when assessing 

an organization’s business structure. We 

requested comments on whether a 

parent organization with less than a 100 

percent interest in a subsidiary legal 

entity should trigger the prohibition we 

proposed with the amendment at 

§ 422.503(b)(4). 

During the public notice and 

comment process, a handful of 

commenters provided their input on our 

proposal. Some of the respondents 

included multiple comments. The 

comments and our responses follow. 

Comment: A commenter supported 

the proposal, stating that it would 

prevent possible shifting of sicker 

enrollees to cost plans and should result 

in Medicare savings. 

Response: We thank the commenter 

for the support. 

Comment: A commenter stated that 

there is no evidence of complaints about 

the current situation and thus no change 

in current policy is necessary. 

Response: The intention of our initial 

rule was to ensure that situations not 

arise in which an entity was able to 

move an enrollee from one of its plans 

to another plan in the same area based 

on financial or other reasons that may 

not be in the enrollee’s best interest. The 

current regulations limit this possibility 

to some extent, but, without the 

proposed changes, would leave open the 

possibility that legal entities controlled 

by a shared parent organization could 

move enrollees from one plan to 

another, based on something other than 

the enrollee’s best interest. 

Comment: A commenter stated that 

risk-adjusted payments for MA plans 

eliminate any incentive for an entity to 

move sicker enrollees from an MA plan 

to a cost plan. 

Response: While risk adjusted 

payments do help to account for costs 

associated with sicker enrollees, it may 

still be advantageous for an organization 

to move an enrollee from an MA plan 

to a cost plan. Even with risk 

adjustment, there are other reasons an 

organization might want to move 

enrollees from one plan to another to 

include enrollment and other interests 

based on the organization’s business 

model. 

Comment: A commenter stated that, 

because cost plan cost-sharing and 

premiums must be equal to the actuarial 

value of Medicare fee-for-service costsharing, cost plan enrollees with high 

health care needs would have high 

relative costs resulting in higher 

premiums for the cost plan, thus 

removing any incentive for moving 

sicker enrollees from an entity’s MA 

plan to the cost plan. 


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Response: MA plans also have 

constraints with respect to cost-sharing 

that affect premiums, and out-of-pocket 

payments by enrollees. We believe, as a 

result, that any difference in cost plan 

and MA premiums or cost-sharing is 

negligible and does little to remove the 

incentives for organizations to move 

enrollees from one of their plans to 

another. 

Comment: A couple of commenters 

requested that, at minimum, the 

provision not be applied to entities that 

have both a cost plan and dual eligible 

special needs plan (D–SNP). One of the 

commenters states that: (1) cost plans 

would likely have a premium and cost 

sharing that would make it unattractive 

for dual eligibles; and (2) the regulation 

could eliminate D–SNPs that 

‘‘participate in longstanding dual 

eligible integrated plans,’’ and thus the 

proposal ‘‘could have the effect of 

hurting a major initiative of the 

Administration.’’ 

Response: As we have addressed 

elsewhere in the comments on this 

issue, we do not believe that any 

premium and cost-sharing differences in 

cost plans and MA plans necessarily 

reduce the incentives an organization 

may have for moving an individual from 

one of its plans to another. We believe 

this is also the case for D–SNPs and, 

that in the case of D–SNPs, which are 

frequently made up of enrollees that are 

sicker and frailer than the general 

Medicare population, there may be even 

greater incentive to move these 

enrollees to a cost contract plan. 

Comment: A commenter requested 

that we not finalize the proposal 

because cost plan enrollees will already 

be subject to dwindling cost plan 

enrollment options as a result of the cost 

plan competition statute. The 

commenter stated that if we do finalize 

the proposal, we should grant an 

exception and not require cost plans 

affected by the cost plan competition 

requirements to close to new 

enrollment. 

Response: It isn’t clear at this point 

what kind of overlap there might be 

between cost plans affected by the cost 

plan competition requirements and 

those cost plans that would have to stop 

accepting enrollment because of sharing 

a parent organization with an MA plan. 

However, we do not believe that a 

significant number of cost plans will be 

affected by expanding the requirement 

to include a shared parent organization, 

as the requirement is largely prospective 

and designed to prevent a situation that 

we did not originally account for, but 

which we believe could lead to 

potential harm for enrollees. 

Comment: A commenter stated that 

‘‘the test should not only be whether 

entities have the same parent but also 

whether the two entities are affiliated, 

including if one entity is the parent of 

the other (rather than shares a parent).’’ 

Response: We agree with the 

commenter with respect to the specific 

example cited and have included 

language in the final rule that will also 

trigger a prohibition on new enrollment 

in a cost plan in situations in which a 

parent organization and its subsidiary 

have a cost contract and MA plan in the 

same service area. In addition to the 

proposed language that MA 

organizations ‘‘Not accept, or share a 

corporate parent organization with an 

entity that accepts, new enrollees under 

a section 1876 reasonable cost contract 

in any area in which it seeks to offer an 

MA plan,’’ we are adding to § 422.503 

(b)(4)(vi)(G)(5)(ii) that MA organizations 

‘‘Not accept, as either the parent 

organization owning a controlling 

interest of or subsidiary of an entity that 

accepts, new enrollees under a section 

1876 reasonable cost contract in any 

area in which it seeks to offer an MA 

plan.’’ The language from the initial 

proposal along with the additional 

language will now be contained in 

§ 422.503 (b)(4)(vi)(G)(5)(i) and (ii). 

Comment: A few commenters stated 

that CMS should define a parent 

organization as an entity that ‘‘exercises 

a controlling interest in the applicant.’’ 

Other commenters stated that we should 

limit the definition of ‘‘parent 

organization’’ to the context of this 

provision only as our proposed 

definition could create inconsistencies 

in the Part C and D polices and 

guidance or have ‘‘unanticipated 

implications that are difficult to identify 

at this time.’’ One of the commenters, 

who asked us to limit the application of 

the ‘‘parent organization’’ definition to 

this provision only, stated that it would 

support our proposal if we clarified that 

the parent organization must have a 

‘‘controlling interest’’ in the subsidiary 

legal entities in question. 

Response: In the proposed rule, we 

specifically solicited comments on 

whether the requirement should be 

applied to a parent organization with 

less than 100 percent interest in the 

affected cost contract and MA plan. We 

agree that a controlling interest is a 

reasonable standard that is consistent 

with our intention to prevent an 

organization from having control over 

both a cost contract and MA plan in the 

same service area. We also agree that the 

threshold for determining when the 

prohibition should be applied is best 

established in the context of this 

provision and thus are not finalizing the 

definition of ‘‘parent organization’’ in 

§ 422.2 . Instead, we are including the 

threshold for the prohibition in 

modifications in 

§ 422.503(b)(4)(vi)(G)(5)(i) and (ii). 

These sections will now state that any 

entity seeking to contract as an MA 

organization— 

• Not accept, or share a corporate 

parent organization owning a 

controlling interest in an entity that 

accepts, new enrollees under a section 

1876 reasonable cost contract in any 

area in which it seeks to offer an MA 

plan. 

• Not accept, as either the parent 

organization owning a controlling 

interest of, or subsidiary of, an entity 

that accepts, new enrollees under a 

section 1876 reasonable cost contract in 

any area in which it seeks to offer an 

MA plan. 

We are finalizing the provisions of the 

proposed rule with the revisions and 

additions discussed in this section 

III.A.1 of this final rule. 

2. Authority To Impose Intermediate 

Sanctions and Civil Money Penalties 

(§§ 422.752, 423.752, 422.760 and 

423.760) 

Sections 1857(a) and 1860D–12(b)(1) 

of the Act provided the Secretary with 

the authority to enter into contracts with 

MA organizations, and Part D sponsors 

(respectively). Section 1857(g)(1) of the 

Act provided a list of contract violations 

and the corresponding enforcement 

responses (intermediate sanctions 

(sanctions) and/or civil money penalties 

(CMPs)) are listed under section 

1857(g)(2) of the Act (section 1860D– 

12(b)(3)(E) applied these provisions to 

Part D contracts). 

We proposed two changes to our 

existing authority to impose sanctions 

and CMPs based on section 6408 of the 

Affordable Care Act (Pub. L. 111–148). 

The provisions of section 6408 provided 

CMS with the authority to impose 

intermediate sanctions or CMPs for 

violations of the Part C and D marketing 

and enrollment requirements. As well 

as, an organization that enrolls an 

individual without prior consent 

(except in certain limited 

circumstances) or transfers an 

individual to a new plan without prior 

consent. Additionally, we proposed to 

revise the language of these provisions 

to clarify that either CMS or the OIG 

may impose CMPs for the violations 

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

except 422.752(a)(5) and 423.752(a)(5). 

Comment: A commenter expressed 

concern and stated that MA 

organizations and Part D sponsors 

should be given the opportunity to 

refute marketing or other allegations of 


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non-compliance prior to sanctions and/ 

or CMPs being imposed. 

Response: Enforcement actions are 

only typically taken based on 

substantiated, well documented 

instances of non-compliance and in the 

case of both a sanction and a CMP, even 

after they are issued, MA organizations 

and Part D sponsors are given an 

opportunity to rebut or appeal CMS’ 

determination through a formal appeals 

process. 

Comment: A few commenters 

requested clarification regarding the 

new sanction authority, specifically the 

language that would allow CMS to 

impose intermediate sanctions on an 

organization that enrolls an individual 

without prior consent (except in certain 

limited circumstances) or transfers an 

individual to a new plan without prior 

consent. The commenters requested that 

CMS clarify that this would not apply 

to organizations that perform facilitated 

or auto-enrollment, passive enrollment, 

seamless enrollment or requests from 

Employer Group Waiver Plans (EGWPs). 

Response: In the proposed rule, we 

proposed to amend the regulation text at 

§§ 422.752 and 423.752 by adding (a)(9), 

and (a)(7), respectively, which read: 

‘‘. . . Except as provided under § 423.34 

of this chapter, enrolls an individual in 

any plan under this part without the 

prior consent of the individual or the 

designee of the individual.’’ Section 

423.34 specifically refers to enrollment 

of individuals who receive the low 

income subsidy (LIS) and are therefore 

subject to facilitated or auto-enrollment. 

Therefore, we believe that the proposed 

regulation text already makes clear that 

this provision would not apply to those 

organizations that are performing 

facilitated enrollment of LIS 

beneficiaries. Additionally, passive 

enrollment and use of the seamless 

enrollment option are initiated or 

approved by CMS, respectively. 

Therefore, an organization who is 

contacted by CMS to receive passive 

enrollment would not be considered to 

have performed enrollment without 

prior consent. As for the seamless 

enrollment option, as these proposals 

must be submitted to and approved by 

CMS, as long as organizations are 

following CMS’ enrollment guidance in 

Chapter 2, § 40.1.4, an organization, 

again, would not be considered as 

enrolling without prior consent and 

would, therefore, not be considered for 

a possible sanction. Finally, an 

organization who is accepting group or 

individual enrollment requests from 

EGWPs must follow CMS’ enrollment 

guidance in Chapter 2, § 40.1.6. As long 

as CMS enrollment guidance is being 

followed with respect to processing 

these enrollments, CMS would not 

consider MA and Part D organizations 

in violation of the new requirement. 

Comment: One commenter stated that 

only one organization, either CMS or 

OIG should have CMP authority and 

that there should be no overlapping 

authority. They went on to state that if 

CMS proposed to allow overlapping 

CMP authority that CMS agree that the 

total amount of the CMPs issued not 

exceed what either CMS or OIG could 

impose separately. 

Response: It is not CMS’ intent to 

create overlapping CMP authority, 

simply to clarify our existing CMP 

authority. However, to the extent CMS 

or OIG were planning on pursuing a 

CMP, we have internal mechanisms in 

place to ensure that the other entity 

within the department is not 

simultaneously pursuing a CMP for the 

same or similar conduct. If we were to 

determine that OIG was pursuing a CMP 

for similar conduct, we would 

coordinate with the OIG so that only 

one CMP action would move forward. 

Comment: One commenter requested 

that CMS not finalize this provision 

because they believe the current 

division of authority to impose CMPs 

should remain unchanged, with the 

authority to CMP for certain violations 

remaining with OIG, instead of adding 

to CMS’ existing CMP authority, as this 

approach ensures a natural division of 

power and oversight expected from 

government agencies. 

Response: CMS has always had the 

statutory authority to impose CMPs for 

the violations currently designated as 

belonging solely to the OIG in the 

regulation. However, CMS agrees that 

there are certain violations that should 

be retained solely by OIG for purposes 

of imposing CMPs, which is why the 

proposed rule states that the authority to 

impose CMPs for violations listed at 

§§ 422.752(a)(5) and 423.752(a)(5), 

involving misrepresentation or 

falsification of information furnished to 

CMS, an individual, or other entity, will 

continue to reside solely with the OIG. 

Comment: One commenter, in 

addition to expressing support for our 

proposal, stated that CMS should 

authorize use of monies collected from 

CMPs to allow states to contract with, or 

grant funds to entities, provided that the 

funds are used for CMS approved 

projects to protect or improve SNF 

services for residents. 

Response: We thank the commenter 

for their support and we will explore in 

the future if such arrangements are 

allowed within our current statutory 

authority. 

Comment: We received several 

comments that supported the new 

proposed sanction authority for 

marketing and enrollment violations. 

Response: We thank the commenters 

for their support. 

After careful consideration of all of 

the comments we received, we are 

finalizing these proposals without 

modification. 

3. Contract Termination Notification 

Requirements and Contract Termination 

Basis (§§ 422.510 and 423.509) 

Sections 1857(c) and 1860D– 

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

the authority to terminate a Part C or D 

sponsoring organization’s contract. 

Sections 1857(h)(1)(B) and 1860D– 

12(b)(3)(F) of the Act provided us with 

the procedures necessary to facilitate 

the termination of those contracts. We 

proposed three revisions to our existing 

regulations that relate to contract 

termination. 

First, we proposed to clarify the scope 

of our authority to terminate Part C and 

D contracts under §§ 422.510(a) and 

423.509(a) by modifying the language at 

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

the statutory bases for termination from 

our examples of specific violations 

which meet the standard for termination 

established by the statute. We proposed 

to effectuate this change by renumbering 

the list of bases contained in 

§§ 422.510(a) and 423.509(a). 

Second, we proposed revisions to our 

contract termination notification 

procedures contained at §§ 422.510(b)(1) 

and 423.509(b)(1). Current regulations 

state that if CMS decides to terminate a 

Part C or Part D sponsoring 

organization’s contract, we must notify 

the organization in writing 90 days 

before the intended date of termination. 

We proposed to shorten the notification 

timeframe from 90 days to 45 days. 

Additionally, in an effort to respond to 

changes in the media and information 

technology landscape, we proposed a 

slight modification to the termination 

notification provision for the general 

public at §§ 422.510(b)(1)(iii) and 

423.509(b)(1)(iii) which includes the 

contracting organizations releasing a 

press statement to news media serving 

the affected community or county and 

posting the press statement prominently 

on the organization’s Web site instead of 

publishing the notice in applicable 

newspapers. 

Finally, we proposed minor revisions 

to the wording of our regulations at 

§§ 422.510 and 423.509 to reflect the 

authorizing language contained in 

sections 1857(c)(2) and 1860D–12 of the 

Act. Specifically, we proposed to 

replace the word ‘‘fails’’ with ‘‘failed’’ 

so that it reads consistently throughout 

§§ 422.510 and 423.509. 


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Comment: Several commenters 

opposed our proposal to shorten the 

notification period for contract 

termination from 90 days to 45 days. 

Commenters made several arguments 

supporting their opposition to the 

shortened notification timeframe, but 

most stated that it is not enough time to 

ensure members’ needs are adequately 

addressed, specifically noting the 

difficulty in effectively communicating 

the change with their members and 

ensuring their members were effectively 

transitioned to a new plan. Other 

commenters stated that the timeframe 

was too short to provide adequate notice 

to affected providers and vendors. Yet 

another commenter stated that the 

shortened timeframe did not allow 

enough time for a plan to appeal the 

termination. A final commenter noted 

that the shortened timeframe would 

increase costs to the contracting 

organization if the termination period is 

reduced. 

Response: After carefully considering 

the commenters’ concerns, we 

respectfully disagree that these concerns 

outweigh the need to protect 

beneficiaries and have them moved 

from a plan that is in such substantial 

non-compliance with our regulations 

that CMS would proceed with 

termination. Plans that receive a notice 

of termination from CMS are instructed 

that they must provide notice to their 

affected beneficiaries at least 30 days 

prior to the effective date of the 

termination. If CMS provides their 

notice of termination to contracting 

organizations 45 days before the 

effective date of the termination, this 

affords plans 15 days to issue their 

notice to enrollees while still complying 

with the existing 30-day beneficiary 

notification requirements. While we do 

request that terminated plans work with 

the receiving plan to transition enrollee 

data and records, it is not expected that 

these tasks would be completed by the 

effective date of the termination, but 

would instead begin upon transfer of the 

enrollees once the termination was 

actually effective. 

As for adequate notification to 

affected vendors and providers, it is the 

responsibility of the contracting 

organization to design their contracts 

with their providers and vendors in a 

manner that recognizes possible 

contract actions, such as termination, 

that could be taken by CMS. For 

example, all plans that have a contract 

with CMS could ultimately be subject to 

immediate termination if they are found 

in such substantial non-compliance by 

CMS that it poses an imminent and 

serious risk to Medicare enrollees. 

Therefore, most, if not all plans, likely 

have clauses in their provider and 

vendor contracts that allow them to 

terminate these contracts expeditiously 

with the affected entities in the event of 

a contract termination by CMS. 

We also do not agree that the 

shortened timeframe in any way affects 

a contracting organization’s ability to 

appeal. Contracting organizations who 

are subject to a contract termination in 

§§ 422.510(b) or 423.509(b) must file 

their request for a hearing within 15 

days from the date of receipt of the 

notice of termination. A timely filed 

request for hearing effectively stays the 

termination proceeding until a hearing 

decision is reached. Consequently, 

shortening the notice of termination 

from 90 to 45 days should have no 

impact on a contracting organization’s 

ability to file an appeal of the contract 

termination. 

Finally, we do not agree that the 

shortened notice timeframe to effectuate 

a termination would result in increased 

costs to an organization. We already 

have the ability to prorate its payment 

to an organization for terminations that 

are effective in the middle of a month; 

consequently we do not agree that 

shortening the notification timeframe 

would in any way change the CMS’s 

current approach to payment or 

recoupment of capitated payments in 

these circumstances. 

Comment: One commenter suggested 

that CMS should have different 

notification timeframes for termination. 

They recommended that 90 day notice 

be provided to all post-acute care (PAC) 

providers as well as to beneficiaries in 

PAC. They stated that 45 days for notice 

may be sufficient for non-post-acute 

care beneficiaries, but not for people in 

a short stay setting. They also suggested 

that MA plans that are serving full dual 

eligible beneficiaries should be required 

to provide 180 day notice to individuals 

and providers. 

Response: CMS’ proposal to shorten 

the notification of termination from 90 

days to 45 days affects the amount of 

notice that CMS must give to an MA or 

Part D organization prior to moving 

forward with a termination action. The 

timeframe in which that organization 

must then notify their beneficiaries, 

which is currently 30 days, is not being 

changed in this proposal. While we 

appreciate the commenter’s suggestion, 

we believe that it would be incredibly 

burdensome to organizations and 

confusing to our beneficiaries to 

implement such a striated notification 

process for our beneficiaries during a 

termination. Additionally, if we were to 

adopt the commenter’s suggestion of a 

90 day notice period for beneficiaries in 

a PAC setting or 180 day notice for dual 

eligible beneficiaries, this would require 

that we give organizations even more 

advance notice of our intent to 

terminate than we do currently, which 

is contrary to the ultimate goal of our 

proposal, which is to remove 

beneficiaries as quickly as possible from 

a plan with such significant 

noncompliance issues that CMS is 

pursuing termination. Consequently, we 

plan to proceed with our proposed 

change. 

Comment: Several commenters 

supported CMS’ proposed revisions to 

the contract termination authority 

(§§ 422.510 and 423.509) and stated that 

these measures will help enforce 

consumer protections and enhance plan 

accountability. 

Response: We thank the commenters 

for their support. 

After consideration of the public 

comment(s) received, we are finalizing 

these proposals without modification. 

We note that the amendatory instruction 

to the regulation text in this final rule 

more precisely describes the 

redesignation of subparagraph (a)(4) of 

§ 423.509 than that found in the 

proposed rule. 

4. Reducing the Burden of the 

Compliance Program Training 

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

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

Section 1857(a) and section 1860D– 

12(b)(1) of the Act provided the 

Secretary with the authority to enter 

into contracts with MA organizations 

and Part D sponsors (respectively). 

Sections 1860D–12(b)(3)(D)(i) and 

1857(e)(1) of the Act, specify that these 

contracts shall contain other terms and 

conditions that the Secretary may find 

necessary and appropriate. We first 

established that all Part C and Part D 

contracting organizations have the 

necessary administrative and 

management arrangements to have an 

effective compliance program, as 

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

423.504(b)(4)(vi). We later established 

that compliance plans for sponsoring 

organizations must include training and 

education and effective lines of 

communication between the compliance 

officer and the sponsoring 

organization’s employees, managers, 

and directors, as well as their first-tier, 

downstream and related entities (FDRs). 

We reiterated the importance of this 

requirement in the October 22, 2009 

proposed rule entitled, ‘‘Medicare 

Program; Policy and Technical Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs’’ (74 FR 53634). We were 

concerned that these FDRs would 

potentially have to participate in 


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(largely duplicative) training for each 

organization with whom they contract. 

We requested public comments on how 

best to ensure that the training 

requirement continued to be met while 

not overly burdening the contracting 

organization or its FDRs. In response, 

we received numerous comments 

suggesting that CMS develop its own 

web-based trainings to lessen this 

burden on sponsors and FDRs (75 FR 

19688). 

Consequently, we proposed in this 

rule to require that all contracting 

organizations accept a certificate of 

completion of the CMS developed 

training as satisfaction of this general 

compliance program training 

requirement. We proposed to modify the 

regulation text by adding a new 

§§ 422.503(b)(vi)(C)(3) and 

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

CMS training for satisfaction of the 

requirement to train first–tier, 

downstream and related entities. 

Comment: One commenter questioned 

if there would be a fee associated with 

the CMS mandated training. 

Response: There is no fee to take the 

CMS Standardized General Compliance 

Program Training; it is provided free of 

charge. 

Comment: Multiple commenters 

stated that Part C and Part D contracting 

organizations should have the option of 

using the CMS Standardized General 

Compliance Program Training and 

Education Module. The commenters 

wrote that there should be flexibility in 

meeting the proposed training 

requirement, and that CMS should 

consider allowing plan sponsors to 

utilize their own training or the training 

developed by established training 

companies to meet the requirement. 

Response: The CMS Standardized 

General Compliance Program Training 

and Education Module was created to 

reduce the burden on sponsors and 

FDRs. If we continue to allow sponsors 

to modify or utilize their own training 

in lieu of using the CMS Compliance 

training, it will no longer ensure the 

elimination of the prior duplication of 

effort that so many FDRs stated was 

creating a huge burden on their 

operation. This is why CMS proposed 

that only our training can be used, as it 

is the only means to ensure that 

duplication of effort is avoided for FDRs 

who hold contracts with multiple Part C 

and Part D contracting organizations. 

Comment: One commenter raised 

concerns over the significant amount of 

time required to complete the current 

CMS Compliance training and stated 

that it may take time away from other 

areas of training the organization has 

deemed necessary through their own 

internal risk assessments. They 

suggested CMS consider modifying the 

requirement to allow the longer training 

initially and developing a shorter 

‘‘refresher’’ version that could be taken 

annually thereafter. 

Response: We will not modify the 

existing CMS Standardized General 

Compliance Program Training at this 

time. However, we recognize the 

commenter’s concern and will take 

under consideration the development of 

a refresher training module for future 

use. 

Comment: A few commenters 

recommended that CMS establish a 

single centralized electronic location 

where FDRs could obtain this training, 

and that the centralized location would 

also serve as a repository to hold 

attestations of training completion 

accessible to Part C and Part D 

contracting organizations for 

compliance oversight purposes. 

Commenters suggested it be searchable 

or that CMS provide updates, one 

suggesting daily reports be pushed to 

each MA organization and Part D 

sponsor so that they could track 

compliance with the training 

requirement. One other commenter 

suggested that the training be provided 

in a Sharable Content Object Reference 

Model (SCORM) format for 

downloading into various organizations’ 

systems. 

Response: The training is in a 

centralized location on the Medicare 

Learning Network. All who take the 

training will be able to print out a 

certificate of completion to prove they 

have completed the training. It is the 

responsibility of Part C and Part D 

contracting organizations to determine 

how to best retrieve and catalog this 

information from their FDRs. CMS is 

unable, at this time, to provide the 

capacity for a publicly searchable 

database of users who have completed 

that training or a system that would 

allow reports to be sent to the various 

contracting organizations regarding the 

training status of various FDR 

organizations. We will consider and 

determine if our training module could 

be available for download into the 

format suggested by commenters, but we 

would need to ensure that the content 

could not be modified to ensure the 

integrity and completeness of the 

training module. 

Comment: One commenter suggested 

CMS leverage the existing Compliance 

Training, Education & Outreach (CTEO) 

site to support this initiative and to 

interactively execute the training and 

collect and track the required 

attestations. 

Response: When we developed the 

Standardized General Compliance 

Program Training, the CTEO Web site 

was not yet in existence. We will take 

the commenter’s suggestion under 

consideration and further explore that 

Web site’s capability to determine if it 

actually exceeds the current capability 

of the Medicare Learning Network, 

where the training is currently housed. 

Comment: A few commenters 

recommended maintaining the current 

policy of allowing flexibility in how the 

training requirement is met. These 

commenters stated the current training 

requirements meet their needs because 

it allows options and reduces the 

burden on various sectors of the 

industry. They stated that various 

organizations had already invested 

resources to become compliant and to 

develop efficient means of both 

delivering and tracking the training. The 

flexibility in the current regulations 

allows plan sponsors to work in concert 

with FDRs to develop effective training 

for those specific entities and their 

existing learning models. 

Response: We recognize that the 

current compliance program training 

requirement does meet the needs of 

some contracting organizations. 

However, based on public feedback 

received previously, as well as in 

response to this proposed change, we 

continue to believe that the proposed 

approach is most efficient and effective 

for the majority of FDRs and contracting 

organizations. 

Comment: Many commenters 

requested clarification regarding who is 

required to take the training: Providers, 

brokers, FDRs, and/or internal 

employees. 

Response: The compliance and fraud, 

waste, and abuse (FWA) training and 

education requirement applies to all 

delegated entities (which may include 

agents/brokers) whom the Part C or Part 

D contracting organization qualifies as 

an FDR using the definition at 42 CFR 

§§ 422.500(b) and 423.500. Whether a 

Part C or Part D contracting organization 

identifies a certain entity or individual 

provider as an FDR depends on the 

contractual relationship and/or written 

agreement between the entity/

individual and the contracting 

organization. The compliance and FWA 

training is not intended to be mandatory 

for the employees of those contracting 

organizations. 

Comment: Several commenters 

wanted to know if this training would 

satisfy the FWA and Compliance 

training requirements. 

Response: There is both a FWA and 

a Compliance training module available 

on the Medicare Learning Network, 


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FDRs must take both modules in order 

to satisfy the entire training 

requirement. 

Comment: A few comments requested 

clarification regarding who was deemed 

for purposes of the FWA training 

requirement (for example, is it just the 

provider participating in Medicare FFS 

or also all of the employees that work 

in his office, similarly with a hospital 

participating in Medicare, does it extend 

to their employees). Commenters also 

requested if CMS was exploring 

deeming status for providers in the Part 

D program. 

Response: This question is outside of 

the scope of this regulation. We did not 

propose any changes to the FWA 

training module or the associated 

deeming requirements. Therefore, we 

are unable to address your question at 

this time. 

Comment: Several commenters had 

questions regarding the one-pager that 

contracting organizations can provide 

with organization specific information, 

and requested whether this meets the 

requirements for distributing their codes 

of conduct (COC) or standards of 

conduct (SOC) located in Chapter 9 of 

Pub. 100–18, Medicare Prescription 

Drug Manual, and Chapter 21 of Pub. 

100–16 of the Medicare Advantage 

Manual. Some commenters inquired if 

this new proposal could be construed to 

forbid them from distributing their 

COC/SOC to their FDRs. 

Response: We intend that the 

standardized FWA and Compliance 

Training modules will cover the basic 

training requirements. We recognize 

that each contracting organization has 

specific information that must be shared 

with their FDRs regarding the 

organization’s specific operations. The 

one-pager was suggested for 

organizations to communicate unique 

information that is usually shared in 

FWA/Compliance such as relevant 

organization contact information (for 

example, Web site address, hotline/

ethics phone numbers) the Compliance 

Officer’s contact information, the 

Compliance Department staff, and 

possibly even online access to the COC/ 

SOC or disciplinary policies. Our 

experience has shown that many 

contracting organizations issue their 

COC/SOC electronically (internally and 

externally) and/or create Web sites 

designated for their FDRs to locate the 

information mentioned previously. 

Contracting organizations must continue 

to distribute their COC/SOC to all of 

their employees, FDRs, board members, 

etc. Nothing is this regulation should be 

interpreted to preclude organizations 

from satisfying the seven elements of 

the compliance program requirements. 

Comment: The commenters suggested 

that feedback should be solicited from 

the plans to assist with improving the 

content of the training, specifically 

including more examples that are 

relevant to FDRs, as commenters 

mentioned the modules examples are 

often organization-centric. 

Response: We always welcome 

feedback from contracting organizations 

and FDRs with respect to improving our 

training products. Organizations, 

entities or individuals who have 

suggestions should submit them to the 

following mailbox: Parts_C_and _D_CP_

Guidelines@cms.hhs.gov. 

Comment: Some commenters stated 

that CMS should consider how it can 

implement this proposal in a way that 

reduces administrative burdens on 

contracting organizations and FDRs, as 

new processes to collect and track 

attestations may be difficult and time 

consuming. Many suggested that a 

January 1, 2015 effective date was an 

insufficient amount of time to set up 

such elaborate processes and 

recommended that these provisions be 

effective no earlier than January 1, 2016. 

Response: CMS recognizes the 

administrative burden imposed on the 

contracting organizations and their 

FDRs. The primary goal of this proposal 

is to reduce that administrative burden 

by instituting a uniform compliance 

training module and we believe that 

contracting organizations are in the best 

position to determine the most effective 

way to collect and track compliance 

amongst their FDRs. However, we 

recognize that setting up these new 

processes may take time, along with 

potentially updating contracts to reflect 

the new requirements. Therefore, we 

will delay the implementation of this 

provision to January 1, 2016. 

Comment: The largest number of 

commenters represented FDRs that 

wrote in support of the proposed 

compliance training program 

requirements and use of the CMS 

Standardized General Compliance 

Program Training, agreeing that it would 

greatly reduce burden on FDRs. 

Response: We thank the commenters 

for their support. 

After careful consideration of all of 

the comments received, we are 

finalizing this proposal with the one 

modification discussed previously, with 

a delayed applicability date of January 

1, 2016. 

5. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D (§§ 422.756 and 

423.756) 

Sections 1857(g) and 1860D– 

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

Secretary the ability to impose 

intermediate sanctions on MA 

organizations and PDP sponsors. 

Intermediate sanctions consist of 

suspension of enrollment, suspension of 

marketing and suspension of payment. 

Current regulations governing 

intermediate sanctions are contained in 

subparts O of part 422 and part 423. 

Sections 422.756 and 423.756 provide 

specific procedures for imposing 

intermediate sanctions and include 

provisions which address: The duration 

of the sanction; and the standard that 

we apply when determining if a 

sanction should be lifted. 

We proposed to expand the potential 

applicability of the test period 

requirement to three types of 

intermediate sanctions by modifying the 

existing rules to clarify that CMS may 

require a test period for a sponsoring 

organization that has had any of the 

three types of intermediate sanctions 

imposed: Marketing, enrollment and/or 

payment. Second, we proposed to 

clarify the enrollment parameters for 

sanctioned sponsoring organizations 

offering Part D plans to include 

language specifying that a sanctioned 

plan is not available to receive 

automatically assigned beneficiaries for 

the entire duration or a portion of the 

testing period. We proposed to modify 

the regulation text at §§ 422.756 and 

423.756 to reflect these changes. 

Comment: One commenter questioned 

clarification on what CMS considers a 

contract violation of marketing 

requirements and requested if violations 

would be based solely on allegations of 

misconduct. 

Response: Marketing standards for 

MA organizations and Part D sponsors 

are codified in subpart V of parts 422 

and 423. The current Medicare 

Marketing guidelines are located in 

Chapter 3 of Pub. 100–16, Medicare 

Managed Care Manual, and Chapter 3 

of Pub.100–18, The Medicare 

Prescription Drug Manual, which 

should provide sponsors with guidance 

regarding current marketing 

requirements. With respect to contract 

violations being based on 

unsubstantiated allegations of wrongdoing, enforcement actions are only 

taken based on substantiated, well 

documented instances of noncompliance. Additionally, MA 

organizations and Part D sponsors that 

are sanctioned are given an opportunity 

to rebut or appeal our determination 

through a formal appeals process. 

Comment: One commenter suggested 

the prohibition on auto-enrollment into 

plans under a test period should also 

apply to passive enrollment. 

Specifically, the commenter stated that 


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Medicare-Medicaid eligible individuals 

should not be passively enrolled into an 

MA or an MA Special Needs Plan (SNP) 

that is under sanction or under sanction 

and in a test period as part of a 

demonstration or a state developed 

integrated plan product. 

Response: Plans that are under a 

sanction are not eligible to receive 

enrollments. However, we have the 

discretion to require a sanctioned plan 

to market or accept enrollments for a 

limited period to assist in making a 

determination as to whether the bases 

for imposing the sanction have been 

fully corrected and are not likely to 

recur. As stated previously, sanctioned 

sponsoring organizations offering a Part 

D benefit would not be eligible to 

receive automatically assigned 

beneficiaries during the test period. 

During a ‘‘test period’’ the sanction(s) 

remain in effect. 

Comment: One commenter requested 

that we extend the proposal to also not 

allow passive enrollment into plans that 

are coming off of sanction or are 

currently in a test period until we have 

determined they are ready. 

Response: CMS has determined that it 

is legally permissible to provide for 

enrollment in an MA or Part D plan 

under a passive enrollment request 

process in specific, limited 

circumstances generally associated with 

either immediate plan terminations or 

in other situation where CMS 

determines that remaining enrolled in 

the plan would pose potential harm to 

members. We determine when passive 

enrollment is appropriate. In evaluating 

whether such CMS-directed enrollee 

movements are appropriate, a key factor 

is the determination as to whether the 

receiving plan is essentially equivalent 

to (or better than) the current plan from 

an overall perspective. 

Therefore, in situations where passive 

enrollment is determined permissible, 

like an immediate plan termination, 

CMS would factor in a number of 

criteria, including the receiving plan’s 

current premium, benefit and formulary 

structure, as well as plan past 

performance. In any event, our goal 

would be to ensure that those affected 

members suffered as little disruption as 

possible during their transition. Plans 

that were under sanction at the time of 

a passive enrollment would not be 

considered a viable option for affected 

enrollees and it is unlikely that sponsors 

under a test period would either. 

However, if a sponsor who was removed 

from sanction and was under a test 

period met several other criteria for 

receiving passive enrollment (that is, 

plan’s benefit and formulary structure 

was largely the same and their premium 

was not significantly higher), we may 

consider them among the group of 

available plans to receive passive 

enrollment. 

Comment: A few commenters 

requested clarification regarding the 

new sanction authority, specifically the 

language that would allow CMS to 

impose intermediate sanctions on an 

organization that enrolls an individual 

without prior consent (except in certain 

limited circumstances) or transfers an 

individual to a new plan without prior 

consent. The commenters asked that 

CMS clarify that this would not apply 

to organizations that perform facilitated 

or auto-enrollment, passive enrollment, 

seamless enrollment or group or 

individual enrollment requests from 

EGWPs. 

Response: In the proposed rule, we 

proposed to amend the regulation text at 

§§ 422.752 and 423.752 by adding 

subparagraph (a)(9), which reads: 

‘‘. . .Except as provided under § 423.34 

of this chapter, enrolls an individual in 

any plan under this part without the 

prior consent of the individual or the 

designee of the individual.’’ Section 

423.34 specifically refers to enrollment 

of individuals who receive the low 

income subsidy (LIS) and are therefore 

subject to facilitated or auto-enrollment. 

Therefore, we believe that the proposed 

regulation text already makes clear that 

this provision would not apply to those 

organizations that are performing 

facilitated enrollment of LIS 

beneficiaries. Additionally, passive 

enrollment and use of the seamless 

enrollment option are initiated or 

approved by CMS, respectively. 

Therefore, an organization who is 

contacted by CMS to receive passive 

enrollment would not be considered to 

have performed enrollment without 

prior consent. As for the seamless 

enrollment option, as these proposals 

must be submitted to and approved by 

CMS, as long as organizations are 

following CMS’ enrollment guidance in 

Chapter 2, § 40.1.4, and have received 

CMS’ approval, an organization again 

would not be considered as enrolling 

without prior consent and would 

therefore not be considered for a 

possible sanction. Finally an 

organization who is accepting 

enrollment requests for an employer or 

union sponsored plan using the group 

enrollment mechanism must follow 

CMS’ enrollment guidance in Chapter 2, 

§ 40.1.6.1. As long as CMS enrollment 

guidance is being followed with respect 

to processing these enrollments, CMS 

would not consider MA and Part D 

organizations in violation of the new 

requirement. However, we expect that 

requests for enrollment into an 

employer or union sponsored plan 

outside of the group enrollment process 

(that is, beneficiary initiated enrollment 

requests) follow all requirements, 

including prior consent, applicable to 

any other individual enrollment request. 

Comment: Several commenters 

expressed support for our proposal to 

expand the use of the ‘‘test period’’ 

requirement to all intermediate 

sanctions, and support the proposal that 

previously sanctioned below-thebenchmark Part D plans not be allowed 

to receive or process auto-enrollments 

or reassignments until they are 

determined to be ready by CMS. 

Response: We thank the commenters 

for their support. 

After careful consideration of the 

comments received, we are finalizing 

these proposals without modification. 

We inadvertently failed to include 

proposed regulation text for § 423.756 

that corresponds to this proposal. In this 

final rule, we finalize amendments to 

§§ 422.756 and 423.756 that are 

virtually identical to implement this 

proposal. 

6. Timely Access to Mail Order Services 

(§ 423.120) 

Section 1860D–12(b)(3) of the Act 

authorizes the Secretary to include 

contract terms for Part D sponsors, not 

inconsistent with the Part C and D 

statutes, as necessary and appropriate. 

Section 423.120(a)(3) specifies that a 

Part D sponsor’s contracted network 

may include non-retail pharmacies, 

including mail order pharmacies, so 

long as the network access requirements 

are met. Part D plans are increasingly 

entering into contracts with mail order 

pharmacies to offer beneficiaries an 

alternative way to fill prescriptions 

under the Part D benefit, often at much 

lower cost sharing than is available at 

network retail pharmacies. While mail 

order pharmacies make up a relatively 

small percentage of total prescriptions 

filled under the Part D program, we are 

committed to ensuring consistent and 

reliable beneficiary access to 

medications, regardless of what type of 

pharmacy fills the prescriptions. 

Section 1860D–4 of the Act describes 

the various beneficiary protections in 

place in the Part D program. For mail 

order pharmacies, the industry standard 

for delivery times appears to range from 

7 to 10 business days from the date the 

prescription was received, and Part D 

sponsors’ marketing materials often 

specify this time frame to beneficiaries. 

Beneficiaries generally choose to fill 

prescriptions through a mail order 

pharmacy, for lower cost sharing, when 

it is feasible to wait 7 to 10 days to 

receive their medications. However, if 


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this time frame is disrupted, 

beneficiaries may experience gaps in 

therapy. 

When issues with filling a 

prescription arise in a retail setting, the 

beneficiary often is notified of the 

problem in real time, or within hours of 

discovery. When issues arise in a mail 

order setting, the delays in finding, 

communicating, and making the 

appropriate contacts to resolve the 

problem may add days onto the ultimate 

delivery date, resulting in a potentially 

more significant concern for mail order 

beneficiaries if these delays result in 

gaps in therapy. For this reason, we 

proposed to establish fulfillment 

requirements for mail order pharmacies 

as well as home delivery services 

offered by retail pharmacies, to set 

consistent expectations for beneficiary 

access to drugs in this growing segment. 

Many beneficiaries may be very well 

served by this type of pharmacy access, 

but only if they can rely upon efficient 

processing and turnaround times. Mail 

order pharmacies contracted by Part D 

sponsors can reasonably be expected to 

meet minimum performance standards 

for order fulfillment, including 

convenient order turnaround times, as a 

beneficiary protection and as a 

component of providing good customer 

service. Clearly stating in beneficiary 

materials the expected turnaround time 

for delivery allows the beneficiary to 

better control when they need to reorder 

to ensure no gaps in medication supply. 

Clarity in expected turnaround times 

also can prevent needing to address 

customer inquiries into the status of a 

pending order, setting parameters for 

when an order is or is not delayed and 

what options become available at that 

point. We believe that established 

companies that have been providing 

these services for years have generally 

been meeting these standards in practice 

already, and that the proposed 

turnaround times are in line with 

current practices followed by mail order 

pharmacies today. 

Therefore, we proposed to amend 

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

fulfillment requirements in line with 

what we have observed in other 

markets: 5 business days (from when the 

pharmacy receives the prescription 

order to when it is shipped) for those 

prescriptions requiring intervention 

beyond filling (such as clarifying 

illegible orders, resolving third party 

rejections, and coordinating with 

multiple providers as part of drug 

utilization management); and 3 business 

days (from when the pharmacy receives 

the prescription order to when it is 

shipped) for those prescriptions not 

requiring intervention. We recognize 

that some prescription orders may 

require clarification or additional steps 

to be taken by the provider or 

beneficiary that would extend beyond 

the proposed period of 5 days. We 

believe that such cases represent a 

minority of mail order prescriptions, 

and as such we would anticipate that 

more than 99 percent of all mail order 

prescriptions processed are filled in 

compliance with either the 3- or 5-day 

standard. We believed our proposed 

standards are in alignment with 

fulfillment requirements already in 

place in the market and as such do not 

create a new burden or new standard for 

mail order pharmacies to meet. We 

solicited comments not only on the 

proposed time frames, but also on 

whether there are instances (in addition 

to those discussed previously) in which 

the proposed 5-day time frame should 

apply. We received the following 

comments and our response follows: 

Comment: A few commenters 

questioned why we proposed 

turnaround times of 3 and 5 days if we 

list in preamble that standard 

turnaround times are 7 to 10 days for 

delivery. 

Response: The preamble discussion 

surrounding delivery of prescriptions 

within 7 to 10 days is from the 

perspective of the beneficiary; listing 

the total time from when a medication 

is ordered to the time it is delivered. 

Importantly, this includes shipping 

time. The proposed fulfillment 

standards were specific to mail order 

pharmacy processing times and did not 

include actual time in shipping. In other 

words, the 3 to 5-day turnaround time 

only refers to the timeframe from when 

the pharmacy receives the order until 

the pharmacy ships the order. 

Comment: Many commenters 

expressed concerns that 5 business days 

is too short of a time frame to require 

mail order pharmacies to resolve some 

issues when they arise (such as 

manufacturer drug shortages), many of 

which are outside the control of the 

pharmacy. Many commenters noted 

unique timeline concerns specific to 

specialty medications, such as cold 

chain shipping and needing to contact 

the beneficiary to coordinate delivery. 

Multiple commenters suggested that 

additional leeway is also needed to 

accommodate issues such as natural 

disasters. Multiple commenters 

suggested that mail order pharmacies 

should contact beneficiaries as a good 

customer service practice when any 

delay in filling will prevent an order 

from shipping within 5 days. Many 

commenters noted that they currently 

would be able to meet a 3-day 

turnaround standard for filling orders 

not requiring follow up contact with the 

beneficiary or prescriber. 

Response: We recognize that some 

interventions may require more than 5 

business days to resolve. In those cases, 

we agree with the suggestion from 

multiple commenters that mail order 

pharmacies should contact beneficiaries 

as a good customer service practice 

when any delay in filling will prevent 

an order from shipping within 5 days. 

However, in light of the comments 

received regarding a variety of situations 

that we had not considered, including 

some outside of the pharmacy’s control 

that could create delays longer than 5 

days, we are not finalizing the proposal 

to establish fulfillment standards for 

mail order. Instead, we will continue 

analysis on mail order fulfillment time 

frames, including evaluating the impact 

of the implementation of the auto-ship 

beneficiary consent policy finalized in 

the 2014 Call Letter. In addition, Part D 

sponsors are expected to follow best 

practices by making clear their expected 

delivery turnaround times in their 

beneficiary materials, consistently 

meeting such delivery time frames, and 

having contingency plans for when they 

cannot, such as allowing retail access at 

mail order cost sharing levels if 

necessary. The volume of complaints 

that we receive related to mail order 

delivery suggests that beneficiary 

expectations are not consistently being 

met. We will increase our monitoring of 

mail order pharmacies, and will 

consider the need to establish standards 

and requirements in the future. Based 

on the comments submitted, additional 

consideration may be necessary 

surrounding specialty medications and 

their delivery, especially when there are 

cold chain or other shipping 

considerations. We reviewed the 

information provided on how specialty 

pharmacy differs from other mail order 

deliveries, and agree that additional 

consideration should be given to these 

pharmacies and medications in any 

future guidance. Additionally, we will 

clarify existing guidance about 

exception processes and coverage 

denials to ensure that mail order 

pharmacies provide beneficiaries notice 

of non-fulfillment of a prescription as 

expeditiously as possible. Current 

guidance on disaster responses and drug 

shortages still apply, and we encourage 

sponsors to communicate with their 

enrollees when unique situations like 

these arise. 

Comment: A few commenters 

suggested that mail order turnaround 

times are best left to state Boards of 

Pharmacy to monitor, instead of being 

set in regulation. 


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Response: We proposed specifying 

parameters for timely mail order 

fulfillment, consistent with the 

authority given to the Secretary to 

specify additional contract terms not 

inconsistent with the Part D statute. 

However, we had not considered the 

potential conflict or duplication with 

state-based requirements and appreciate 

the comments. We will take this under 

consideration as we consider 

establishing requirements for Part D 

sponsors offering a mail order benefit in 

the future. 

Comment: Some commenters wrote 

that turnaround times would be better 

defined in guidance or incorporated in 

star ratings or other quality metrics. 

Response: We appreciate the 

suggestion. As we will not be finalizing 

the proposed fulfillment standards in 

this final rule, we are exploring 

alternatives for ensuring consistent and 

predictable access to medications for 

beneficiaries in a plan offering a mail 

order benefit. As part of this effort, we 

are currently developing a study of how 

mail order benefits are used within the 

Part D benefit. The comments received 

on the proposed rule and the results of 

this study will be considered when 

determining whether fulfilment 

standards should be included in future 

star ratings measures, as well as used to 

inform the need for future guidance or 

rulemaking. Additionally, we will 

increase our monitoring and analysis of 

mail order-related complaints in the 

CTM and explore setting a threshold for 

the volume or severity of complaints 

triggering a review by CMS. We remain 

very concerned by the high level of 

complaints received relating to mail 

order, and take seriously the issues 

raised by beneficiaries. We are also 

exploring how fulfillment of plandesignated turnaround times listed in 

marketing or other beneficiary materials 

could be included within the audit 

framework. 

Comment: One commenter wrote in 

with concerns that the methodology 

used in two CMS studies cited in 

another provision were problematic and 

stated that no regulation proposals 

relating to mail order should be 

finalized until corrected and 

reexamined. 

Response: The studies noted by the 

commenter were not used when 

designing the proposal specific to timely 

delivery of mail order prescriptions. 

Comment: Some commenters 

suggested that the policy announced in 

the CMS 2014 Call Letter that 

pharmacies obtain beneficiary consent 

prior to shipping any medications that 

the beneficiary did not affirmatively 

order directly affects the timeline for 

order fulfilment and any defined 

turnaround times for delivery should be 

adjusted accordingly. 

Response: We recognize that the CMS 

2014 Call Letter auto-ship policy 

necessitates an increased level of 

coordination with the beneficiary for 

some pharmacies, when filling 

prescriptions that the beneficiary did 

not directly request (such as new orders 

submitted directly by the provider or 

refills prompted by an automatic 

delivery program). We will not be 

finalizing the proposed fulfillment 

standards in this final rule, but 

encourage all plan sponsors to consider 

the need for coordination with the 

beneficiary when establishing and 

marketing average turnaround time 

estimates for their members. 

Comment: A few commenters 

suggested that beneficiaries should be 

allowed to fill their medications at the 

retail pharmacy of their choice, at the 

same cost sharing level as mail order, if 

a mail order pharmacy encounters any 

delays, or delays extending beyond 5 

days. 

Response: While this was not a part 

of our proposal, and we will not be 

finalizing any new requirements at this 

time, we do agree with commenters that 

this would be an important beneficiary 

protection. We believe that best 

practices for addressing a lost or 

delayed order would include plan 

sponsors providing clear and timely 

guidance to the beneficiary in the event 

of a lost or delayed order, including a 

list of options for obtaining a 

medication. Part D sponsors should 

have contingencies in place when issues 

are encountered that lead to a delay and 

potentially a gap in therapy. This could 

include offering beneficiaries the ability 

to fill a delayed mail order prescription 

at a retail pharmacy and pay no more 

than what they would have been 

charged by a mail order pharmacy. The 

need to prevent gaps in therapy for 

beneficiaries relying on mail order 

pharmacies remains a significant 

concern to us. 

In summary, we are not finalizing any 

fulfillment standards for mail order 

prescriptions, in light of the concerns 

raised. We will use the information 

gained from our mail order study and 

from the public comments submitted to 

explore the need for additional guidance 

or rulemaking in the future. The need to 

ensure consistent access to and prevent 

gaps in therapy for enrollees relying on 

mail order for their medications 

continues to be a significant concern. 

We additionally solicited comments 

on whether we should establish 

additional requirements for beneficiary 

materials relating to mail order services, 

such as: Clear definitions of processing 

time and delivery time; how to access 

customer support; how to submit a 

complaint via 1 800 MEDICARE; and 

beneficiary options for accessing 

medications when a delivery is lost or 

delayed. We received the following 

comments and our response follows: 

Comment: Many commenters stated 

that additional requirements for 

beneficiary materials would enhance 

mail order services and that this would 

be a positive change for beneficiaries. 

These commenters noted that clear 

definitions of requirements are needed 

to resolve issues, ensure consistent 

access, and ensure no gaps in therapy. 

Response: We appreciate the 

comments. We intend to conduct a 

study of mail order benefits offered by 

Part D sponsors and will use this, and 

the information received from public 

comments, to inform changes to 

beneficiary materials relating to mail 

order. At a minimum, we expect 

sponsors offering mail order services to 

follow best practices by clearly listing 

estimated delivery times in their 

marketing and beneficiary materials. In 

the event of a failure to meet plandesignated timeframes for delivery, as a 

best practice sponsors should be 

prepared to take the steps necessary to 

provide their enrollee the medication in 

a timely manner in order to avoid gaps 

in therapy. This could include offering 

enrollees the option to obtain delayed 

medications at a retail pharmacy at the 

same cost sharing level as mail order. 

We also welcomed comments on any 

other requirements we should consider 

for mail order or other home delivery 

options. For example, also potentially 

affecting consistent access to medication 

is the use of mail order to fill initial 

prescriptions of new drugs or to fill 30- 

day supplies of chronically used 

medications. The need to order a refill 

early, allowing sufficient time for 

processing and delivery, can result in 

refill-too-soon edits based upon retail 30 

day standards. Resolving inappropriate 

or inapplicable edits increases burden 

on the beneficiary and the mail order 

pharmacy and essentially creates a 

disincentive for beneficiaries who are 

planning ahead and attempting to order 

early enough to ensure uninterrupted 

supplies of chronic medications. In 

general, we believe that filling initial 

prescriptions or routine 30-day supplies 

at mail order is not good practice. We 

recognize that there may be a small 

minority of beneficiaries who 

successfully depend solely upon mail 

order or other home delivery options for 

access to prescription drugs due to 

particular circumstances of geography 

or mobility. We have no reason to 


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discourage their continued use of these 

services. However, due to the 

difficulties reported to CMS with 

consistently and effectively filling short 

time frame supplies through mail order, 

we do not believe that Medicare 

beneficiaries in general should be 

incentivized through lower cost sharing 

to utilize mail order pharmacies for 

initial prescriptions or 30-day supplies. 

We received the following comments 

and our response follows: 

Comment: A few commenters agreed 

that mail order is not an appropriate 

venue for filling 30 day supplies of 

medications. 

Response: We appreciate the 

comments and will explore how often 

mail order is used for short days’ 

supplies of medications as a part of the 

current study on mail order benefits. 

Comment: Some commenters noted 

that specialty pharmacies often dispense 

medications by mail order in an amount 

lasting 1 month or less. 

Response: We agree with the 

comments that noted some specialty 

medications may be best supplied, 

when supplied by mail order, in 

quantities less than a 3 month supply, 

due to frequent dose titrations, financial 

concerns, or applicable controlled 

substance laws. 

We did not propose any specific 

regulatory requirements to mail order 

for 30-day supplies or less. We are 

currently analyzing the types of 

prescriptions filled by mail order 

pharmacies and will use the information 

gained from this to explore the need for 

future guidance or rulemaking that 

could help ensure consistent timely 

access for Part D beneficiaries opting to 

use mail order for both short and 

extended days’ supplies. 

7. Agent/Broker Compensation 

Requirements (§§ 422.2274 and 

423.2274) 

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

the Act to charge the Secretary with 

establishing guidelines to ’’ensure that 

the use of compensation creates 

incentives for agents and brokers to 

enroll individuals in the MA plan that 

is intended to best meet their health 

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

revised the Act to apply these same 

guidelines to Part D sponsors. Our 

program experience indicates that some 

agents may encourage beneficiaries to 

enroll in plans that offer higher 

commissions without regard to whether 

plan benefits meet the beneficiaries’ 

health needs. In recognition that agents 

and brokers play a significant role in 

providing guidance and advice to 

beneficiaries and are in a unique 

position to influence beneficiary choice, 

we had proposed, prior to the enactment 

of MIPPA, a rule to regulate agent and 

broker compensation. To implement the 

MIPAA provisions and relying in part 

on comments in response to our 

previously proposed rule, we adopted 

an interim final rule on September 18, 

2008, entitled ‘‘Medicare Program; 

Medicare Advantage and Prescription 

Drug Benefit Programs: Final Marketing 

Provisions’’ (73 FR 554226), which, 

among other things, established the 

current compensation structure for 

agents and brokers as it applies to Parts 

C and D. That rule remains significantly 

in place at §§ 422.2274 and 423.2274, 

and our experience since then indicates 

that revision of the compensation 

requirements is necessary to ensure that 

we continue to meet our statutory 

mandate. 

The current compensation structure is 

comprised of a 6-year compensation 

cycle that began in Contract Year (CY) 

2009. MA organizations and Part D 

sponsors were to provide an initial 

compensation payment to independent 

agents for new enrollees (Year 1) and 

pay a renewal rate (equal to 50 percent 

of the initial year compensation) to 

independent agents for Years 2 through 

6. These rates were to be adjusted 

annually based on changes to the MA 

payment rates or Part D parameters as 

established by CMS. We later amended 

the regulations to allow MA 

organizations and Part D sponsors to 

compensate independent agents and 

brokers annually using an amount at or 

below the Fair Market Value (FMV). 

(See the final rule with comment period 

entitled, ‘‘Medicare Program; Changes to 

the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs for Contract Year 2013 and 

Other Changes’’ (77 FR 22072) 

published in the April 12, 2012 Federal 

Register.) 

The first 6-year cycle ended at the end 

of CY 2013, on December 31, 2013. The 

first year, CY 2009, was considered to be 

the first renewal year for those already 

enrolled, effectively making CY 2009 

the second full year of compensation. 

Because our regulations were silent 

regarding compensation amounts for 

Year 7 and beyond, we stated in our 

Final Call Letter for Contract Year 2014, 

issued on April 1, 2013, that MA 

organizations and Part D sponsors 

could, at their discretion, pay agents 

and brokers the renewal amount for 

Year 7 and beyond. However, this 

subregulatory guidance was intended to 

be a temporary measure, pending final 

changes to our regulations. 

Under the current structure, MA 

organizations and Part D sponsors pay 

an initial rate for the first year, and then 

a renewal payment of 50 percent of the 

initial compensation paid to the agent 

for years 2 through 6. This structure has 

proven to be complicated to implement 

and monitor as it requires the MA 

organization or Part D sponsor to track 

the compensation paid for every 

enrollee’s initial enrollment, and 

calculate the renewal rate based on that 

initial payment. In our NPRM, dated 

January 10, 2014, we provided a 

detailed example of the complexities of 

the current compensation structure. 

Summarizing the current complexities, 

every MA organization or Part D 

sponsor has to know, at any given time, 

the amount of the initial compensation 

for each plan year—going back as far as 

2009—in which the member enrolled in 

order to pay the correct compensation 

amount to the agent for the current 

contract year. For new members, MA 

organizations and Part D sponsors must 

first review CMS’ reports to determine 

whether an initial or renewal payment 

should be made, and then combine that 

information with the FMV, or, if 

applicable, the plan’s compensation set 

at less than the FMV, for each plan year 

to ensure the correct payments are made 

to agents. 

In addition to its complexity, we 

remain concerned that the current 

structure creates an incentive for agents 

and brokers to move enrollees from a 

plan of one parent organization to a plan 

of another parent organization, even for 

like plan-type changes. In our NPRM, 

we discussed and expanded upon our 

example of how the current system 

results in different payments when a 

beneficiary moves from one like plan to 

another like plan in different 

organizations. In these cases, the new 

parent organization would pay the agent 

50 percent of the current initial rate of 

the new parent organization; not 50 

percent of the original initial rate paid 

by the other parent organization. Thus, 

in cases where the FMV has increased, 

or the other parent organization pays a 

higher commission, an incentive exists 

for the agent to move beneficiaries from 

one parent organization to another. (See 

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

Since 2008, we have received 

inquiries from MA organizations and 

Part D sponsors regarding the correct 

calculation of agent/broker 

compensation, and found it necessary to 

take compliance actions against MA 

organizations and Part D sponsors for 

failure to comply with the 

compensation requirements. To the 

extent that there is confusion about the 

required levels of compensation or the 

timing of compensation, there could be 

an uneven playing field for MA 

organizations and Part D sponsors 


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operating in the same geographic area. 

In addition, CMS’ audit findings and 

monitoring efforts have shown that MA 

organizations and Part D sponsors are 

having difficulty correctly administering 

the compensation requirements. 

Therefore, we proposed simpler agent/

broker compensation regulations to 

better ensure that plan payments are 

correct and establish a level playing 

field that will further limit incentives 

for agents and brokers to move enrollees 

for financial gain. 

We proposed to revise the existing 

compensation structure for agents and 

brokers so that, for new enrollments, 

MA organizations and Part D sponsors 

could make an initial payment that is no 

greater than the FMV amount for 

renewals in Year 2 and beyond, the MA 

organization or Part D sponsor could 

pay up to 35 percent of the FMV amount 

for the renewal year, resulting in 

renewal year payment changes each 

year if the MA organization or Part D 

sponsor chooses to pay 35 percent of the 

current FMV (that is, the renewal year 

FMV threshold). As is currently the 

case, we would interpret the FMV 

threshold in our annual guidance to MA 

organizations and Part D sponsors. This 

flexibility would enable MA 

organizations and Part D sponsors to 

better react to changes in the 

marketplace and adjust their 

compensation structures accordingly. 

When we proposed the 35 percent 

renewal rate, we also discussed several 

different alternatives, including 

prohibiting compensation payments 

entirely beyond year 6, permitting MA 

organizations and Part D sponsors to 

pay a residual payment for year 7 and 

subsequent years, and permitting 

existing renewal payments to extend 

past year 7. We also evaluated different 

renewal amounts, including a 50 

percent renewal payment for years 2 

through 6 with a continuing 25 percent 

residual payment for years 7 and 

beyond. The evaluation took into 

account different beneficiary ages for an 

initial enrollment, as well as life 

expectancy. In the analysis, a renewal 

payment of 35 percent was similar in 

payout to the combination of a 50 

percent payment for years 2 through 6 

and a residual payment of 25 percent for 

year 7 and beyond. 

In our NPRM, we stated that we 

believed that revising the existing 

compensation structure to allow MA 

organizations or Part D sponsors to pay 

up to 35 percent of the FMV for year 2 

and beyond was appropriate based on 

several factors. First, we stated that a 

two-tiered (initial and renewal) payment 

system would be significantly less 

complicated than a three-tiered system 

(initial, 50 percent renewal for years 2 

through 6, and 25 percent residual for 

years 7 and beyond), and would reduce 

administrative burden and confusion for 

plan sponsors. Second, our analysis 

determined that 35 percent is the 

renewal compensation level at which 

the present value of overall payments 

under a two-tiered system would be 

relatively equal to the present value of 

overall payments under a three-tiered 

system (taking into account the 

estimated mortality rates for several 

beneficiary age cohorts). This analysis 

was based on the existing commission 

structure basing renewal commissions 

on the starting year initial commission 

amount and not the current year FMV 

amount. 

In order to implement the changes in 

the identical Part C and Part D 

regulations at §§ 422.2274 and 423.2274, 

our NPRM first proposed to revise the 

introductory language for each section 

and then define ‘‘compensation’’ in 

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

market value limit on compensation for 

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

Second, we proposed to combine the 

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

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

which addresses the length of time that 

renewals should be paid, and designate 

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

the proposed new paragraph (b)(1)(ii) 

would state that plans may pay up to 35 

percent of the current FMV and that 

renewal payments may be made for the 

second year of enrollment and beyond. 

In addition, we proposed to modify 

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

cap on the compensation cycle. 

Currently, paragraph (a)(3) refers to 

policies that are replaced with a like 

plan during the first year or the 

subsequent 5 renewal years. Since we 

proposed to eliminate the 6-year cycle, 

our revised paragraph (b)(2) deletes the 

reference to the initial year and the 5 

renewal years. By tying renewal 

compensation to the FMV for the 

renewal year, rather than to the initial 

year of enrollment, our proposal reduces 

the financial incentives for an agent or 

broker to encourage Medicare 

beneficiaries to change plans, especially 

from one parent organization to another 

parent organization. As with the current 

regulation, we proposed in paragraph 

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

a new plan type be payable under the 

same rules that apply to an initial 

enrollment, regardless of whether the 

change is to an unlike plan type in the 

same parent organization or an unlike 

plan type in another parent 

organization. Note that, as with the 

current rule, our proposal only 

addresses compensation paid to 

independent agents and does not 

address compensation payable by an 

MA organization or Part D sponsor to its 

employees who perform services similar 

to agents and brokers. 

We welcomed comments on both the 

amount of the renewal payment, as well 

as the proposed indefinite time frame, 

which are discussed in depth as follows. 

In summary, we received a number of 

comments supporting our efforts to 

simplify agent/broker compensation 

calculation. These comments were 

primarily from plans and industry trade 

groups. We will be finalizing the rule to 

implement a two-tiered (initial and 

renewal) payment system using the 

FMV in the current year for renewal 

calculations. 

We received numerous comments 

from agents, brokers, plans and trade 

associations overwhelmingly opposing 

the 35 percent renewal rate. Based on 

the comments received, we will finalize 

the amendment to the regulations with 

a cap of 50 percent of the current FMV 

for renewals. 

In response to the comments received, 

we also determined that some 

clarifications were necessary. For 

renewals, the payment is based on the 

current FMV and not the initial 

enrollment year FMV. For example, 

assume a beneficiary enrolls in an MA 

plan in CY 2013. The plan pays the 

initial FMV for CY 2013, which is $413. 

In CY 2015, assume the FMV is $420. 

The plan chooses to pay 50 percent of 

the FMV for renewals. The maximum 

renewal payment for this member for 

CY 2015 would be $210 ($420 * .50) 

instead of $207 ($413 * .50). For all 

enrollments, MA organizations and Part 

D Sponsors should calculate the 

renewal rate based on the FMV of the 

enrollment year. We are also clarifying 

that our proposed and final regulations 

do not require an indefinite payment of 

50 percent of the FMV. The final rule 

would permit up to 50 percent of the 

current FMV to be paid by an MA 

organization or Part D sponsor. CMS 

currently requires that plans inform 

CMS as to whether they are using 

independent agents. Contracts between 

MA organizations and Part D Sponsors, 

on one hand, and their independent 

agents and/or downstream entities on 

the other hand, such as Field Marketing 

Organizations, are not exhaustively 

regulated by CMS. Therefore, MA 

organizations and Part D sponsors may 

decide the duration of their contract 

with agents, number of applicable 

renewals, and the actual rate for 

renewals for each year, subject to the 

limits in this final rule. 

Current regulations at 

§§ 422.2274(a)(4) and 423.2274(a)(4), 


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which we proposed to redesignate as 

part of paragraph (b), address the timing 

of plan payments, as well as 

recoupment of payments when a 

beneficiary disenrolls from a plan. 

Specifically, current paragraph (a)(4) 

states that compensation may only be 

paid for the beneficiary’s months of 

enrollment during the year (January 

through December). Under our proposal, 

the new subparagraph (a) would more 

clearly define a plan year for purposes 

of compensation. The annual 

compensation amount covers January 1 

through December 31 of each year. Our 

proposal also clarified that the payment 

made to an agent must be for January 1 

through December 31 of the year and 

may not span calendar years. For 

example, a renewal payment cannot be 

made for the period of November 1, 

2013 through October 31, 2014. These 

proposed revisions represented 

clarifications rather than new proposals 

and were necessary based on our 

findings that some plans have been 

paying compensation based on a rolling 

year cycle, rather than a calendar year 

cycle. Therefore, we are implementing 

the provision defining ‘‘plan year’’ and, 

at subparagraph (b)(3)(i), limiting 

payments to the months of enrollment 

during the calendar year, as proposed. 

Comments concerning this provision are 

discussed later in this section. 

Currently, regulations at 

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

be made at one time or in installments 

and at any time. In order to reduce the 

number of payments that need to be 

recouped based on changes made during 

the annual coordinated election period 

(AEP), which runs from October 15 

through December 7, CMS proposed, in 

new subparagraph (b)(3)(ii), changing 

the timing of payments to require that 

payments may not be made until 

January 1 of the enrollment year and 

must be paid in full by December 31 of 

the enrollment year. We stated that this 

proposal was appropriate given that the 

beneficiary’s final application during 

the AEP becomes the effective 

enrollment. This would reduce the 

number of recoupments required when 

an enrollee signed more than one 

application during the AEP. We 

received several comments opposing the 

requirement that MA organizations and 

Part D plans may not make AEP 

payments until January 1 of the 

following year, but do not find these 

arguments sufficiently compelling to 

outweigh the simplification that would 

be gained by establishing the January 

deadline. We also received comments 

regarding our proposed requirement that 

payments be completed by December 

31. MA organizations and industry 

associations stated that accurate 

payments, especially for enrollments 

effective on December 1, would be 

difficult to operationalize by the end of 

the year. However, we would expect 

enrollment requests for a December 1 

effective date to be relatively low, as 

only individuals newly eligible to 

Medicare Advantage and those with a 

special election period would be able to 

enroll for that date. Moreover, 

organizations and sponsors are already 

required to process most postenrollment activities within two weeks. 

Therefore, we continue to believe that 

the December 31 deadline is in the best 

interest of the program and are 

finalizing subparagraph (b)(3)(ii) as 

proposed. 

Current regulations at 

§§ 422.2274(4)(ii)(A) and 

423.2274(4)(ii)(A) require MA 

organizations and Part D sponsors to 

recoup compensation paid to agents 

when a beneficiary disenrolls from a 

plan within the first 3 months of 

enrollment. However, in sub-regulatory 

guidance, we have recognized several 

circumstances (for example, death of the 

beneficiary, the beneficiary moves out of 

the service area, the beneficiary 

becomes eligible to receive LIS, or the 

beneficiary loses Medicaid benefits) in 

which plans should not recoup 

compensation, even though the 

beneficiary was enrolled in the plan for 

less than 3 months. In such 

circumstances, since the disenrollment 

decision could not be based on agent or 

broker behavior, we believe it to be 

appropriate and in the best interest of 

the Medicare program for the agent to 

receive the compensation based on the 

number of months that beneficiary was 

enrolled in the plan. While the plan 

would not recoup the compensation for 

those months, it would recoup any 

compensation paid for the months after 

the date of disenrollment. 

CMS proposed to combine current 

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

into a revised paragraph (b)(3)(iii), 

which included new text to require 

plans to recover compensation for only 

the months that the beneficiary is not 

enrolled, unless the disenrollment took 

place within the first 3 months. In our 

proposed rule, paragraph (b)(3)(iii) 

would require recoupment of all 

compensation in cases where the 

disenrollment was the result of agent or 

broker behavior. We received few but 

compelling comments on this proposal, 

which stated that it would be extremely 

difficult for MA organizations and Part 

D Sponsors to determine whether the 

disenrollment was a result of agent 

behavior, potentially resulting in 

compensation either being 

inappropriately recouped or not 

recouped when necessary. Based on 

these comments, we are not finalizing 

our proposal for subparagraph (b)(3)(iii) 

but are finalizing regulation text to state 

that the entire compensation must 

recouped if a disenrollment occurs 

during the first 3 months unless CMS 

determines that recoupment is not in 

the best interest of the Medicare 

program. We intend for this standard to 

be applied as we have implemented this 

aspect of the current regulation in past, 

with certain circumstances (for 

example, death of the beneficiary, the 

beneficiary moves out of the service 

area, the beneficiary becomes eligible to 

receive LIS, or the beneficiary loses 

Medicaid benefits) not triggering the 

recoupment requirement. We will 

continue to provide exceptions to the 

requirement in sub-regulatory guidance 

by applying the standard we are 

finalizing today. 

We also proposed, to be codified at 

§§ 422.2274(h) and 423.2274(h), to 

codify existing sub-regulatory guidance 

regarding referral (finder’s) fees. We 

released a memorandum on October 19, 

2011 addressing excessive referral fees, 

noting that referral fees should not 

exceed $100. We have long been 

concerned that some MA organizations 

or Part D sponsors can offer the entire 

amount of compensation an agent or 

broker receives through only a referral 

while referral fees paid to others are part 

of the total compensation. This creates 

an uneven playing field within the 

marketplace and a clear financial 

incentive for the referring agent to steer 

beneficiaries to MA organizations or 

Part D sponsors that offer the higher 

amount, without regard for whether 

plan benefits meet the beneficiaries’ 

health care needs. Therefore, we 

proposed to limit the amount that can 

be paid as a referral fee to independent, 

captive, and employed agents and 

brokers, regardless of who completes the 

enrollment form, to a reasonable 

amount, as determined by CMS, which 

is currently $100, for CY 2013 and CY 

2014. The entire proposal concerning 

agent and broker compensation was 

discussed in the context of our concern 

that agents and brokers not be 

influenced by payments from MA 

organizations and Part D sponsors to 

steer beneficiaries to plans that do not 

meet the beneficiaries’ needs. We note 

that this proposal was clearly identified 

in the preamble, 79 FR 1936, but the 

proposed regulation text, 79 FR 2060 

and 2071, mistakenly included language 

discussing enrollee behavior and the 

value of health-related activities. 


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Furthermore, under §§ 422.2274(h)(2) 

and 423.2274(h)(2), CMS proposed that 

that referral fees paid to independent 

agents and brokers must be part of total 

compensation not to exceed the FMV for 

that calendar year. Although a few 

comments were received concerning our 

proposals on referral fees, we are 

implementing this proposal 

substantively as described in the 

preamble. However, we believe that use 

of the phrase ‘‘. . . while not exceeding 

the value of the health-related service or 

activity itself’’ was an error in the 

proposed regulation text. Therefore, we 

are finalizing text at subparagraph (h)(1) 

by removing that error and more clearly 

providing that CMS will set an annual 

threshold for finder fees based on a 

determination about amounts that 

would improperly incentivize agents 

and brokers to steer beneficiaries. We 

are finalizing subparagraph (h)(2) as 

proposed. Comment details and our 

responses may be found as follows. 

We are finalizing the regulations with 

additional regulation text for a technical 

correction. One entity commented that 

the proposal eliminated 

§§ 422.2274(a)(1)(iv) and 

423.2274(a)(1)(iv). Our proposal was not 

to remove these provisions concerning 

the applicability of compensation to 

third party entities and the regulation 

text should have included the substance 

of current subparagraph (a)(1)(iv). We 

have inserted the text from the 

regulation prior to the proposal at 

§§ 422.2274(b)(1)(iii) and 

423.2274(b)(1)(iii) of this final rule. 

Finally, we are not finalizing the 

change to the introductory language to 

§§ 422.2274 and 423.2274 in favor of 

deleting the existing introductory 

language (which forms the substantive 

basis for the new paragraph (a) 

definitions); the introductory language 

we proposed seems unnecessary to 

establish the scope of each regulation. 

Comment: We received more than 140 

comments concerning the level of 

renewal payments, proposed at 35 

percent. A few of the comments 

appreciated the simplification and 

briefly discussed the 35 percent but 

neither strongly supported the amount 

or strongly opposed the amount. A few 

commenters believed renewal 

compensation should increase. The vast 

majority (over 95 percent) of the 

comments did not support the proposed 

renewal rate of 35 percent for years two 

and beyond with a few clearly stating 

that the renewal rate should be 50 

percent. Commenters included agents, 

brokers, plans, and industry trade 

associations. One major trade 

association representing 37 plans stated 

that 35 percent was overly restrictive 

and 50 percent is in line with industry 

standards, especially concerning PDPs 

where the 35 percent renewal would not 

cover the agent’s costs to ensure 

members are in the best plans for them. 

The commenters provided various 

reasons why the 35 percent should not 

be implemented. The majority of 

commenters stated that agents play an 

important role in educating 

beneficiaries and the reduced level of 

compensation would result in a negative 

impact on beneficiaries, as it would 

reduce the level and quality of services 

provided to beneficiaries, resulting in 

less information and poor plan choices 

made by beneficiaries and would also 

result in agents leaving the MA 

marketplace. Many commenters stated 

that agents spend a significant amount 

of time in training, preparing, and 

testing in order to properly educate 

beneficiaries about plan choices. A 

number of commenters stated that their 

overhead costs (travel, postage, facility 

costs) were significant and a reduction 

in compensation would affect this 

aspect of their business. Commenters 

also stated that the lower compensation 

would discourage new agents from 

entering the MA market. 

Response: Based on the comments 

received, we are modifying our 

proposed regulations to permit the 

renewal payment to be up to 50 percent 

of FMV. MA organizations and Part D 

sponsors may still determine how much 

will be paid, up to 50 percent of the 

current FMV, and retain the authority to 

specify the details of their contracts 

with agents, including how many years 

renewal payments will be made. We 

believe that this increased percentage 

meets the statutory standard of 

‘‘ensur[ing] that the use of 

compensation creates incentives for 

agents and brokers to enroll individuals 

in the MA plan that is intended to best 

meet their health care needs.’’ 

Comment: We received one comment 

from an individual who misunderstood 

our proposal. It appears that the 

commenter thought our proposal would 

allow two different payment options. 

Response: We have reviewed this 

comment and are not taking action 

based on an incorrect understanding of 

the proposal. Our proposal actually 

discussed two options that we 

considered for the renewal 

compensation. 

Comment: We received two comments 

from individuals who suggested 

alternative agent payment strategies. 

One commenter suggested modifying 

Medicare.gov to track agents for 

enrollments processed through the Web 

site for payment by plans. The 

commenter also proposed paying agents 

on a monthly basis, coinciding with the 

months the beneficiary is in a plan, 

eliminating the need to commission 

reversals. Another commenter proposed 

that plans submit compensation 

schedules to CMS for review and 

approval. 

Response: These recommendations 

entail significant changes with 

numerous operational implications. 

Therefore, we are not implementing the 

suggestions from these comments at this 

time. With respect to the comment 

regarding the frequency of payments, we 

did not propose to modify the existing 

regulatory permission for MA 

organizations and Part D sponsors to 

determine whether payments would be 

made at one time or in installments; 

therefore the comment is outside the 

scope of this proposed rule. 

Comment: We received a few 

comments regarding the requirement 

that payments be made between January 

1 and December 31 of the enrollment 

year. One commenter supported the 

proposal. A few commenters did not 

support the January 1 date because 

agents would have to wait 3 to 4 months 

for compensation for those enrolling 

during the AEP. One of these 

commenters also noted that getting the 

commission assures agents that the 

beneficiary was enrolled. A few plans 

were concerned about timely payment 

of December 1 effective enrollees. 

Response: Our proposal is aimed at 

simplifying compensation while 

ensuring an even playing field. As 

explained previously, using a January 1 

through December 31 payment 

timeframe limits the recoupment of 

payments made when a beneficiary 

makes more than one election during 

the AEP. Therefore, we are 

implementing this provision as 

proposed. 

Comment: We received one comment 

stating that regulating the payment of 

only independent agents was unfair and 

that employed agents should also be 

regulated. 

Response: We have reviewed this 

comment and have determined that the 

regulation of only independent agents is 

still appropriate. Our initial regulations 

were promulgated to ensure that agents/ 

brokers do not steer beneficiaries into 

plans due to the agent’s/broker’s 

financial or other interest; we continue 

to be concerned about such steerage on 

the part of independent agents, since 

they often sell multiple products, with 

varying levels of compensation. In 

contrast, employed agents work for only 

one company and therefore do not have 

an incentive to move a member into a 

plan offered by a different organization 


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or sponsor in exchange for a higher 

commission. 

Comment: We received a comment 

from a trade association recommending 

that CMS consider changes from cost 

plans to MA plans as ‘‘like’’ plan 

changes, rather than ‘‘unlike’’ plan 

changes for compensation purposes. 

The commenter stated beneficiaries 

evaluate cost plans similar to MA plans 

and that treating these as unlike plan 

types encourages churning. 

Response: We have received this 

comment and declined to implement 

such this change from our proposal; we 

believe that this is outside the scope of 

the proposed rule. Our proposal did not 

address what constitutes ‘‘like’’ and 

‘‘unlike’’ plan types, but instead simply 

referenced ‘‘like’’ and ‘‘unlike’’ plan 

types, using the existing regulation 

standards on this point, because CMS 

re-designated and revised certain 

portions of the existing regulation for 

simplification. 

Comment: We received a few 

comments regarding referral fees. One 

commenter recommended that the 

referral fee for enrollments be limited to 

FMV instead of $100. Other commenters 

requested that CMS not allow referral 

fees to be paid. 

Response: We reviewed these 

comments and are finalizing our 

proposal as described in the preamble to 

the proposed rule, with the changes to 

the regulation text at subparagraph 

(h)(1) as explained previously. Referral 

fees are applicable to employed, captive, 

and independent agents, and permitting 

the referral fee to be as high as the Fair 

Market Value (FMV) would increase the 

potential for steerage among different 

types of agents and thus plans. The $100 

cap, which is required to be part of the 

total compensation, is an added 

protection to ensure financial interests 

of agents do result in misleading 

beneficiaries. Our proposal did not 

address whether referral fees should be 

permitted, only whether such fees 

should be capped and, if so, at what 

level. We do not believe that it is 

appropriate to prohibit or eliminate 

referral fees without additional rulemaking that is specific on that question. 

Comment: One plan requested 

clarification as to whether the renewal 

rate of the ‘‘current’’ FMV meant the 

year in which the renewal commission 

is being paid. 

Response: We intend, for purposes of 

renewal rates, that the ‘‘current’’ FMV 

be the FMV for the enrollment year. For 

example, an agent would be paid 50 

percent of Contract Year (CY) 2015’s 

FMV for a renewal member who is 

enrolled in CY 2015. 

Comment: One plan requested 

clarification as to whether CMS would 

require payments to be retroactive or if 

the existing regulations would continue 

until member’s current 6-year cycle 

ended. One trade organization wanted 

to know whether the requirements will 

be effective for January 1, 2015 

enrollments and how the new 

regulations will affect members 

currently in the existing 6-year cycle. 

Response: As part of this final rule, 

the new compensation requirements 

will be implemented for all members for 

CY2015. One of CMS’ intentions was to 

simplify the regulations and create an 

even playing field. We would not be 

able to accomplish these goals if we 

were to wait to implement these new 

requirements until all members finish 

their current 6-year cycle. However, we 

note that the final provides flexibility to 

MA organizations and Part D sponsors 

so long as payments are within the 

thresholds established in the rule. To 

the extent that an MA organization or 

Part D sponsor wishes to continue 

payment using a cycle system, 

negotiates that payment structure with 

its agents and brokers, and that cycle 

system complies with the limits and 

requirements of this final rule, the MA 

organization or Part D sponsor may do 

so. 

Comment: We received a few 

comments concerning recoupment of 

compensation when a member 

disenrolls within the first three months 

of enrollment. One plan requested a 

better definition of ‘‘broker behavior.’’ 

One trade association stated that there 

would be significant challenges in 

determining whether disenrollments 

were due to independent agent/broker 

conduct. The trade association is 

concerned that plans could face 

significant disputes with agents/brokers 

about these decisions. 

Response: We have reviewed these 

comments and determined that the 

current situation should remain 

unchanged based on these concerns that 

our proposed revisions would hamper 

MA organizations’ and Part D sponsors’ 

ability to determine which enrollments 

should be fully recouped, with the 

result that compensation is either 

inappropriately recouped or not 

recouped when necessary. Therefore, 

we are finalizing the regulation to 

require full recoupment of 

compensation when a member 

disenrolls within the first three months 

unless CMS determines that the 

recoupment is not in the best interests 

of the Medicare program. CMS will 

apply this standard and specify 

exceptions in sub-regulatory guidance. 

Our current guidance is consistent with 

this standard and will remain 

applicable. 

Comment: We received a few 

comments regarding the implementation 

date of the regulations. One trade 

association stated that it typically took 

nine months to make systems changes to 

accommodate new requirements. 

Response: We understand that 

systems changes may take time to 

implement. Because of necessary 

industry systems changes, and because 

the rule provides for a payment 

structure applicable by calendar year, 

these compensation changes do not take 

effect until enrollments effective 

January 2015. Therefore, organizations 

and sponsors will have approximately 

seven months to make such changes. 

Other than simplifying how FMV 

applies to renewal rates, the new 

compensation structure is similar to 

industry practice and present guidance. 

Therefore, we did not make any changes 

to this section of the regulation. 

Comment: One trade organization 

commented that many MA 

organizations and Part D sponsors 

currently operate on a ‘‘rolling year’’ 

basis, such that, if an enrollment is 

effective February 1, the compensation 

covers the period starting on February 1 

and continuing through January 31 of 

the following year. The association said 

that these were well-established 

processes and a change could disrupt 

systems and require a significant redesign effort. 

Response: Our position has always 

been that organizations and sponsors 

were required under the existing rules 

to pay compensation on a calendar year 

basis, not a ‘‘rolling’’ year basis. When 

we encountered situations where 

organizations and sponsors have not 

implemented these requirements 

correctly, we have required the 

organization to adjust its processes to 

comply and they have done so in a 

timely manner. We decided to clarify 

this requirement in our regulations to 

ensure that all plans fully understand 

the CMS definition of an enrollment 

year. Therefore, we will not be making 

any modification based on this 

comment. 

Comment: One trade association 

stated that the NPRM appears to have 

eliminated the current provisions at 

§§ 422.2274(a)(1)(iv) and 

423.2274(a)(1)(iv), which address 

compensation requirements for Third 

Party Entities. 

Response: We thank the commenter 

for this observation. These provisions 

were inadvertently eliminated from the 

current provisions. We have revised the 

regulation text accordingly. 


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Comment: We received one comment 

from a trade association that was 

concerned about CMS’ requirement to 

recover commissions if an enrollee 

disenrolls in the middle of the year. 

They suggested that CMS require MA 

organizations and Part D sponsors to 

take ‘‘commercially reasonable efforts’’ 

to recover funds. 

Response: The requirement to recover 

funds when a member disenrolls midyear remains the same; we did not 

propose to change this requirement. 

Organizations and sponsors have the 

ability to make payments yearly, 

quarterly, monthly, or in other 

frequencies. Therefore, they could pay 

monthly, rather than on a yearly or 

quarterly basis, and thereby limit the 

need to recoup funds for disenrollments 

that occur at mid-year. Therefore, we 

will not be making any changes to the 

regulation. 

Comment: We received a few 

comments recommending that CMS 

provide a mandatory plan comparison 

form. Agents/Brokers would be required 

to fill this out and provide to the 

beneficiary for review. 

Response: These comments are 

outside the scope of our proposed rule, 

but we will consider this suggestion for 

future changes. 

Comment: We received a few 

comments from beneficiary advocacy 

groups stating that MA organizations 

and Part D sponsors slow down, 

artificially delay, or dispute the 

payment of compensation, which 

ultimately encourages agents and 

brokers to take their business to another 

plan. 

Response: These comments are 

outside the scope of our proposed rule, 

but we believe that our new requirement 

that compensation be paid within the 

enrollment year will address some of 

these issues. 

After consideration of the public 

comments received, we are finalizing 

our proposal at §§ 422.2274(a), (b) and 

(h) and 423.2274(a), (b), and (h) with the 

following modifications as previously 

discussed: 

• Deleting the introductory text to the 

regulation section. 

• Raising the renewal compensation 

rate from 35 percent to (up to) 50 

percent of the current fair market value 

cut-off amounts published annually by 

CMS. 

• Removing the proposed recoupment 

standard for rapid disenrollments by 

reverting to the status quo where 

subregulatory guidance describes 

activities not triggering recoupments 

(rather than requiring recoupment based 

on ‘‘agent or broker behavior’’; 

implementing a standard based on the 

best interests of the Medicare program 

to identify disenrollments that do not 

require recoupment. 

• Incorporating existing regulation 

text about compensation to Field 

Marketing Organizations. 

• Clarifying the CMS standard for 

applying the limit on referral fees. 

8. Drug Categories or Classes of Clinical 

Concern (§ 423.120(b)(2)(v)) 

Section 3307 of the Affordable Care 

Act amended section 1860D–4(b)(3)(G) 

of the Act by replacing the specific 

criteria established under MIPPA in 

2008 to identify categories or classes of 

Part D drugs for which all Part D drugs 

therein shall be included on Part D 

sponsor formularies. The specified 

criteria were replaced with the 

requirement that the Secretary establish 

criteria through notice and comment 

rulemaking to identify drug categories 

or classes of clinical concern. In 

addition, section 3307 of the Affordable 

Care Act requires the Secretary to 

engage in rulemaking to establish 

exceptions that permit a Part D sponsor 

to exclude from its formulary a 

particular Part D drug that is otherwise 

required to be included in the formulary 

in a drug category or class of clinical 

concern (or otherwise limit access to 

such a drug, including through prior 

authorization or utilization 

management). The Affordable Care Act 

amendments to section 1860D– 

4(b)(3)(G) of the Act specified that until 

such time as the Secretary establishes 

through rulemaking the criteria to 

identify drug categories or classes of 

clinical concern through rulemaking, 

the following categories or classes shall 

be identified as categories or classes of 

clinical concern: anticonvulsants, 

antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and 

immunosuppressants for the treatment 

of transplant rejection. We proposed to 

implement the Affordable Care Act 

requirements set forth in section 1860D– 

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

§ 423.120(b)(2)(v) and (vi) to specify: (1) 

the criteria the Secretary will use to 

identify drug categories or classes of 

clinical concern; and (2) exceptions that 

permit Part D sponsors to exclude a 

particular Part D drug from within a 

category or class of clinical concern that 

is otherwise required to be included in 

the formulary (or to otherwise limit 

access to such a drug, including through 

utilization management or prior 

authorization restrictions). We also 

proposed to specify which drug 

categories or classes met the proposed 

criteria and explained the process we 

used for making these determinations. 

We proposed to modify 

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

an exception applies, all Part D drugs 

within a drug category or class be 

included on the formulary if the drug 

category or class of drugs for a typical 

individual with a disease or condition 

treated by the drugs in the category or 

class meets both of the following 

criteria, as determined by CMS— 

• Hospitalization, persistent or 

significant disability or incapacity, or 

death likely will result if initial 

administration (including selfadministration) of a drug in the category 

or class does not occur within 7 days of 

the date the prescription for the drug 

was presented to the pharmacy to be 

filled; and 

• More specific CMS formulary 

requirements will not suffice to meet the 

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

diversity of disease or condition 

manifestations and associated 

specificity or variability of drug 

therapies necessary to treat such 

manifestations. 

We were concerned that requiring 

essentially open coverage of certain 

categories and classes of drugs presents 

both patient welfare concerns and 

financial disadvantages for the Part D 

program as a result of increased drug 

prices and overutilization. We also 

believed that criteria for identifying 

drug categories and classes of clinical 

concern should identify only those drug 

categories or classes for which access 

cannot be adequately ensured by 

beneficiary protections that otherwise 

apply. Consequently, as we took the 

opportunity to propose to codify criteria 

for identifying categories or classes of 

drugs that are of clinical concern, we 

believed that the requirements of 

section 3307 of the Affordable Care Act 

should be implemented taking into 

consideration the other protections 

available to beneficiaries. Otherwise, we 

believed section 3307 of the Affordable 

Care Act would establish duplicative, 

and thus unnecessary, protections that 

would serve only to increase Part D 

costs—without any added benefit and 

with the possibility of added harm from 

misuse. Therefore, in considering 

whether additional protections continue 

to be needed under this section, we 

needed to take the other beneficiary 

access protections into account. We 

detailed five such protections: 

formulary transparency, formulary 

requirements, reassignment formulary 

coverage notices, transition supplies 

and notices, and the coverage 

determination and appeals processes. 

Taken together, we believed these 

requirements were comprehensive 


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enough that additional access 

safeguards would be needed only in 

those situations where a Part D 

beneficiary’s clinical needs cannot be 

more efficiently met. 

We received the following comments, 

and our response follows: 

Comment: We received strong support 

for our entire proposal from some 

commenters who agreed, as they stated, 

with ‘‘all of the reasons’’ underlying the 

proposal, but we received no supportive 

comments explicitly directed toward 

our proposed criteria for identifying 

categories and classes of clinical 

concern. However, we did receive 

significant opposition to our proposed 

criteria. Several commenters generally 

stated that the criteria themselves were 

flawed, much less their application to 

the drug categories and classes in our 

analysis. Although the statute did not 

provide individual criteria, some 

commenters stated that the criteria were 

more restrictive than statutory intent 

and insufficiently accounted for patient 

complexity. Other commenters stated 

that application of overly restrictive 

criteria set a dangerous precedent, and 

other commenters raised related 

concerns that other categories and 

classes of clinical concern could be 

eliminated in the future or that they 

could be incorrectly applied to other 

disease states whose guidelines indicate 

the use of these drugs. For example, 

many commenters expressed concern 

that if immunosuppressants for 

transplant rejection no longer received 

the additional protections under section 

3307, patients with multiple sclerosis 

who use immunosuppressants may face 

access issues. Additionally, although it 

was mentioned as a source of savings in 

our RIA, some commenters opposed the 

idea that future drugs in a particular 

category or class, representing advances 

in therapy, may not be covered, 

believing this jeopardized beneficiary 

health. Indeed, many commenters stated 

that the application of these criteria 

would be life-threatening. 

Response: We thank the commenters 

for bringing their concerns to our 

attention. We attempted to embrace the 

principle of balancing access and cost 

through optimal formulary management 

inherent in the design of the Part D 

benefit in proposing to establish criteria 

pursuant to section 3307 of the 

Affordable Care Act. However, based on 

the comments received, we have 

concluded that our proposed criteria did 

not strike the balance among beneficiary 

access, quality assurance, costcontainment, and patient welfare that 

we were striving to achieve. Thus, we 

are not finalizing our proposal to 

establish new criteria for the categories 

and classes of clinical concern. 

Accordingly, we are maintaining the 

existing six categories and classes of 

clinical concern listed in the statute and 

are amending the regulation at 

§ 423.120(b)(2)(v) to reflect that the 

categories and classes of clinical 

concern will be as specified in section 

1860D–4(b)(3)(G)(iv) of the Act until we 

undertake rulemaking to specify criteria 

to identify the categories and classes of 

clinical concern. 

During our annual formulary review 

and approval process, regardless of a 

drug’s placement in a category or class 

of clinical concern, to the extent that a 

treatment guideline speaks to a specific 

category or class of drugs, we look for 

representation from that category or 

class of drugs on the formulary. 

Moreover, if the treatment guidelines 

address specific drugs, we would review 

formularies to ensure inclusion of those 

specific drugs. Thus, although a 

category or class of clinical concern is 

immunosuppressants for transplant 

rejection, to the extent that the 

treatment guidelines for multiple 

sclerosis indicate the use of 

immunosuppressants, we still would 

look for representation of these drugs on 

the formulary during our treatment 

guidelines review for multiple sclerosis. 

After consideration of the public 

comments we received, we are 

finalizing a technical change to 

§ 423.120(b)(2)(v) to reflect the existing 

categories and classes of clinical 

concern. Because the existing regulation 

at § 423.120(b)(2)(v) is obsolete in light 

of the Affordable Care Act, we are 

making a technical change to specify 

that until such time as we undertake 

rulemaking to establish criteria to 

identify, as appropriate, categories and 

classes of drugs for which we determine 

are of clinical concern, the categories 

and classes of clinical concern shall be 

as specified in section 1860D– 

4(b)(3)(G)(iv) of the Act. 

9. Medication Therapy Management 

Program (MTM) Under Part D 

(§ 423.153(d)) 

Section 1860D–4(c)(2) of the Act 

provides that Part D sponsors, in 

offering Medication Therapy 

Management (MTM) programs, must 

target individuals who: (1) have 

multiple chronic diseases (such as 

diabetes, asthma, hypertension, 

hyperlipidemia, and congestive heart 

failure); (2) are taking multiple covered 

Part D drugs; and (3) are identified as 

likely to incur annual costs for covered 

Part D drugs that exceed a level 

specified by the Secretary. At the start 

of the Part D program, we believed that 

25 percent of enrollees would qualify 

for MTM services. However, analysis 

revealed that MTM program enrollment 

was well below that level. In the 2010 

Call Letter and subsequent regulation, 

we modified the criteria to reduce the 

variability in eligibility and level of 

service and to improve access to MTM 

services, again targeting 25 percent of 

enrollees. Despite these changes, MTM 

program participation remains very low. 

Moreover, additional evidence that the 

program improves quality and generates 

medical savings supports the belief that 

more than 25 percent of enrollees will 

benefit from MTM services. 

We continue to see restrictive criteria, 

such as plan sponsors specifying a 

narrow list of chronic diseases or Part D 

drugs coupled with requiring a higher 

minimum number of covered drugs (for 

example, eight drugs versus two) for 

eligibility. As a result, access to MTM 

services remains very low with MTM 

program eligibility rates at less than 8 

percent in 2011. In the proposed rule, 

we cited a number of studies which 

discussed the following: there may be 

racial disparities in meeting the 

eligibility criteria, the current eligibility 

criteria and variability are restricting 

access to MTM services, and MTM 

enrollees with certain chronic diseases, 

particularly those who received annual 

comprehensive medication reviews 

(CMRs), experienced significant 

improvements in drug therapy outcomes 

when compared to beneficiaries who 

did not receive any MTM services, and 

cost savings. 

We believe the studies support the 

necessity to reduce variability and racial 

disparity in eligibility criteria among 

plans and improve access to beneficial 

MTM services. We proposed changes to 

the eligibility requirements regarding 

multiple chronic diseases, multiple Part 

D drugs, and the annual cost threshold. 

a. Multiple Chronic Diseases 

Under the statute, one of the three 

criteria that are used to target 

beneficiaries for MTM services is 

whether a Part D beneficiary has 

multiple chronic diseases such as 

diabetes, asthma, hypertension, 

hyperlipidemia, and congestive heart 

failure. We previously interpreted this 

language to allow sponsors to define 

‘‘multiple chronic diseases’’ with three 

chronic diseases being the maximum 

number a plan sponsor may require for 

targeted enrollment. Further, sponsors 

are allowed to target beneficiaries with 

select chronic diseases, but must 

include at least five of the nine core 

chronic diseases in their criteria. This 

list of core chronic diseases, as updated 

in the 2013 Call Letter (available at 

http://www.cms.gov/Medicare/HealthVerDate Mar<15>2010 19:14 May 22, 2014 Jkt 232001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 E:\FR\FM\23MYR2.SGM 23MYR2

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Plans/MedicareAdvtgSpecRateStats/

Downloads/Announcement2013.pdf), 

includes hypertension, congestive heart 

failure, diabetes, dyslipidemia, 

respiratory disease, bone disease— 

arthritis, mental health, Alzheimer’s 

disease, and end stage renal disease. We 

proposed to revise our interpretation of 

‘‘multiple chronic diseases’’ to require 

that sponsors must target enrollees 

having two or more chronic diseases for 

MTM services. We also proposed to 

require that at least one of the chronic 

diseases that a beneficiary has in order 

to satisfy the eligibility criteria must be 

one of the list of core chronic diseases. 

In addition, we proposed to redefine the 

core diseases by combining 

hypertension and congestive heart 

failure under the umbrella of 

‘‘cardiovascular disease,’’ which would 

also encompass congestive heart failure, 

acute myocardial infarction, cerebral 

hemorrhage and effects of stroke, 

vascular disease, specified heart 

arrhythmias, and hypertensive heart 

disease. The proposed list of core 

chronic diseases became cardiovascular 

disease, diabetes, dyslipidemia, 

respiratory disease, bone disease— 

arthritis, mental health, Alzheimer’s 

disease, and end stage renal disease. 

b. Multiple Part D Drugs 

The second of the three statutory 

criteria for identifying targeted 

beneficiaries is whether a Part D 

beneficiary is taking multiple covered 

Part D drugs. We proposed to revise our 

interpretation of ‘‘multiple Part D 

drugs’’ to require that sponsors must 

target enrollees taking two or more Part 

D covered drugs for MTM services. We 

also proposed to restrict the flexibility 

previously available to sponsors by 

requiring that they consider any Part D 

covered drug. In the proposed rule, we 

cited literature that supported the idea 

that patients with multiple diseases and 

taking at least two drugs are more likely 

to have drug therapy problems and need 

MTM. 

c. Annual Cost Threshold 

The final statutory requirement for 

targeting Part D beneficiaries for MTM 

services is that the beneficiary be 

identified as likely to incur costs for 

covered Part D drugs that exceed a level 

specified by the Secretary. The Congress 

did not impose any specific 

requirements with respect to the cost 

threshold at the time the MTM criteria 

were passed in to law, nor has it 

addressed this threshold in any of the 

subsequent amendments to section 

1860D–4(c)(2) of the Act. We previously 

codified a $3,000 threshold, as updated 

annually by the annual percentage 

increase in the average per capita 

aggregate expenditures for Part D drugs 

for Part D eligible individuals under 

§ 423.104(d)(5)(iv) in the April 2010 

final rule entitled, ‘‘Policy and 

Technical Changes to the Medicare 

Advantage and Medicare Prescription 

Drug Benefit Programs’’ (75 FR 19818). 

The threshold is currently $3,017 in 

2014. However, we are concerned that 

there are a number of beneficiaries who 

need MTM, but are not currently 

eligible because they do not meet the 

current cost threshold of $3,017, despite 

the increased likelihood of having drug 

therapy problems as a result of having 

multiple chronic diseases and taking 

multiple medications. Moreover, the 

current cost threshold may have the 

unintended consequence of causing 

beneficiaries to no longer qualify for 

MTM services in the next plan year 

(whether remaining in the same plan or 

enrolling into a new plan) if they fall 

below the cost threshold as a result of 

their enrollment in plans that employ 

cost avoidant strategies, such as 

aggressive use of generics, or in MTM 

programs that center on therapeutic 

interchange. Consistent with our 

proposal that sponsors must target 

enrollees taking two or more Part D 

covered drugs for MTM services and 

taking into account that one or more of 

these Part D drugs are likely to be 

generics, we proposed setting the 

annual amount in Part D drug costs at 

an amount that represents the 

intersection of multiple conditions and 

multiple drugs. Specifically, we 

proposed setting the threshold at $620 

which is the estimated annual total drug 

cost for a beneficiary filling two generic 

prescriptions, based on an analysis of 

prescription drug event (PDE) data. 

We are not finalizing these proposals. 

We will engage in new notice and 

comment rulemaking on this issue as 

warranted in the future. 

We received a large number of 

comments related to our proposal to 

revise § 423.153(d)(2)(i) through (iii) to 

expand MTM program eligibility and 

our response follows. 

Comment: Many commenters were 

supportive of MTM in general and CMS’ 

goals. These commenters were 

supportive of the proposed changes to 

expand access to MTM services, shared 

CMS’ concerns regarding restrictive and 

variable eligibility criteria established 

by some sponsors, and endorsed the 

proposals to revise the eligibility criteria 

to increase uniformity. This included 

support for and clarifying questions 

regarding the revised definitions for 

‘‘multiple chronic diseases,’’ with the 

addition of ‘‘cardiovascular disease’’ to 

the list of core diseases, and ‘‘multiple 

Part D drugs.’’ Some commenters stated 

that CMS should post MTM eligibility 

rates on the CMS Web site or make planreported data more available for 

research. Other commenters, who 

supported the proposed changes to 

expand access to MTM, provided 

information on return on investment, 

outcomes, or individual experiences in 

improving quality and lowering costs 

through MTM provided by community 

pharmacists who have close 

relationships with the beneficiaries and 

local prescribers. A large number of 

commenters also stated that, to date, 

variability in plan offerings and limited 

compensation has made the provision of 

MTM in the community setting difficult 

in a consistent, scalable and timely 

manner. 

A significant number of commenters 

also were strongly opposed to the broad 

expansion of eligibility. They 

questioned the effectiveness of 

expansion under the current 

infrastructure as delivered by drug plans 

with limited incentives and a lack of 

care coordination, and they commented 

that the clinical evidence did not 

support the proposed changes. We 

received many comments that the 

proposed changes would significantly 

increase costs (both administrative and 

beneficiary premiums), reduce the 

quality of programs delivered to 

beneficiaries who most need MTM, and 

could overwhelm limited resources. 

Many commenters requested that the 

proposed changes be withdrawn, and 

some commenters offered alternative 

eligibility criteria for CMS to consider in 

the future. These included: delay the 

proposed changes or implement the 

changes incrementally, alternative 

criteria for the minimum thresholds for 

eligibility, alternative eligibility criteria 

based on risk factors, and requiring 

MTM at transition of care. 

Response: We thank these 

commenters for their thoughtful and 

supportive comments. MTM has been 

shown to improve drug therapy 

outcomes and lower costs, and we agree 

that the use of community-based 

resources for providing MTM services 

shows promise in improving access and 

quality. We still have concerns that 

many sponsors are applying restrictive 

criteria to narrow the pool of targeted 

beneficiaries for MTM rather than 

optimizing the eligibility criteria to offer 

MTM to beneficiaries who will most 

benefit from these services. These 

programs are not living up to our 

expectations. As we discussed in the 

regulatory impact analysis for the 

proposed rule (79 FR 2036), we estimate 

that only 2.5 million beneficiaries (8 

percent) are eligible for MTM services, 


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13 percent opt-out of the MTM program, 

and 10 percent of participating 

beneficiaries receive an annual CMR. 

That means that less than 220,000 Part 

D enrollees receive CMRs, which 

studies have shown is a crucial element 

of MTM to improve drug therapy 

outcomes and lower costs. Not enough 

is being done by sponsors to provide 

sufficient access to MTM services and 

engage beneficiaries and providers in 

this process. We will consider publicly 

posting the MTM program eligibility 

rates for each Part D contract, similar to 

how we display MTM program CMR 

rates, and explore ways to make the 

plan-reported data available for public 

use. 

Despite the persuasive comments 

from those who support the proposed 

changes in eligibility criteria, we also 

take into account the comments that the 

timeline for implementing the proposed 

changes may be too aggressive and 

could negatively affect existing MTM 

programs. While our goal was to 

increase eligibility and access to MTM, 

we do not want to do it at the expense 

of sacrificing any quality with existing 

programs. Therefore, we are not 

finalizing our proposed changes to the 

eligibility criteria. But, we will continue 

to evaluate information on MTM 

programs and monitor sponsors’ 

compliance in accordance with the 

MTM requirements established by 

§ 423.153, with the goal of proposing 

other revisions to criteria in future 

rulemaking that will help expand the 

program. We believe that Part D 

sponsors can target more beneficiaries 

for MTM under the existing criteria. We 

plan to closely scrutinize sponsors that 

may be abusing the flexibility provided 

to them in establishing the eligibility 

criteria, which may have contributed to 

the racial disparity, variability, and 

beneficiary confusion with respect to 

MTM eligibility that we identified in the 

proposed rule. We will consider the 

commenters’ suggestions for alternative 

criteria and may consider revisions to 

MTM eligibility criteria for future 

rulemaking. We may also consider 

changes to the definitions for ‘‘multiple 

chronic diseases,’’ including the core 

chronic diseases, and ‘‘multiple Part D 

drugs’’ in the future. 

10. Requirement for Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part 

D Functions (§ 423.504(b)) 

Since its establishment in 2006, the 

Medicare Part D program has matured 

into a generally stable, well-functioning 

program, and the Part D sponsors (as 

well as their first tier, downstream, and 

related entities (FDRs)) with which CMS 

contracts have developed vast expertise 

in the operational complexities of the 

program. While we will continue to fine 

tune the program through rulemaking, 

guidance, and additional oversight 

procedures, we believe the program has 

largely entered a mature stage. Despite 

this progress, we still find ourselves 

spending a disproportionate amount of 

resources and attention on the 

operations of new Part D sponsors 

where neither the new sponsor nor its 

supporting FDRs have experience with 

Part D. 

To address this problem, pursuant to 

our authority at section 1860D– 

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

additional contract terms, not 

inconsistent with the Part C and D 

statutes, that are necessary and 

appropriate to administer the Part D 

program, we proposed to adopt 

provisions that would require any entity 

seeking to contract as a Part D plan 

sponsor (as a stand-alone prescription 

drug plan sponsor or as a MA 

organization offering Part D benefits) to 

have arrangements in place such that 

either the applicant or one of its 

contracted FDRs has one full benefit 

year serving as a Part D plan sponsor, or 

at least one full benefit year of 

experience performing key Part D 

functions for another Part D plan 

sponsor. The applicant or a contracted 

FDR will be required to have obtained 

that experience within the 2 years 

preceding the Part D sponsor 

qualification application submission. 

Under this proposal, the experience 

requirement would be met by an entity 

seeking to contract as a Part D plan 

sponsor if its parent or another 

subsidiary of that parent already holds 

a Part D sponsor contract that has been 

in effect for at least one year at the time 

of the application submission. 

Given the wealth of available Part D 

expertise that now exists, it is justifiable 

for us to require that new applicants to 

the program bring with them Part D 

experience so that we can better protect 

Part D enrollees and minimize 

unnecessary expenditures of resources 

by us in correcting avoidable problems. 

When neither a Part D sponsor, nor its 

FDRs providing key Part D functions, 

has any experience delivering Part D 

benefits, the consequences can be 

disastrous for beneficiaries and highly 

disruptive for the program and CMS. 

While there are many operational 

functions that must run smoothly for a 

Part D plan to be successful (for 

example, pharmacy network 

development/maintenance, enrollment 

processing, prescription drug discount 

negotiation, and provision of customer 

service), we proposed to require Part D 

experience in only three critical areas in 

which beneficiaries are particularly 

vulnerable should the sponsor 

demonstrate significant noncompliance. The three areas for which 

we proposed to require prior experience 

in Part D at the time of application to 

become a new Part D sponsor are— 

• (1) Authorization, adjudication and 

processing of pharmacy claims at the 

point of sale; 

• (2) Administration and tracking of 

enrollees’ drug benefits in real time, 

including automated coordination of 

benefits with other payers; and 

• (3) Operation of an enrollee appeals 

and grievance process. 

It is in these three areas where—in 

our view, based on our experience with 

Part D—enrollee health is placed at the 

most significant risk by Part D sponsor 

compliance failures. 

Under our proposal, multiple separate 

organizations could together combine 

their experience to meet the prior 

qualification requirements for the three 

key Part D functions. That is, no one 

single entity would need to have prior 

experience in all three areas. Rather, the 

requirement would be for the Part D 

applicant in combination with its FDRs, 

if any, to have Part D experience 

covering the three key functions. 

Our proposal also does not prohibit 

additional organizations from gaining 

Part D experience in the selected key 

functional areas. Should an organization 

wish to become a new Part D FDR for 

one or more of the key functions, this 

‘‘novice’’ entity could provide the 

service for just one of the hundreds of 

existing Part D sponsors. After a period 

of one year, the novice entity would 

then be qualified to provide its services 

to existing Part D sponsors as well as 

partner with new Part D applicants. In 

somewhat the opposite scenario, a new 

Part D sponsor contracting with 

experienced FDRs will have the 

opportunity to gain its experience in the 

key Part D functions by working closely 

with its FDRs, developing in house 

expertise, and providing oversight. After 

a period of one or more years, if desired, 

the Part D sponsor itself could 

conceivably take responsibility for 

carrying out one or more of the key Part 

D functions. 

While our proposal did not require 

the Part D experience to be current at 

the time of an application to become a 

Part D sponsor, we proposed that the 

experience be recent (that is, within the 

past 2 years) and have lasted for at least 

one full benefit year. We believe that 

any experience older than 2 years would 

be out of date and would not represent 

experience with the current state of the 


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Part D program. As for our proposed 

requirement that the experience be for at 

least a term of one full benefit year, this 

approach is appropriate because 

operating the benefit involves cyclical 

activities, some of which take place only 

one time per year, and thus an 

organization can only gain full 

experience by operating its Part D 

functional area for an entire benefit 

year. 

We intend to implement this proposal 

through our existing Part D contract 

qualification application process, and 

we proposed to amend § 423.504(b) 

accordingly. Applicants with existing 

Part D contracts or whose parents or 

other subsidiaries of the same parent 

hold Part D contracts will not be 

required to submit evidence of their Part 

D experience. 

We received the following comments 

and our response follows: 

Comment: We received strong 

statements of support from many 

commenters. We received only one 

suggestion of not finalizing the policy, 

but the commenter did not provide any 

details or rationale to support its 

comment. 

Response: We appreciate the 

widespread support for this proposal. 

Comment: We received one 

recommendation to consider a less 

stringent standard for employer groups 

seeking to act as Employer Group 

Waiver Plan (EGWP) sponsors. 

Response: We expect all sponsors, 

including EGWP sponsors, to meet our 

experience and capability requirements. 

We have an obligation to ensure that all 

beneficiaries receive their benefits from 

experienced Part D sponsors. 

Comment: One commenter that 

supported the policy suggested that 

CMS should also address the problem of 

applicants not having the skills or 

capacity to even oversee their 

experienced FDRs. 

Response: We share the concern that 

applicants may not have experience 

overseeing FDRs, which is why, in 

addition to the current requirements 

and standards in place for 

administration and management, we are 

finalizing at section A.III.11. of this final 

rule our proposed requirement that new 

PDP sponsor applicants have 

immediately prior to the date of the 

application submission 2 years’ 

experience administering health 

insurance benefits directly or 5 years’ 

experience providing certain 

prescription drug benefit management 

services to a health insurer . We also 

have procedures and mechanisms in 

place to monitor a Part D sponsor’s 

administration and management of its 

contract, including the option of 

conducting an audit of a sponsor’s 

operations prior to the start of the 

contract year to confirm that it is 

prepared to oversee the delivery of Part 

D benefits to its members. 

Given the near universal support for 

this proposal we are finalizing this 

provision without modification. 

11. Requirement for Applicants for 

Stand-Alone Part D Plan Sponsor 

Contracts to Be Actively Engaged in the 

Business of the Administration of 

Health Insurance Benefits 

(§ 423.504(b)(9)) 

The Medicare prescription drug 

benefit program has matured into a 

generally stable, well-functioning 

program, and the Part D sponsors with 

which CMS contracts have developed 

vast expertise in the operational 

complexities of the program. The market 

for stand-alone Part D Prescription Drug 

Plans (PDPs) has also matured 

significantly since the program’s 

inception and what was once a novel 

product is now available to residents of 

every state from multiple sponsors who 

offer several plan options. Over the 

same period, we have noticed that the 

Part D program has in some cases 

attracted sponsors wishing to offer 

stand-alone PDPs who have no prior 

experience in the delivery of health or 

prescription drug insurance benefits, 

often to the detriment of the Part D 

program and the Medicare beneficiaries 

who elect plans offered by these 

sponsors. 

To address this problem, we 

proposed, pursuant to our authority at 

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

adopt additional contract terms that are 

necessary and appropriate to administer 

the Part D program, regulatory 

provisions that would require any entity 

seeking to contract as a stand-alone PDP 

sponsor, to have either actively 

provided health insurance or health 

benefits coverage for 2 continuous years 

immediately prior to submitting a 

contract qualification application, or 

provided certain prescription drug 

benefit management services to a 

company providing health insurance or 

health benefits coverage for 5 

continuous years immediately prior to 

submitting an application. This 

requirement would not apply to an 

entity seeking to contract as the sponsor 

of a stand-alone PDP if its parent or 

another subsidiary of itself or its parent 

possesses the requisite experience. 

This proposal may appear similar to 

the immediately-preceding proposal 

(section III.A.10. of this final rule) 

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

Part D sponsors engage first tier, 

downstream, and related entities with 

prior Part D experience. However, the 

proposed change we are discussing in 

this section, which we proposed to 

codify at § 423.504(b)(9), would apply 

only to entities seeking to contract as a 

Part D sponsor of a stand-alone PDP, 

whereas the proposed requirement at 

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

Part D sponsors, including those seeking 

to contract as MA organizations offering 

Part D through an MA–PD plan. We 

proposed both requirements because the 

problems encountered by new PDP 

sponsors with no experience in the 

health insurance market are distinct 

from those encountered by new PDP 

sponsors and MA organizations that use 

PBMs with no experience in the Part D 

market. New PDPs with no prior health 

insurance or health benefits experience 

have demonstrated significant problems 

even when using experienced PBMs. 

While relatively few sponsors fit this 

profile each year, they have caused 

disproportionate problems for 

beneficiaries and CMS. Time and again, 

these sponsors fail our past Medicare 

contract performance and audit tests or 

receive low quality scores (that is, star 

ratings) because they lack the ability to 

administer even the most basic elements 

of a health or drug benefit program, let 

alone one as complex as Medicare Part 

D. 

When the sponsor is a novice not only 

to Medicare Part D, but also to virtually 

every aspect of health benefits 

administration, there is no assurance 

that the entity will be able to administer 

or oversee the most basic elements of 

health benefits coverage, such as 

processing claims, administering a 

coverage determination and appeals 

process, enrolling beneficiaries, or 

administering the benefit as approved. 

To entrust inexperienced applicants 

with responsibility for correctly 

operating a program for which even 

experienced health insurers have had to 

develop new expertise has proven to be 

unacceptably risky. We proposed that 

new applicants have 2-years of 

experience providing health insurance 

or health benefits coverage (that is, 

operating as risk-bearing entities 

licensed in the states where they offer 

benefits) prior to applying as standalone Part D Sponsors because we 

believe that this provides sufficient time 

to demonstrate the applicant’s ability to 

operate a health plan. We believe that 

requiring 2-years of experience as a risk 

bearing entity offering health insurance 

or health benefits coverage ensures that 

new sponsors of stand-alone PDPs have 

minimal experience operating a health 

benefits program without unduly 

limiting new entrants to the 

marketplace. 


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We recognize that a number of PBMs 

and Third Party Administrators with 

experience administering prescription 

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

providing the Part D benefit despite 

their lack of previous experience as 

health insurers. Therefore, we proposed 

that organizations applying to contract 

as stand-alone PDP sponsors that do not 

have experience as a risk-bearing entity 

providing health insurance or health 

benefits coverage would, in the 

alternative, be eligible to hold a PDP 

contract if they had 5-continuous years 

of experience performing services on 

behalf of an insurer in the delivery of 

benefits in any health insurance market 

in the three key areas indicated in this 

section III.A.10. of this final rule. The 

three areas that we proposed as meeting 

the experience requirements are: (1) 

Adjudication and processing of 

pharmacy claims at the point of sale; (2) 

administration and tracking of enrollees’ 

drug benefits in real time, including 

automated coordination of benefits with 

other payers; and (3) operation of an 

enrollee appeals and grievance process. 

Our reasons for selecting these three 

areas as meeting the experience 

requirements are described in more 

detail in the section of this rulemaking 

notice relating to the proposed 

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

Part D sponsors employ experienced 

FDRs for these functions. We proposed 

a longer experience requirement for 

these entities because entities offering 

these services face fewer barriers to 

entry in the marketplace and are not as 

tightly regulated as risk bearing entities. 

Therefore, we believe that entities that 

seek to qualify on the basis of their 

experience as PBMs or Third Party 

Administrators should be required to 

have provided services in these key 

areas for 5-continuous years, rather than 

merely 2. 

We intend to implement this proposal 

through our existing Part D contract 

qualification application process, and 

we proposed to amend § 423.504(b) 

accordingly. 

We received the following comments 

and our response follows: 

Comment: We received strong 

statements of support from several 

commenters. 

Response: We appreciate the support 

for this proposal. 

Comment: We received one 

recommendation to consider a less 

stringent standard for employer groups 

seeking to act as EGWP sponsors. 

Response: We are not persuaded by 

this comment because, in general, we 

expect that all sponsors, including 

EGWP sponsors, meet all of our 

experience and capability requirements. 

EGWP sponsors perform the same core 

functions as sponsors of individual 

market PDPs, including claims 

processing, formulary administration, 

operation of an appeals and grievance 

process, and coordination of benefits. 

Therefore, the same concerns that led us 

to adopt the requirement that new PDP 

sponsors have experience in these areas 

applies to EGWP sponsors as well as 

sponsors of individual market plans. 

Given the universal support for this 

proposal, we are finalizing this 

provision without modification. 

12. Limit Parent Organizations to One 

Prescription Drug Plan (PDP) Sponsor 

Contract per PDP Region (§ 423.503) 

Each year, we accept and review 

applications from organizations seeking 

to qualify to offer stand-alone 

prescription drug plans in one or more 

PDP regions. With limited exceptions 

(for example, poor past contract 

performance, limited Part D experience), 

we approve all applications submitted 

by organizations that demonstrate that 

they meet all Part D application 

requirements. We proposed, under our 

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

of the Act to adopt additional contract 

terms, not inconsistent with the Part C 

and D statutes, that are necessary and 

appropriate to administer the Part D 

program, to add as a basis upon which 

we may deny a PDP sponsor application 

the fact that the applicant is applying 

for qualification in a PDP Region where 

another subsidiary of the applicant’s 

parent organization already holds a PDP 

sponsor contract. In our description of 

this proposal, the term ‘‘parent 

organization’’ refers to an entity that 

controls a subsidiary through ownership 

of more than 50 percent of the 

subsidiary’s shares. 

Section 1860D–12(b)(1) of the Act 

provides that PDP sponsors may offer 

multiple plan benefit packages (referred 

to as PBPs or plans) under one PDP 

sponsor contract. Therefore, parent 

organizations need only one PDP 

sponsor contract to offer the full range 

of the possible plan options in a 

particular PDP Region. Additionally, 

informal communications made by past 

requestors of duplicate contracts 

indicated that the purpose has been to 

either a) segregate low income 

beneficiaries into their own contract, or 

b) corral the experience of a particular 

low-performing plan into its own CMS 

contract so as not to taint the 

performance rating of the better 

performing plan offering, as 

performance ratings are calculated at the 

contract level. We oppose the 

inefficiencies of duplicate contracts and 

the gaming duplicate contracts can 

support. That said, we welcomed 

comments from industry, advocates, and 

others as to circumstances for our 

consideration under which duplicate 

contracts may be beneficial. 

One of the fundamental principles of 

the Part D program is that the selection 

of plans made available to beneficiaries 

is the product of true competition 

among PDP sponsors. Two subsidiaries 

of the same parent organizations 

offering plans in the same PDP region 

are not truly competitors, as decisions 

concerning their operations are 

ultimately controlled by a single entity, 

or parent organization. Also, we only 

approve those PDP offerings that meet 

the meaningful differences test stated at 

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

the parent organization level. A parent 

organization would not gain an 

opportunity to offer more plan benefit 

packages under two or more contracts it 

controlled through its subsidiaries than 

it would under one contract because we 

would, as part of our bid review, 

evaluate whether all the plans proposed 

by the same parent organization met the 

meaningful differences test. 

The proposed limitation on the 

number of PDP sponsor contracts a 

parent may control in a PDP Region is 

also necessary to preserve the integrity 

of CMS’ star ratings. CMS assigns star 

ratings at the contract level, and they are 

intended to reflect all aspects of the PDP 

operations controlled by a unique 

contracting entity. However, that 

principle is compromised when a parent 

organization to one of the contracting 

entities is permitted to control, through 

other subsidiaries, more than one PDP 

contract. Allowing a parent organization 

to effectively administer two or more 

PDP sponsor contracts would allow it 

potentially to artificially inflate the star 

ratings on one contract by excluding the 

poor performance under its other 

contract from the rating calculation. In 

that instance, some beneficiaries could 

make a plan election without complete 

information about the performance of 

the organization ultimately responsible 

for the quality of services they would 

receive by enrolling in that plan. 

Based on our experience in 

administering the Part D prescription 

drug benefit program we do not believe 

that there is a compelling justification 

for parent organizations to administer 

two PDP sponsor contracts in the same 

PDP region. Moreover, such 

arrangements impede our ability to 

efficiently administer the Part D 

program and provide a means by which 

the integrity and reliability of our star 

ratings system can be compromised. 

Therefore, we proposed to amend 


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§ 423.503(a) by adding a paragraph (3) 

stating that CMS will not approve an 

application when it would result in the 

applicant’s parent organization holding 

more than one PDP sponsor contract in 

the PDP region for which the applicant 

is seeking qualification as a PDP 

sponsor. We anticipate that we would 

most frequently use this authority to 

deny an application in instances where 

the applicant’s parent organization 

already controls a PDP sponsor contract, 

either directly by acting as a PDP 

sponsor itself (in instances when the 

parent is licensed as a risk-bearing 

entity) or through its ownership of a 

subsidiary that qualifies as a PDP 

sponsor and is a party to a stand-alone 

PDP sponsor contract. In the less likely 

situation where two or more 

subsidiaries of the same parent 

organization each submit applications 

in the same year for PDP regions where 

the parent organization controls no PDP 

sponsor contracts, we would request 

that the parent withdraw all but one of 

the applications. In the absence of a 

withdrawal election, we will deny all of 

the parent organization’s applications. 

We received the following comments 

and the response follows: 

Comment: The comments of several 

beneficiary advocacy organizations 

contained expressions of support for our 

proposal, citing in particular the role it 

will play in preserving the integrity of 

CMS’ star ratings system. 

Response: We appreciate the 

expressions of support for our proposal. 

Comment: Several commenters stated 

their opposition to our proposal on the 

basis that it would limit their business 

opportunities and reduce competition in 

the Part D market by reducing the 

number of plan sponsors participating 

in a given PDP region. 

Response: We note that the 

commenters did not describe or provide 

examples of the nature of the business 

opportunities that Part D sponsors and 

their parent organizations would be 

denied should this provision go into 

effect. Also, we believe that to properly 

assess the level of competition in the 

Part D market, it is important to 

consider not just the number of plan 

sponsors offering benefits, but also 

whether all of those sponsors truly have 

incentives to compete against one 

another. As we noted in our preamble 

discussion to the proposed rule, 

additional plan sponsors controlled by 

entities that already participate in the 

Part D market do not promote improved 

plan options since subsidiaries of the 

same parent cannot be said to be truly 

in competition with each other. In a 

truly competitive market, multiple 

entities develop and promote products 

to capture as large a share of that market 

as possible at the expense of other 

market participants. It is our experience 

that two or more subsidiaries of the 

same parent organization are ultimately 

accountable to the same set of 

shareholders and are administered by 

the same senior management team. In 

such an arrangement, we believe there 

is little incentive for the parent 

organization to manage one PDP 

contract in a way that would attempt to 

take enrollees away from, or prevent 

beneficiaries from electing, plans 

offered by the related entity operating a 

second contract. We also note that none 

of the commenters provided an 

explanation as to how related entities 

would truly compete in the same PDP 

region. 

Comment: Several plan sponsors that 

have recently acquired other plan 

sponsor contracts expressed their 

concern that the new policy would 

jeopardize their right to maintain two or 

more contracts during a transition 

period following the acquisition. 

Response: We assure the commenters 

that our proposal has no effect on our 

application of the regulatory provision 

at § 423.272(b)(3), which provides 

acquiring organizations an exemption 

from the meaningful differences 

standard normally applied to a 

sponsor’s (or its parent organization’s) 

bids for a 2-year period following the 

acquisition of or merger with another 

Part D sponsor. We have allowed 

acquiring sponsors to maintain the 

separate acquired contract during the 

authorized 2-year period, and we will 

continue to apply that policy after the 

adoption of this provision. 

Comment: Some plan sponsors that 

currently hold more than one PDP 

sponsor contract in a PDP region 

commented that they were concerned 

that the proposed provision would 

require them to consolidate their 

operations into one contract. 

Response: We note that the proposal 

only addressed our intention to deny 

applications for new contracts 

submitted by entities related to 

organizations that already hold a PDP 

sponsor contract in a particular region. 

As we discussed in the preamble to the 

proposed regulation, we will continue 

to encourage such organizations to 

consolidate their contracts, but we are 

not requiring organizations to take such 

action at this time. 

Comment: One commenter requested 

that CMS revise the proposal to allow a 

parent organization to hold two 

contracts in the same PDP region if one 

of those contracts is maintained solely 

for the purpose of offering employer 

group waiver plans (EGWPs). The 

commenter explained that because 

EGWPs operate differently than 

individual market plans (for example, 

different enrollment processes, the need 

to coordinate with non-Part D 

supplemental coverage), it may reduce 

the complexity of a parent 

organization’s Part D operations if it is 

permitted to keep its EGWP business 

under a separate contract. Moreover, 

since EGWP plans are not offered to 

individual beneficiaries, these contracts 

would not be subject to the same 

incentives that might encourage 

sponsors to game their star rating 

performance to attract enrollments. 

Response: We do not believe the 

commenter’s arguments support special 

treatment under our proposal for 

organizations offering EGWPs. While it 

is true that CMS affords EGWPs, 

through the application of our statutory 

waiver authority, flexibility in meeting 

Part D requirements, the resulting 

differences in requirements are not so 

significant that a separate EGWP-only 

contract is necessary for an organization 

to administer such plans successfully. 

In fact, the resulting differences do not 

represent conflicting requirements that 

might create the need for a separate 

contract held by a different legal entity 

to administer EGWPs. Rather, the EGWP 

requirements are a result of our 

completely waiving certain 

requirements (for example, pharmacy 

access standards, prior approval of 

marketing materials) or modifying other 

requirements (for example, enrollment 

limited to employer group members), 

and a single plan sponsor can meet 

these if it is already offering individual 

market PDPs. In fact, it is common for 

a PDP sponsor to sign a stand-alone PDP 

contract with CMS that includes an 

EGWP addendum through which the 

single entity offers both individual 

market plans and EGWPs (that is, ‘‘800 

series’’ plans). Our experience in 

administering the Part D program 

indicates that a properly managed single 

legal entity is capable of complying with 

multiple sets of Part D requirements. 

Also, while sponsors may not have the 

same incentives to game the star rating 

system to attract EGWP enrollments as 

they do to attract individual 

beneficiaries, that fact alone would not 

support allowing sponsors to maintain 

separate EGWP contracts. We believe 

the single contract rule is necessary to 

maintain the integrity of the star ratings 

that are reported to the public. As we 

stated earlier in the preamble discussion 

of our proposal, star ratings are intended 

to reflect all aspects of the PDP 

operations controlled by a unique 

contracting entity, including the 


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administration of EGWP products. 

Allowing a parent organization to 

maintain a separate EGWP contract 

would mean that the star ratings 

associated with each of its PDP 

contracts contract would provide an 

incomplete picture of the organization’s 

performance. We believe that all 

members of the public, including those 

who make plan elections on behalf of 

employer group members as well as 

individual beneficiaries, benefit from 

star ratings information that clearly 

indicates the quality of all Part D 

operations under one organization’s 

control. 

After consideration of the public 

comments we received, we are 

finalizing our proposal without 

modification, with the exception of a 

technical edit which changes the 

proposed phrase ‘‘may not approve’’ to 

‘‘does not approve’’ to clarify that CMS 

will deny all applications that meet the 

criteria stated in the provision. 

13. Limit Stand-Alone Prescription Drug 

Plan Sponsors To Offering No More 

Than Two Plans per PDP Region 

(§ 423.265) 

Under our authority at section 1860D– 

11(d) of the Act, we conduct 

negotiations with stand-alone 

prescription drug plan (PDP) sponsors 

concerning our approval of the bids they 

submit each year. As the Part D program 

has evolved, we have adopted 

regulations designed to authorize us to 

use that negotiating authority to ensure 

that the number of plans offered in a 

given PDP region reflects a balance 

between sponsors’ interest in providing 

options tailored to meet the needs of a 

diverse Medicare population and the 

need to avoid creating undue confusion 

for beneficiaries as they consider 

various plan offerings. We continued 

with this proposal our process of 

updating our bid review authority to 

reflect the evolution of the Part D 

program by proposing to limit to two the 

number of plans stand-alone PDP 

sponsors may offer in each PDP region. 

PDP sponsors must offer throughout a 

PDP region at least one basic plan that 

consists of: standard deductible and cost 

sharing amounts (or actuarial 

equivalents); an initial coverage limit 

based on a set dollar amount of claims 

paid on the beneficiary’s behalf during 

the plan year; a coverage gap during 

which a beneficiary pays more of his 

drug costs; and finally, catastrophic 

coverage that applies once a 

beneficiary’s out-of-pocket expenditures 

for the year have reached a certain 

threshold. Prior to our adopting 

regulations requiring meaningful 

differences among each PDP sponsor’s 

plan offerings in a PDP Region, CMS 

guidance allowed sponsors that offered 

a basic plan to offer in the same region 

additional basic plans, as long as they 

were actuarially equivalent to the basic 

plan structure described in the statute. 

These sponsors could also offer 

enhanced alternative plans that provide 

additional value to beneficiaries in the 

form of reduced deductibles, reduced 

copays, coverage of some or all drugs 

while the beneficiary is in the gap 

portion of the benefit, or some 

combination of those features. 

As we have gained experience with 

the Part D program, we have made 

consistent efforts to ensure that the 

number and type of plan benefit 

packages PDP sponsors may market to 

beneficiaries are no more numerous 

than necessary to afford beneficiaries 

choices from among meaningfully 

different plan options. In addition to 

setting differential out-of-pocket-cost 

(OOPC) targets each year to ensure 

contracting organizations submit bids 

that clearly offer differences in value to 

beneficiaries, we issued regulations in 

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

our authority to deny bids that are not 

meaningfully different from other bids 

submitted by the same organization in 

the same service area. Our application 

of this authority has effectively 

eliminated PDP sponsors’ ability to offer 

more than one basic plan in a PDP 

region since all basic plan benefit 

packages must be actuarially equivalent 

to the standard benefit structure 

discussed in the statute. That regulation 

also effectively limited to two the 

number of enhanced alternative plans 

that we can approve for a single PDP 

sponsor in a PDP region. As part of the 

same 2010 rulemaking, we also 

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

authority to terminate existing plan 

benefit packages that do not attract a 

number of enrollees sufficient to 

demonstrate their value in the Medicare 

marketplace. Both of these authorities 

have been effective tools in encouraging 

the development of a variety of plan 

offerings that provide meaningful 

choices to beneficiaries without creating 

undue confusion for beneficiaries. 

We believe that the progressive 

closure of the coverage gap provided for 

in the Affordable Care Act affords us 

another opportunity to promote even 

greater clarity in the set of stand-alone 

PDP plan options from which 

beneficiaries may make an election. 

Under the statute, beginning in 2011, 

applicable beneficiaries enjoy discounts 

of 50 percent off negotiated prices on 

covered brand name drugs when 

purchased while in the coverage gap 

portion of the benefit. Also, since 2011, 

the required coverage in the gap has 

increased and will continue to do so 

gradually until 2020, when the 

combination of required coverage and 

manufacturer discounts covers 75 

percent on average for both brand-name 

and generic drugs. This ‘‘closing’’ of the 

coverage gap effectively will leave the 

beneficiary with only a 25 percent cost 

share on average across the entire 

benefit (or its actuarial equivalent) 

before the catastrophic threshold. 

Our experience in applying the 

meaningful differences standard 

indicates that, as the Part D coverage 

gap is closed, it will become 

increasingly difficult for a PDP sponsor 

to qualify to offer more than two plans 

in the same service area and still meet 

the meaningful differences test. Since 

we began applying the meaningful 

differences standard to our bid reviews, 

we have generally approved two types 

of enhanced alternative plans. The first 

type of plan offers beneficiaries, in 

exchange for a higher premium than 

that charged for basic plan coverage, 

significant reductions in the cost 

sharing and deductible amounts 

associated with the basic Part D benefit. 

The second type offers even greater cost 

sharing and deductible reductions as 

well as coverage for many drugs in the 

gap. Since coverage of Part D drugs in 

the gap is the distinguishing feature 

between the two types of enhanced 

alternative plans currently available, 

closing the coverage gap also means that 

sponsors can no longer rely on it to 

establish that their proposed second 

enhanced alternative plan is 

meaningfully different than their first. 

Despite these developments, many 

sponsors continue to submit three bids 

per region each year. We believe that 

plan sponsors and beneficiaries, as well 

as the taxpayers, would be better served 

by a more streamlined bid submission 

process that limited sponsors to 

submitting two PDP bids (one basic and 

one enhanced) per PDP region each 

year. This limitation would provide a 

consistent bidding framework for all 

sponsors, allowing them to focus on 

quality, rather than quantity, in 

development of their bids. It would also 

reduce some of the sponsors’ 

administrative costs associated with 

preparing, marketing, and administering 

a third benefit package. It may also help 

ensure that beneficiaries can choose 

from a less confusing number of plans 

that represent the best value each 

sponsor can offer. 

While the incremental closure of the 

coverage gap continues until 2020, we 

believe that the observed enrollment 

trends in these plans demonstrate the 

reduction in beneficiaries’ coverage gap 


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costs that has occurred already has 

moved the stand alone PDP plan market 

in a way that warrants the imposition of 

the two plan limit as soon as possible. 

In addition, in many cases one of the 

two enhanced plans offers the minimum 

level of supplemental coverage required 

to meet our meaningful differences tests. 

We refer to these as ‘‘low value 

enhanced plans’’ to distinguish them 

from second enhanced plans with 

substantially more supplemental 

coverage. In some cases, the premiums 

for these low value enhanced plans have 

been less than the premiums for the 

sponsors’ basic plans due to favorable 

risk selection. This occurs because 

many of the beneficiaries with more 

serious health issues and higher 

utilization of prescription drugs are in 

the low-income subsidy (LIS) eligible 

population, which will not receive the 

full LIS subsidies in plans with 

supplemental coverage. For this reason 

we neither auto-assign the LIS eligible 

population into such plans, nor will this 

population generally affirmatively 

enroll in such plans. Thus, continuing 

to permit multiple enhanced plans, 

particularly low value enhanced plans, 

facilitates risk segmentation. This can 

increase costs for the Part D program 

and the taxpayers overall. During the 

most recently completed CY 2014 bid 

review cycle, we continued to encounter 

bids submitted by sponsors for low 

value enhanced plans with premiums 

lower than the premiums for their basic 

plans. We believed it was urgent that we 

adopt the proposed policy as soon as 

possible so that we could bring an end 

to this bidding practice. We solicited 

comments on whether there is any real 

need for more than two standalone plan 

options per PDP sponsor. 

Therefore, we proposed to amend the 

Part D regulations at § 423.265 to add a 

revised subsection (b)(3), which would 

state that ‘‘CMS shall not accept more 

than one basic bid and one enhanced 

bid for a coverage year from a single 

PDP sponsor in the same PDP region.’’ 

We would adopt this provision under 

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

the Act. In instances where a parent 

organization owns a controlling interest 

in more than one subsidiary that 

operates as a PDP sponsor in a single 

PDP region, we would apply subsection 

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

That is, in the same way that we 

currently apply the meaningful 

differences test, a parent organization 

with two subsidiary PDP sponsors could 

offer no more than one plan under each 

sponsors’ contract. 

In addition to proposing to limit PDP 

sponsors to submitting one basic and 

one enhanced bid per coverage year, we 

also stated that we were considering 

several regulatory proposals for limiting 

the type of coverage offered in those two 

plans to reduce or eliminate the risk 

segmentation described previously. We 

believe that risk segmentation is not 

consistent with the policy goal, based 

on our interpretation of current law, of 

obtaining the best value for the 

government and the taxpayer. We 

believe the Congress intended sponsors 

to compete in the Part D market by 

offering their best bids for basic plans, 

in order to attract the greatest 

enrollment through the lowest 

premiums, and that this competition 

would maintain downward pressure on 

Part D bids and government subsidies. 

We do not believe that the Congress 

intended that instead sponsors would 

offer their best bids for a segment of the 

market that represents individuals who 

are low utilizers of prescription drugs 

due to better health and who can afford 

unsubsidized supplemental premiums 

due to better socioeconomic status. 

When many healthy individuals are not 

included in the basic plans, the cost of 

the basic plans is increased, and this in 

turn increases low-income premium 

subsidies. Therefore, permitting risk 

segmentation does not generate the best 

value for the Part D program as a whole. 

To reduce or eliminate risk 

segmentation, we stated that we were 

considering three options, including a 

proposal, based on a reinterpretation of 

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

that enhanced alternative coverage be 

redefined to consist of supplemental 

coverage added to the sponsor’s one 

basic benefits offering (for an additional 

premium). This could be thought of as 

basic benefits plus a supplemental 

benefit rider. We solicited comments on 

this approach and on our belief that this 

approach would be the most effective 

strategy for eliminating risk 

segmentation and providing the best 

value for the government and the 

taxpayer. We received the following 

comments and our response follows: 

Comment: Several commenters 

expressed support for our proposal to 

limit sponsors to offering no more than 

two plans per PDP region. They agree 

that beneficiaries can be overwhelmed 

by the number of plan choices, which 

can cause them to avoid even 

considering exploring during the annual 

election period plan options that might 

better meet their needs. 

Response: We appreciate the 

expressions of support for our proposal. 

Comment: A number of commenters 

stated their opposition to the proposal 

to limit sponsors to offer no more than 

two plans per PDP region. Among the 

assertions made by the commenters was 

that the regulatory authority already in 

place will produce shortly the 

improvements in bid submissions that 

CMS seeks and that no further authority 

is required. The commenters stated that 

CMS’ application of the meaningful 

differences standard to its review of bids 

and its authority to non-renew plans 

that do not meet minimum enrollment 

standards already place effective limits 

on a given sponsor’s number of plan 

offerings. They stated that the continued 

application of those authorities, 

combined with the upcoming closure of 

the coverage gap, will eventually reduce 

the room for plan variation to the point 

of effectively creating the two-plan limit 

that CMS sought with its proposal. 

Commenters also expressed opposition 

to our three options for preventing risk 

segmentation in plan bidding, with the 

option requiring enhanced benefits to be 

offered as a supplement to a sponsor’s 

basic plan benefit package being 

particularly disfavored. Commenters 

that addressed the ‘‘supplement’’ option 

stated that such a bidding structure 

would result in less generous enhanced 

benefits because there would be less 

opportunity to spread the costs 

associated with such benefits. They also 

stated that such a bidding structure 

would limit formulary options available 

to beneficiaries because sponsors would 

have to offer the same formulary for 

both the sponsor’s basic benefit plan 

and its enhanced/supplemental option. 

Response: We appreciate the 

comments. We believe that the 

commenters overstate the effectiveness 

of the tools already at our disposal to 

prevent risk segmentation and to make 

further strides in ensuring that 

beneficiaries have access to an array of 

plan options that represent real choice. 

We have been conservative in our use of 

the low enrollment non-renewal 

authority as demonstrated by our 

adoption of enrollment thresholds that 

ensure that only the plans that attract 

negligible interest from the market are 

non-renewed, so few additional nonrenewals are likely to occur under this 

authority in the coming years. Also, we 

measure meaningful differences on a 

relative basis, generally using a 95 

percentile threshold to arrive at the 

annual limits. As plan sponsors reduce 

the additional value offered in their 

benefit packages, the 95 percentile 

threshold will be expected to converge 

toward the value of basic plans. 

Consequently, we will need to explore 

alternative methodologies to ensure 

meaningful differences remain among a 

plan sponsor’s PDP offerings. 

Nevertheless, the comments have 

given us reason to conduct further 

analysis of this issue and continue our 


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close observation of the developments 

in the Part D market. Therefore, we are 

not finalizing this proposal. It may be, 

as the commenters suggest, that as the 

coverage gap closes, the problems of risk 

segmentation and large numbers of plan 

options may solve themselves. Should 

that not turn out to be the case, we may 

revisit the issues of plan number limits 

and changes to basic and enhanced bid 

structures, keeping in mind the 

comments we received in response to 

this proposal. In the event that we make 

this or a similar proposal again, we 

would only do it as part of a new 

rulemaking process, during which we 

would solicit public comment once 

more before deciding whether to 

publish final regulations. 

After consideration of the public 

comments we received, we are not 

finalizing our proposal to limit PDP 

sponsors to offering no more than two 

bids per PDP region. 

14. Applicable Cost-Sharing for 

Transition Supplies. Transition Process 

Under Part D § 423.120(b)(3) 

We established transition 

requirements under § 423.120(b)(3) for 

Part D sponsors to address the needs of 

new Part D plan enrollees who are 

transitioning from other prescription 

drug coverage (Part D or otherwise), and 

whose current drug therapies may not 

be included on their Part D plan’s 

formulary (including Part D drugs that 

are on a plan’s formulary but require 

prior authorization or step therapy 

under the plan’s utilization management 

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

specifies that PDP plans must provide a 

temporary fill when an enrollee requests 

a fill of a non-formulary drug during the 

transition time period (including Part D 

drugs that are on a plan’s formulary but 

require prior authorization or step 

therapy under a plan’s utilization 

management rules), it does not currently 

specify the cost sharing that should 

apply to such fills. Current guidance (at 

§ 30.4.9 of Chapter 6 of the Medicare 

Drug Benefit Manual, found at http://

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

PrescriptionDrugCovContra/Downloads/

Chapter6.pdf) states that a Part D 

sponsor may charge cost sharing for a 

temporary supply of drugs provided 

under its transition process. Further, 

cost sharing for transition supplies for 

low-income subsidy (LIS) eligible 

beneficiaries cannot exceed the 

statutory maximum copayment 

amounts. However, for non-LIS 

enrollees, we stated that a sponsor must 

charge cost sharing based on one of its 

approved drug cost sharing tiers (if the 

sponsor has a tiered benefit design), and 

this cost sharing must be consistent 

with cost sharing that the sponsor 

would charge for non-formulary drugs 

approved under a coverage exception. 

This guidance created a great deal of 

confusion on the part of sponsors and 

beneficiaries because it can result in 

beneficiaries paying different cost 

sharing for formulary drugs subject to 

utilization management edits (such as 

prior authorization or step therapy) 

during transition than specified in their 

tiered benefit design. It is possible that 

beneficiaries may pay more during 

transition than for his or her drug’s 

normal designated formulary tier. 

Conversely, it is also possible that the 

beneficiary may pay more once the 

utilization management edit had been 

satisfied than he or she did under the 

transition fill. 

We believe that more consistent 

treatment of formulary and nonformulary drugs, respectively, will 

simplify the benefit and reduce sponsor 

and beneficiary confusion. 

Consequently, we proposed to add a 

paragraph at § 423.120(b)(3)(vi) 

clarifying that when providing a 

transition supply, the cost sharing is 

determined as follows: A Part D sponsor 

must charge cost sharing for a temporary 

supply of drugs provided under its 

transition process such that the 

following conditions are met: 

• For low-income subsidy (LIS) 

enrollees, a sponsor must not charge 

higher cost sharing for transition 

supplies than the statutory maximum 

copayment amounts. 

• For non-LIS enrollees, a sponsor 

must charge— 

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

the transition that would apply for nonformulary drugs approved through a 

formulary exception in accordance with 

§ 423.578(b); and 

++ The same cost sharing for 

formulary drugs subject to utilization 

management edits provided during the 

transition that would apply once the 

utilization management criteria are met. 

Comment: We received numerous 

comments that this clarification in 

regulation will simplify the rules for 

transition policy and reduce beneficiary 

confusion. 

Response: We agree with these 

commenters that this provision will 

simplify the rules for transition cost 

sharing and reduce beneficiary 

confusion. We believe this requirement 

will help ensure more consistent 

treatment of transition cost sharing for 

formulary and non-formulary drugs 

across all Part D plans and removes any 

ambiguity that Part D sponsors may 

have had with respect to transition cost 

sharing for formulary drugs that would 

otherwise be subject to utilization 

management edits. 

Comment: One commenter wrote that 

this requirement will further complicate 

an already complex policy surrounding 

transition fills. 

Response: We disagree with this 

commenter. This provision removes the 

ambiguity surrounding the allowable 

cost sharing when utilization 

management edits are overridden during 

transition for formulary drugs, and 

ensures that beneficiaries will pay the 

same cost sharing for such formulary 

drugs during transition and after 

transition if the utilization management 

criteria are met. There has been a great 

deal of confusion from both sponsors 

and beneficiaries with respect to the 

proper cost sharing that should apply in 

these situations during transition and 

both we and many commenters believe 

this provision provides the necessary 

clarification. 

In light of the overwhelmingly 

positive comments on this proposal, we 

are finalizing this provision without 

modification. 

15. Interpreting the Non-Interference 

Provision (§ 423.10) 

Since the MMA created the Part D 

benefit in 2003, we have never formally 

interpreted section 1860D–11(i) of the 

Act, which is known as the 

noninterference provision. In practice 

we have generally invoked the spirit of 

this provision in declining to intervene 

in negotiations or disputes involving 

payment-related contractual terms 

between participants in the drug 

distribution channel. However, it is 

increasingly clear from the many 

questions that continue to arise when 

working with stakeholders on matters 

ranging from lawsuits to policy 

clearance to complaint resolution that 

the agency and all Part D stakeholders 

would benefit from a clear, formal 

interpretation of these limits on our 

authority. Some stakeholders appear to 

believe the prohibition on interference 

in negotiations extends far beyond the 

boundaries that we consider relevant, 

while others insist our authority extends 

into arbitrating matters that seem to us 

to clearly fall within the intended 

prohibition. Therefore, we proposed an 

interpretation through rulemaking in 

order to clarify and codify the extent of 

these limits on our authority. 

The noninterference provision at 

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

that, ‘‘In order to promote competition 

under this part and in carrying out this 

part, the Secretary: (1) May not interfere 

with the negotiations between drug 

manufacturers and pharmacies and PDP 


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sponsors; and (2) may not require a 

particular formulary or institute a price 

structure for the reimbursement of 

covered Part D drugs.’’ In beginning 

with the words ‘‘In order to promote 

competition under this part and in 

carrying out this part. . .’’ we believe 

that the Congress intended that the 

activities addressed in the rest of the 

provision should take place through 

private market competition. We 

interpret this to mean two separate but 

related goals. The first goal is that the 

Secretary through CMS should promote 

private market competition in the 

selection of Part D drugs for Part D 

sponsor formularies. The second goal is 

that CMS should not create any policies 

that would be expected to interfere with 

competitive market negotiations leading 

to the selection of drug products to be 

covered under Part D formularies. 

Therefore, in light of these two goals we 

believe there is both a duty to act—to 

promote competition in the private 

market for Part D drugs—and a duty to 

refrain from acting—to avoid 

intervention in private market 

negotiations that take place in the 

context of that competitive market. 

Consequently, as an initial matter, in 

light of our interpretation of the general 

purpose of section 1860D–11(i) of the 

Act, we proposed a general rule at 

§ 423.10(a) that CMS promotes fair 

private market competition in the 

market for Part D drugs. 

There is also a duty to avoid 

intervention in private market 

negotiations that take place in the 

context of that competitive market. We 

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

ensure that we do not create any 

policies or become a participant in any 

discussions that could be expected to 

interfere with negotiations leading to 

the selection of drug products to be 

covered under Part D formularies. By 

this we mean selection by Part D 

sponsors (or other intermediary 

contracting organizations) of specific 

manufacturers’ products for inclusion 

on formularies, formulary tier 

placement, and negotiations of 

acquisition costs, rebates, and any other 

price concessions. We believe this 

interpretation is consistent with a 

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

how private market transactions 

determine which prescription drug 

products are covered under Part D 

plans. We outlined aspects of the 

complex process of private market 

competition for prescription drugs 

described in detail elsewhere (such as in 

the 2007 CBO report entitled 

‘‘Prescription Drug Pricing in the Private 

Sector’’ at: http://www.cbo.gov/

publication/18275) to support our 

reading of the distinctly different types 

of negotiations between the three parties 

in ‘‘between drug manufacturers and 

pharmacies and PDP sponsors’’. These 

distinct sets of negotiations in the 

private market between manufacturers 

and pharmacies on the one hand, and 

between manufacturers and plan 

sponsors on the other hand, support our 

textual reading of section 1860D– 

11(i)(1) of the Act to prohibit CMS 

involvement in negotiations between 

manufacturers and pharmacies, and 

between manufacturers and plan 

sponsors. There are also separate price 

negotiations between plan sponsors (or 

their intermediary contracting 

organizations) and pharmacies around 

the negotiated prices required for 

network participation. However, since 

the statute establishes numerous 

requirements that CMS must regulate 

concerning access to network 

pharmacies and negotiated prices, we 

believe that a CMS role in negotiations 

between plan sponsors and pharmacies 

is not prohibited under section 1860D– 

11(i)(1) of the Act, but rather under 

section1860D–11(i)(2), as discussed in 

this section. 

Section 1860D–11(i)(1) of the Act 

states that we ‘‘may not interfere with 

the negotiations between drug 

manufacturers and pharmacies and PDP 

sponsors’’. We believe that the term 

‘‘interference’’ in this context should be 

interpreted as prohibiting our 

involvement in discussions between 

manufacturers and their distribution 

channel customers (such as wholesalers 

and pharmacies) or the ultimate 

purchasers of prescription drugs (such 

as plan sponsors and PBMs) leading to 

signed contracts. We also believe 

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

be interpreted as prohibiting our 

involvement in arbitration of 

agreements already executed between 

any of these parties. Therefore, we 

interpret the prohibition in section 

1860D–11(i)(1) of the Act on 

interference in negotiations to pertain to 

discussions either between prescription 

drug manufacturers and pharmacies, or 

between prescription drug 

manufacturers and Part D sponsors (or 

their intermediary contracting 

organizations, hereafter included by 

association whenever we refer to Part D 

sponsors). Our interpretation is based 

on the sequential phrasing of the clause 

‘‘negotiations between drug 

manufacturers and pharmacies and PDP 

sponsors.’’ Because in general these 

negotiations are not among all three 

parties at once, and because 

manufacturers separately contract with 

pharmacies for the purchase of 

inventory and with sponsors for 

formulary placement, we believe the 

quoted phrase can be interpreted as 

recognizing these distinct types of 

negotiations. Therefore, in our proposed 

rule we stated that under such a 

reading, the prohibition on interference 

in negotiations, as described in section 

1860D–11(i)(1) of the Act, would not 

pertain to negotiations between Part D 

sponsors and pharmacies. In hindsight, 

given the strong reaction of most 

commenters a better way to have 

articulated CMS’ long-standing position 

would have been to focus on what 

‘‘interfere’’ means and to interpret it to 

mean a sort of hindering or influence 

beyond the implementation and 

enforcement of statutory requirements. 

This is the case because there are 

numerous statutory provisions that 

require us to directly intervene in the 

contractual relationship between Part D 

sponsors and network pharmacies, and 

these provisions clearly signal that the 

Congress expected CMS involvement in 

at least some of these negotiations. The 

Congress has provided many contractual 

requirements for CMS to enforce 

between sponsors and pharmacies; just 

the drug-cost-related of these include: 

interpretation of what ‘‘access to 

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

conditions, prohibition on any 

requirement to accept insurance risk, 

prompt payment, and payment standard 

update requirements. Consequently, we 

believe that Part D sponsors and 

pharmacies do not have sole discretion 

to interpret these specific matters. We 

would be obligated to intervene in 

disputes over whether proposed or 

finalized contractual arrangements 

violated our rules in any area where our 

oversight is directed under the statute. 

So we believe it is clear that such 

involvement could not be what the 

Congress intended to prohibit. 

Therefore, we proposed at § 423.10(b) 

that CMS may not be a party to 

discussions between prescription drug 

manufacturers and pharmacies, or 

between drug manufacturers and Part D 

sponsors, and may not arbitrate the 

meaning of or compliance with the 

terms and conditions of agreements 

reached between these parties, except as 

necessary to enforce CMS requirements 

applicable to those agreements. Thus, 

we could only be involved in such 

discussions in order to explain CMS 

requirements and to ensure compliance 

with Part D rules and regulations. We 

also add that nothing in this prohibition 

limits our authority to require 

documentation of and access to all such 


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agreements, or to require the inclusion 

of terms and conditions in agreements 

when necessary to implement 

requirements under the Act. 

The first part of the section 1860D– 

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

not require a particular formulary’’. The 

noninterference clause must be read in 

context of the other provisions that give 

CMS authority with respect to 

formularies, so we proposed to interpret 

the term ‘‘particular formulary’’ to mean 

the selection of specific manufacturer 

licensed drug products to be on 

formulary, or on any particular tier of a 

formulary, assuming the product meets 

the definition of a Part D drug. We 

believe the first part of section 1860D– 

11(i)(2) of the Act would prohibit us 

from developing formulary guidelines 

that prefer one manufacturer’s product 

over another’s in Part D formularies, 

leading to more limited formularies 

such as provided by the Department of 

Defense and the Veteran’s 

Administration. The most efficient 

formularies will make formulary 

selections and then exclude all or most 

competing multi-source and 

therapeutically equivalent brand 

products in order to concentrate volume 

and maximize rebates. Given the size of 

the Part D market, if CMS were able to 

similarly limit access to Part D 

formularies to certain products, this 

would bestow significant competitive 

advantage on the manufacturers of 

selected products and significant 

competitive disadvantage on 

manufacturers of competing products. 

Such limits would be expected to 

fundamentally alter supply and demand 

in the marketplace. This prohibited sort 

of formulary drug product selection 

would be distinguished from CMS 

formulary requirements that may 

require particular types of drug entities 

to be on all formularies, or on preferred 

tiers, in order to provide nondiscriminatory access to drugs necessary 

to treat conditions in all Medicare 

beneficiaries, or to address drug classes 

of clinical concern. Therefore, we 

proposed a provision prohibiting 

establishment of formulary drug product 

selection at § 423.10(c) that would 

specify that CMS does not determine the 

specific drug products to be included on 

Part D sponsor formularies or any tier 

placement of such products, except as 

required to comply with 

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

The second part of section 1860D– 

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

not institute a price structure for the 

reimbursement of covered Part D 

drugs’’. Again, the noninterference 

clause must be read in context of the 

other provisions that give CMS 

responsibilities in a number of areas 

that pertain to pricing, so we stated our 

view that the phrase ‘‘price structure’’ 

refers to establishing either absolute or 

relative indices of price for Part D drugs. 

Specifically, we believe the intent of 

this provision is to prohibit two types of 

intervention by CMS. The first 

prohibited activity is that CMS may not 

require Part D drug acquisition costs or 

sales prices to be a function of (be 

defined relative to) any particular 

published or unpublished pricing 

standard, either existing or future. Thus, 

we could not require that Part D prices 

be based on, or be any particular 

mathematical function (such as a 

percentage or multiple) of established 

pricing standards such as Average 

Wholesale Price, Wholesale Average 

Cost, Average Manufacturer Price, 

Average Sales Price, Federal Supply 

Schedule, 340b pricing, etc. The second 

prohibited activity is that CMS cannot 

require price concessions (on any 

standard or basis) to be at any specific 

(absolute) dollar amount or equal to a 

level specified in other legislative 

requirements for other federal programs. 

Thus, we could not, for example, set 

minimum or maximum dollar prices for 

a drug product or require that Part D 

prices be offered at acquisition cost, or 

at the ‘best price’ applicable under the 

Medicaid program. However, since the 

statute requires us to regulate many 

aspects of how drug costs are made 

available and displayed to beneficiaries 

and treated in Part D bidding and 

payment processes, it is clear that we 

have an important role to play in 

establishing rules for consistent 

treatment of drug costs in the program. 

Consequently, we may establish 

definitions of what constitutes a pricing 

standard, a price concession, a cost, etc. 

We may also establish rules concerning 

how drug costs are treated under Part D, 

including, but not limited to, how such 

amounts are disclosed in the 

marketplace, projected in Part D bids, 

made available to beneficiaries at point 

of sale, reported in Explanation of 

Benefits (EOBs), submitted to CMS, and 

treated in CMS payments to Part D 

sponsors. Therefore, we proposed a 

provision prohibiting establishment of 

drug price reimbursement 

methodologies at § 423.10(d) that 

specifies that CMS does not establish 

drug product pricing standards or the 

dollar level of price concessions at any 

stage in the drug distribution channel 

for Part D drugs. Nothing in our 

proposed regulation would have limited 

our authority to require full disclosure 

or uniform treatment and reporting of 

drug costs and prices. 

We received numerous comments on 

this proposed interpretation, both 

supportive and strongly critical. 

Different commenters asserted different 

‘‘plain readings’’ of the statute. The 

wide variation in interpretations of the 

statutory prohibition evidenced in these 

comments, in our view, confirms our 

belief that this provision is not 

consistently understood by all 

stakeholders. Although the 

interpretation we proposed to codify is 

the same interpretation we have been 

operating under in managing the Part D 

program since before the beginning of 

the Part D program, many commenters 

perceived our proposal as a change in 

interpretation. And as noted previously, 

in hindsight we could have better 

articulated our policy rationale than by 

stating that the prohibition in section 

1860D–1(i)(1) did not apply to 

negotiations between sponsors and 

pharmacies. These widely differing 

reactions to our proposal to codify our 

current interpretation lead us to 

understand that additional work needs 

to be done to better explain our policy, 

as well as to address the concerns and 

arguments advanced by numerous 

commenters. Consequently, we will not 

finalize the proposed regulatory 

provision at § 423.10 in this final rule, 

and do not intend to codify this 

provision without issuing an additional 

future notice of proposed rulemaking. 

Comment: Some commenters 

supported our interpretation and 

regulatory proposal; others supported 

the interpretation but did not believe 

there was any need to codify our 

interpretation in regulation. One 

commenter supported our intent to 

clarify and specify the limits of our 

authority, but was very concerned about 

the proposed exceptions to the 

limitations on our authority and 

requested greater specificity around the 

particular CMS requirements that would 

invoke the exceptions. 

Response: We appreciate the 

supportive comments, and can 

understand the desire for greater 

specificity in some areas. 

Comment: Several commenters stated 

that our interpretation violated the plain 

reading of the statute, and then offered 

differing interpretations of the plan 

meaning of the statute. In particular, 

many commenters asserted that the 

phrase ‘‘between drug manufacturers 

and pharmacies and PDP sponsors’’ 

essentially had the plain meaning of 

prohibiting any and all negotiations 

between any two of the parties. Other 

commenters agreed with our 

interpretation and that it represented 

the plain meaning. 


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Response: These differing 

interpretations of the statute confirm 

our belief that the statutory language is 

not universally understood in the same 

way by all parties and would ultimately 

benefit from formal interpretation and 

codification in regulation. 

Comment: Numerous commenters 

understood us to be proposing that we 

could now interfere in negotiations 

between Part D sponsors and 

pharmacies that we had previously 

avoided. 

Response: We intended to explain 

how we could reconcile the distinct sets 

of negotiations in the private market 

between manufacturers and pharmacies, 

between manufacturers and plan 

sponsors, and between plan sponsors 

and pharmacies with both the noninterference provision and within the 

context of the rest of the statute. Since 

the statute establishes numerous 

requirements that CMS must implement 

concerning access to network 

pharmacies and negotiated prices, we 

sought to make that distinction in the 

proposed rule by proposing that a CMS 

role in negotiations between plan 

sponsors and pharmacies is not 

prohibited under section 1860D–11(i)(1) 

of the Act, but rather under section 

1860D–11(i)(2) of the Act. The strong 

reaction of many commenters to this 

interpretation has persuaded us that a 

better way to have articulated this 

distinction would have been to focus on 

what ‘‘interfere’’ means and to interpret 

it to mean a sort of hindering or 

influence beyond the implementation 

and enforcement of statutory 

requirements. The Congress has 

provided many contractual 

requirements for CMS to enforce 

between sponsors and pharmacies, and 

we would be obligated to intervene in 

disputes over whether proposed or 

finalized contractual arrangements 

violated our rules in any area where our 

oversight is directed under the statute. 

In other words, we sought to explain 

that we could not involve ourselves in 

negotiations between plan sponsors and 

pharmacies except as necessary to fulfill 

our requirements established under the 

statute. From the many comments we 

received on this issue, we conclude that 

our explanation on this point in the 

proposed rule conveyed the wrong 

impression. 

Comment: Numerous commenters 

characterized our proposal as a change 

in policy. These commenters frequently 

cited examples of our previous 

invocation of the prohibition on 

interference in private market 

negotiations as evidence of this alleged 

change. For instance, commenters cited 

a CMS response to a 2008 OIG report in 

which CMS did not concur with several 

OIG recommendations on the basis that 

to do so would violate the noninterference clause. This report, 

‘‘Review of Medicare Part D Contracting 

for Contract Year 2006’’ (A–06–07– 

00082) is available at: http://

oig.hhs.gov/reports-and-publications/

archives/oas/cms_archive.asp. 

Response: The interpretation put forth 

in our proposed rule was intended to 

represent the interpretation that the Part 

D program has been operating under 

since before the beginning of the Part D 

program. We believe the examples cited 

by commenters can all be traced back to 

specific situations and topics that are 

consistent with our proposal. For 

instance, in the case of the 2008 OIG 

report, the specific recommendations 

with which CMS did not concur on the 

basis of interference were 

recommendations that violated that 

provision in exactly the way we 

proposed to prohibit in our proposed 

rule. Specifically, we disagreed with 

requiring Part D sponsors to disclose to 

pharmacies the data source, basis, and 

methodology used to develop 

reimbursement rates, or to reveal to 

pharmacies criteria for receiving higher 

reimbursement rates available to certain 

categories of pharmacies, and with CMS 

determining whether reimbursement 

rates for extended days’ supplies are 

adequate. In other words, we disagreed 

with CMS becoming a party to 

discussions between Part D sponsors 

and pharmacies on price structures or 

the arbiter of the adequacy of 

reimbursement methodologies. Thus, in 

our view, our responses to the OIG 

report were entirely consistent with our 

proposed regulation. (We note that 

section III.A.17 of this final rule 

addresses changes to the prescription 

drug pricing standard requirements 

established under MIPPA, but still does 

not require disclosure of data source, 

basis, and methodology used to develop 

reimbursement rates.) We believe that 

the perception of a change in 

interpretation arises from both the lack 

of a common understanding of the 

statutory prohibition, and from the 

absence of any discussion of how our 

previous statements on the record on 

this topic do or do not conform to our 

proposals. The numerous examples 

provided by commenters will be very 

helpful in developing such an 

explanation in any future rulemaking on 

this policy. 

16. Pharmacy Price Concessions in 

Negotiated Prices (§ 423.100) 

We have learned that some Part D 

sponsors have been reporting costs and 

price concessions to CMS in different 

ways. This reporting differential matters 

because this variation in the treatment 

of costs and price concessions affects 

beneficiary cost sharing, CMS payments 

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

and manufacturer coverage gap discount 

payments. Differential treatment of costs 

would also be expected to affect plan 

bids. If the projected net costs a sponsor 

is liable for in its bid are understated 

because the sponsor has been reporting 

certain types of price concessions as 

direct or indirect remuneration (DIR) 

rather than as price concessions that 

affect the negotiated price, it follows 

that the sponsor may be able to offer a 

lower bid than its competitors and may 

achieve a competitive advantage 

stemming not from greater efficiency, 

but rather from a technical difference in 

how costs are reported to CMS. When 

this happens, such differential reporting 

could result in bids that are no longer 

comparable, and in premiums that are 

no longer valid indicators of relative 

plan efficiency. Therefore, we proposed 

changes to rectify this concern. 

Negotiated prices are the payment 

amounts pharmacies receive from plans 

for covered Part D drugs dispensed to 

plan enrollees. CMS payments to plans 

are based on the reporting of negotiated 

prices (through PDE reporting) that are 

actually paid and are then offset by any 

other price concessions (submitted in 

aggregate through the separate annual 

DIR reporting process). CMS establishes 

rules for cost and price concession 

reporting through both PDE and DIR 

guidance and other payment 

reconciliation rules, and has regulated 

the definition of negotiated price and 

how it is to be treated in Part D benefit 

administration and in payment 

reconciliation. Since 2010, the 

regulatory definition at § 423.100 has 

been: ‘‘Negotiated prices means prices 

for covered Part D drugs that: (1) The 

Part D sponsor (or other intermediary 

contracting organization) and the 

network dispensing pharmacy or other 

network dispensing provider have 

negotiated as the amount such network 

entity will receive, in total, for a 

particular drug; (2) Are reduced by 

those discounts, direct or indirect 

subsidies, rebates, other price 

concessions, and DIR that the Part D 

sponsor has elected to pass through to 

Part D enrollees at the point of sale; and 

(3) Include any dispensing fees.’’ 

We intended clause 2 to primarily 

refer to price concessions from parties 

other than pharmacies, since these 

would be price concessions that were 

not based on the sale of the drug by the 

pharmacy and calculated when the 

claim adjudicated and, in fact, could not 


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be calculated until a later date. In 

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

the form of rebates offered by 

prescription drug manufacturers. Since 

prescription drugs are dispensed by 

pharmacies and purchased through 

transactions between Part D sponsors (or 

their intermediary contracting 

organizations) and pharmacies, 

manufacturers are never in a position to 

apply price concessions to negotiated 

prices at point of sale. We now 

understand that clause 2 is ambiguous 

and permits sponsors and their 

intermediaries to elect to take some 

price concessions from pharmacies in 

forms other than the negotiated price 

and report them outside the PDE. When 

this occurs, the increased negotiated 

prices generally shift costs to the 

beneficiary, the government and 

taxpayer, and when applicable to 

certain brand name drugs, to 

prescription drug manufacturers. (The 

mechanism of this sort of cost shift was 

discussed at length in the analogous 

context of lock-in pricing in our 2008 

proposed rule entitled ‘‘Medicare 

Program; Revisions to the Medicare 

Advantage and Prescription Drug 

Benefit Programs’’ which was published 

on May 16, 2008 in the Federal 

Register, 73 FR 28563 through 28566.) 

In addition, when price concessions 

from pharmacies are reflected in forms 

other than the negotiated price, the 

degree of price concession that the 

pharmacy has agreed to is no longer 

reflected in the negotiated prices 

available at point of sale or reflected on 

the Medicare Prescription Drug Plan 

Finder (Plan Finder) tool. Thus, the true 

price of drugs at individual pharmacies 

is no longer transparent to the market. 

Consequently, consumers cannot 

efficiently minimize both their costs 

(cost sharing) and costs to the taxpayers 

by seeking and finding the lowest-cost 

drug/pharmacy combination. Moreover, 

as the coverage gap closes, there are 

fewer and fewer beneficiaries who are 

exposed to the full cost of drug 

products, either at the point of sale or 

as reflected in Plan Finder estimates. 

When this occurs, the basis of 

competition shifts from prices to cost 

sharing, and the pricing signals 

available to the market can be distorted 

when lower cost sharing is not aligned 

with lower prices. Thus, we believe the 

exclusion of pharmacy price 

concessions from the negotiated price 

thwarts the very price competition that 

the Congress intended with respect to 

how private plans would compete with 

other plans on both premiums and 

negotiated prices. 

We are aware that certain pharmacy 

price concessions are being excluded 

from the determination of the negotiated 

price because they are being 

characterized as ‘‘network access fees’’, 

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

or ‘‘service fees’’ that are frequently 

imposed through PBM-issued manuals 

rather than explicit contractual terms. 

Pharmacies and pharmacy organizations 

report that they do not receive anything 

of value for those fees other than the 

ability to participate in the Part D 

network. The itemized types of services 

for which their payments are offset 

reportedly include things such as 

transaction fees for submission of 

claims, help desk support, information 

technology and telecommunication 

systems connectivity, electronic funds 

transfers, and other expenses associated 

with credentialing, maintaining, and 

auditing pharmacy networks. These fees 

take the form of deductions from 

payments to pharmacies for drugs 

dispensed, but in our view clearly 

represent charges that offset sponsor/

PBM operating costs. We believe that if 

the sponsor or its intermediary 

contracting organization wishes to be 

compensated for these services and have 

those costs treated as administrative 

costs, such costs should be accounted 

for in the administrative costs of the 

Part D bid. If instead these costs are 

deducted from payments made to 

pharmacies for purchases of Part D 

drugs, such costs are price concessions 

and must be treated as such in Part D 

cost reporting. This is the case 

regardless of whether the deductions are 

calculated on a per-claim basis or not. 

In our view, the decision on how such 

network management costs are funded 

between the PBM and the sponsor is not 

governed by our rules, but our rules do 

require that price concessions be fully 

disclosed and net against drug costs in 

reconciliation. We have also heard from 

pharmacies that some sponsors apply 

dispensing fees to claims when they are 

adjudicated at point of sale, but require 

that these fees later be rebated back to 

the sponsor and deducted from payment 

remittances. Such practices again 

misstate the negotiated price. Our 

proposal would require that dispensing 

fees could only be applied at point of 

sale if they are received and retained by 

the pharmacy in the negotiated price. 

Some stakeholders have 

recommended that certain incentive 

payments to pharmacies, such as 

generic dispensing incentive fees, 

should not be included in negotiated 

prices. If these payments are included, 

they explain, the negotiated prices 

appear higher at the more efficient 

pharmacy as the result of the additional 

incentive payment. This higher price 

then proportionally increases costs 

borne by beneficiaries, the government, 

and manufacturers. These incentives 

really represent amounts that the 

sponsor is willing to bear in order to 

encourage the most efficient drug 

choices, which will drive down total 

costs overall, and thus the sponsor is 

willing to bear a disproportionate share 

of such expense. We agree with this 

argument and we believe that this sort 

of arrangement would not conflict with 

our proposed requirement that all price 

concessions be reflected in the 

negotiated price since such additional 

payments are the opposite of price 

concessions. Instead such incentive fees 

represent contingent price increases that 

cannot be predicted in advance. 

Therefore, they cannot be programmed 

to be applied at point of sale or reflected 

in the price posted on Plan Finder. We 

believe it would be appropriate to treat 

this particular sort of price increase 

differently than price decreases because 

including such amounts in the 

negotiated price (incentive fee 

component) at point of sale could 

disguise the relative competitiveness of 

the underlying pharmacy prices. 

Incentive fees also primarily benefit the 

plan sponsor who benefits from the 

lower costs associated with the 

incentivized behavior, rather than the 

beneficiary. Therefore, in this case, we 

agree that it would be more appropriate 

for such incentive payments to be 

excluded from the negotiated price, and 

reported later in reconciliation as 

negative DIR. When reported as negative 

DIR, these amounts disproportionately 

affect (increase) the amounts the 

sponsor is liable for in risk sharing, 

which is appropriate given the intent of 

the incentives to promote least-cost drug 

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

reduce the sponsor’s allowable risk 

corridor costs, so any incentive paid to 

encourage this behavior would be 

expected to be more than offset by the 

ingredient costs savings achieved 

through avoidance of higher-cost drug 

selection. This is so because, as we 

learned from numerous commenters to 

the 2014 draft Call Letter, the incentive 

payments are generally in the range of 

a dollar or two and the difference 

between preferred and non-preferred 

drug products is generally much greater. 

Therefore, we proposed to revise the 

definition of negotiated prices at 

§ 423.100 to require that all price 

concessions from pharmacies are 

reflected in these prices. Specifically we 

proposed to redefine negotiated prices 

to mean prices for covered Part D drugs 


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

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug; and (2) are inclusive 

of all price concessions and any other 

fees charged to network pharmacies; 

and (3) include any dispensing fees; but 

(4) exclude additional contingent 

amounts, such as incentive fees, only if 

these amounts increase prices and 

cannot be predicted in advance; and (5) 

may not be rebated back to the Part D 

sponsor (or other intermediary 

contracting organization) in whole or in 

part. 

We received the following comments 

on our proposed revisions and our 

responses follow. 

Comment: We received a significant 

number of comments in support of this 

provision based on the improved 

transparency of pharmacy price 

concessions. One commenter stated the 

belief that PDPs and their contracted 

PBMs are circumventing the Medicare 

Modernization Act by hiding pharmacy 

charge backs as overall administrative 

surcharges. These commenters stated 

that amounts charged to pharmacies in 

the form of ‘‘administrative fees,’’ 

‘‘network access fees’’ or rebates of 

dispensing fees appeared to be vehicles 

for price concessions. Another 

commenter believed that the proposed 

provision would alleviate the 

complexity of tracking actual drug 

reimbursement and help ensure that 

reimbursement structures are not 

actually increasing Medicare costs. 

Several commenters stated that 

inclusion of accurate costs in the Plan 

Finder tool would be of benefit to 

consumers, and added that drug prices 

must be accurate and transparent to 

help seniors compare plan costs. 

We also received some comments in 

opposition to the proposed provision. 

These commenters stated that some 

price concessions that benefit the Part D 

program do not lend themselves to 

inclusion in negotiated prices. A few 

commenters stated that savings from 

lower point-of-sale prices would be 

reflected in higher enrollee premiums 

and increased premium subsidies. Other 

commenters stated that payments 

received from pharmacies to PBMs were 

for services provided and should not be 

considered price concessions. One 

commenter stated that just because 

pharmacies pay for and benefit from 

services from PBMs does not necessarily 

make the fees price concessions. A few 

commenters opposed the provision on 

the grounds that it would place new 

limitations on the terms sponsors will 

be able to negotiate with network 

pharmacies and stated that CMS is 

limiting the tools available to sponsors 

to offer varied incentive-based 

agreements such as providing additional 

compensation for increased dispensing 

of generic medicines or superior 

customer service. Other commenters 

thought that Part D sponsors and PBMs 

should be able to retain the flexibility to 

determine which concessions to pass 

through to beneficiaries through drug 

prices or lower premiums. To bolster 

this argument one commenter quoted 

from our 2009 rule in which we stated 

that the statute says prices will ‘‘take 

into account’’ price concessions not 

include them all, and that a ‘‘plain 

reading of this demonstrates the 

Congress’ intent to be permissive of Part 

D sponsors to choose how much of their 

negotiated price concessions to pass 

through to Part D beneficiaries at the 

point of sale’’. 

One of the commenters who opposed 

the provision suggested that, as an 

alternative, CMS use its existing 

authority to require plans to disclose 

both in the bid pricing tool (BPT) and 

through DIR, specific line-item reporting 

of performance-based DIR received from 

network pharmacies. Several 

commenters urged CMS to use its 

existing DIR reporting authority to 

capture price concessions attributable to 

risk-based performance measures, 

which often require retrospective 

performance review and therefore 

cannot be captured in negotiated prices. 

The commenters argued that the DIR 

process must be used to allow sponsors 

to maintain innovative payment 

arrangements that yield efficient and 

quality pharmacy networks. One of 

these commenters voiced support for ‘‘a 

competitive and level playing field for 

all sponsors’’ and urged CMS to create 

clear and comprehensive regulatory 

guidance with respect to pharmacy 

price concessions. 

Response: We appreciate the detailed 

comments we received in response to 

our proposal. We continue to believe it 

is critical that negotiated prices reported 

on PDEs have a consistent meaning 

across the Part D program in order to 

preserve a level playing field in bidding 

and cost reporting. As we stated in the 

proposed rule, we intended clause 2 of 

the existing definition of negotiated 

price to primarily refer to price 

concessions from parties other than 

pharmacies, since these would be price 

concessions that were not based on the 

sale of the drug by the pharmacy and 

calculated when the claim adjudicated 

and, in fact, could not be calculated 

until a later date. Our proposal to 

require all pharmacy price concessions 

be included in the negotiated price 

would ensure that negotiated prices 

have a consistent meaning, provide for 

increased transparency in cost reporting 

to CMS, and allow for meaningful price 

comparisons between Part D sponsors. 

While we recognize that some 

pharmacy price concessions are 

contingent upon risk or incentive based 

arrangements, we provided an 

illustration of how such price 

concessions could adjust future 

negotiated prices, rather than adjusting 

the current quarter’s prices downward 

through DIR reporting. Consequently, 

we did not believe that our proposal 

would limit Part D sponsors’ ability to 

enter into such contracting relationships 

with their network pharmacies. We did 

not propose placing additional 

restrictions around such arrangements, 

only that their resulting costs must be 

transparent to all concerned. 

Nevertheless, we are persuaded by the 

comments that there may be some price 

concessions from pharmacies that are 

based upon contingencies that cannot be 

known at the point-of-sale and that 

these price concessions should be 

distinguished from all other pharmacy 

price concessions and continue to be 

reported as direct or indirect 

remuneration. This would be also be 

consistent with the commenter who 

pointed out the statutory language that 

negotiated prices will ‘‘take into 

account’’ price concessions. While we 

had proposed including all price 

concessions from pharmacies in the 

negotiated price to provide maximum 

price transparency, we believe that there 

is room for further discussion with 

industry to determine whether there are 

specific types of arrangements that do 

not lend themselves to accurate 

inclusion in the negotiated prices. As 

long as all types of price concessions are 

consistently ‘‘taken into account’’ in the 

same way by each sponsor in preparing 

bids and reporting costs, bids and pointof-sale negotiated prices can remain 

comparable. Therefore, in response to 

comments we are revising our proposed 

definition of negotiated price to allow a 

narrow exception to the requirement 

that all pharmacy price concession be 

included in the negotiated price for 

those contingent pharmacy price 

concessions that cannot reasonably be 

determined at the point-of-sale. We 

intend to identify in our DIR reporting 

guidance which types of price 

concessions from pharmacies would 

meet the standard for this exception, 

and we intend to consult with industry 

in developing our guidance in this area. 

Any contingent pharmacy price 

concessions or incentive payments that 


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can be determined at the point-of-sale 

must be included in negotiated prices. 

We agree with the commenter who 

pointed out that not all fees that 

pharmacies pay to PBMs are price 

concessions. But as discussed in the 

NPRM, when such fees take the form of 

deductions from payments to 

pharmacies for Part D drugs dispensed, 

such costs are price concessions and 

must be treated as such in Part D cost 

reporting. This is the case regardless of 

whether the deductions are calculated 

on a per-claim basis or not. Standard 

treatment of all price concessions will 

bring improved transparency to 

pharmacy payments. We disagree that 

this change is inconsistent with the 

MMA because the MMA established 

Medicare Part D as a voluntary, privatemarket-based program what would rely 

on private plans to provide coverage 

and to bear some of the financial risk for 

drug costs. These private plans would 

determine premiums through a bid 

process and would compete with other 

plans based on premiums and 

negotiated prices. While Part D sponsors 

may lose some flexibility in deciding 

how much of the price concessions 

should be applied to beneficiaries at the 

point of sale or through reduced 

premium, consistency in how specific 

types of price concessions are ‘‘taken 

into account’’ in negotiated prices is 

necessary in order to preserve reliance 

on market competition between plans, 

which is a cornerstone of the Medicare 

Part D program. 

Comment: A few commenters 

questioned CMS’ authority to 

implement the proposed change and 

some asserted that the non-interference 

provision prohibits CMS from defining 

negotiated prices. 

Response: We disagree with these 

comments. We have the authority to 

interpret the provisions of section 

1860D–2(d)(1)(B) and believe our 

interpretation is appropriate. We also 

have a history of regulating on cost and 

price concession reporting. We 

established detailed guidance for 

accurate and consistent cost and price 

concession reporting through both PDE 

and DIR guidance and other payment 

reconciliation rules, and have twice 

before regulated the definition of 

negotiated price and how it is to be 

treated in Part D benefit administration 

and in payment reconciliation. In the 

original Part D rule, negotiated prices 

were mainly defined as ‘‘prices for 

covered Part D drugs that were available 

to beneficiaries at the point of sale at 

network pharmacies’’. This definition 

permitted sponsors or their 

intermediaries to include PBM spread in 

the price. Therefore, on January 12, 

2009 we published in the Federal 

Register the final rule with comment 

entitled, ’’ Medicare Advantage and 

Prescription Drug Benefit Programs: 

Negotiated Pricing and Remaining 

Revisions’’ (74 FR 4131), to clarify that 

negotiated prices must be the amounts 

actually received by the pharmacy for 

the drug. We are now once again 

revising the definition. 

Comment: Several commenters 

addressed the effective date of the 

proposed rule. Commenters advocated 

for a prospective implementation only, 

or expressed the hope that the rule 

could be delayed until 2016. They 

stated that time was needed to allow 

collaboration with the industry, enable 

CMS to capture the changes in detailed 

guidance, and give Part D sponsors time 

to revise their pharmacy network 

contracts. 

Response: In response to these 

comments we are postponing 

implementation of this provision until 

the 2016 contract year and will use this 

time to work with the industry to 

develop guidance on when the 

exception previously described applies. 

After considering comments received, 

we are finalizing the provision as 

proposed with modification to require 

that negotiated prices be inclusive of all 

price concessions from network 

pharmacies except contingent price 

concessions that cannot reasonably be 

determined at the point-of-sale. We also 

modified the language in paragraph (4) 

by clarifying that additional contingent 

amounts, such as incentive fees, that 

increase prices are always excluded 

from the negotiated price by removing 

the word ‘‘may,’’ and we also replaced 

‘‘cannot be predicted in advance’’ with 

‘‘cannot reasonably be determined at the 

point-of-sale’’ to parallel paragraph (2). 

Finally, we have modified the effective 

date of this provision to 2016 to avoid 

disruption of the existing regulation 

which will be applicable for the rest of 

2014 and 2015. 

17. Preferred Cost Sharing (§§ 423.100 

and 423.120) 

In our original rule implementing the 

Part D Program, we codified an 

interpretation of section 1860D– 

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

that permitted Part D sponsors to offer 

lower cost sharing at a subset of network 

pharmacies, dubbed ‘‘preferred 

pharmacies,’’ than at other in-network 

pharmacies. This lower cost sharing was 

subject to certain conditions that 

seemed straightforward to us at the 

time, but which have proven to need 

clarification. We have recently 

discussed this concern in the 

Announcement of Calendar Year (CY) 

2014 Medicare Advantage Capitation 

Rates and Medicare Advantage and Part 

D Payment Policies and Final Call Letter 

(2014 Call Letter) on pages 175 and 176 

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

Health-Plans/

MedicareAdvtgSpecRateStats/

Downloads/Announcement2014.pdf]. 

Section 1860D–4(b)(1)(B) of the Act 

contemplates the possibility of sponsors 

offering lower cost sharing at some 

network pharmacies than is offered in 

conjunction with the any willing 

pharmacy terms and conditions 

mandated in the immediately preceding 

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

to reduce cost sharing is contingent 

upon one condition: ‘‘In no case shall 

such a reduction result in an increase in 

payments made by the Secretary under 

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

In our original proposed rule entitled 

‘‘Medicare Program; Medicare 

Prescription Drug Benefit; Proposed 

Rule,’’ published on August 3, 2004 in 

the Federal Register, 69 FR 46658 

through 46659, we did not offer an 

interpretation of this language but 

implied that any assessment of whether 

the condition was met would be a 

matter of actuarial equivalence analysis. 

We proposed to codify the requirements 

in regulation with the following two 

conditions: ‘‘. . . the plan must still 

meet the requirements under 

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

sharing reduction must not increase 

CMS payments under § 423.329.’’ In the 

final regulation entitled ‘‘Medicare 

Program; Medicare Prescription Drug 

Benefit; Final Rule’’, published on 

January 28, 2005 in the Federal 

Register, 70 FR 4247 through 4255, we 

reiterated the language from the 

aforementioned proposed rule (69 FR 

46658). ‘‘However, we note that while 

these within-network distinctions are 

allowed, the statute also requires that 

such tiered cost-sharing arrangements in 

no way increase our payments to Part D 

sponsors. Therefore, tiered cost-sharing 

arrangements based on within-network 

distinctions could be included in Part D 

plans’ benefits subject to the same 

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

Thus, a reduction in cost sharing for 

preferred pharmacies in a Part D plan 

network could be offered through higher 

cost sharing for non-preferred 

pharmacies (or as alternative 

prescription drug coverage).’’ (70 FR 

4254, January 28, 2005.) This statement 

was immediately followed by an 

expression of our intent to ensure that 

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

possibility that Part D plans could 


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effectively limit access in portions of 

their service areas by using the 

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

our final rule to create a within-network 

subset of preferred pharmacies. In other 

words, in designing its network, a Part 

D plan could establish a differential 

between cost-sharing at preferred versus 

non-preferred pharmacies—while still 

meeting the access standards in 

§ 423.120(a)(1) of our final rule—that is 

so significant as to discourage enrollees 

in certain areas (rural areas or inner 

cities, for example) from enrolling in 

that Part D plan. We emphasize that 

such a network design has the potential 

to substantially discourage enrollment 

by certain Part D enrollees, and that we 

have the authority under section 

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

benefit designs that are discriminatory.’’ 

However, what we failed to 

sufficiently explain in 2005 was that if 

cost sharing cannot rise beyond a 

certain level, then in return for lower 

cost sharing, preferred networks must 

reduce drug costs paid by the plan in 

order to prevent an increase in CMS 

payments to the plan. In part this 

omission may have been because we 

presumed that Part D sponsors would 

motivate enrollees to go to a subset of 

pharmacies through lower cost sharing 

only if those pharmacies offered 

significantly lower negotiated prices, 

and thus would provide a competitive 

advantage for the sponsor in lowering 

costs. As the concerns expressed in the 

2014 Call Letter indicate, this does not 

seem to have been the case for some 

sponsors. However, if drug costs 

(negotiated prices) are not lower in 

return for lower cost sharing, and the 

lower cost sharing cannot be completely 

offset by higher cost sharing on other 

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

must be subsidized by the government 

and the taxpayer will increase. 

Therefore, we proposed to clarify that 

preferred cost sharing should signal 

consistently lower costs. When lower 

cost sharing correctly signals the best 

prices on drugs, then choosing 

pharmacies on the basis of that lower 

cost sharing lowers not only beneficiary 

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

and other government subsidy costs. 

Lower plan and government subsidies 

translate into lower CMS payments to 

plans, consistent with the statutory 

requirements at section 1860D– 

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

proposed to revise § 423.120(a)(9) to 

state: ‘‘Preferred cost-sharing in network 

pharmacies. A Part D sponsor offering a 

Part D plan that provides coverage other 

than defined standard coverage may 

reduce copayments or coinsurance for 

covered Part D drugs obtained through 

a subset of network pharmacies, as long 

as such preferred cost sharing is offered 

in accordance with the requirements of 

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

consistently lower negotiated prices 

than the same drugs when obtained in 

the rest of the pharmacy network.’’ We 

proposed that by ‘consistently lower’ we 

mean that sponsors must offer 

beneficiaries and the Part D program 

better (lower) negotiated prices on all 

drugs in return for the lower cost 

sharing. In practice we believe this 

would mean that whatever pricing 

standard is used to reimburse drugs 

purchased from network pharmacies in 

general, a lower pricing standard must 

be applied to drugs offered at the 

preferred level of cost sharing. We 

welcomed comments on alternative 

approaches to ensuring that the offering 

of preferred cost sharing does not 

increase our payments. We proposed 

that any alternative methodology must 

be based solely on the level of 

negotiated prices and thus consistent 

with our proposal to amend that 

definition (section III.A.15. of this final 

rule). As discussed in that section, we 

proposed to revise the definition to 

specify that all price concessions from 

pharmacies must be reflected in the 

negotiated price in order to promote 

transparent price competition, as well as 

to eliminate differential cost reporting 

and cost shifting that interfere with a 

fair and transparent competitive bidding 

process. We requested that any 

alternative methodology suggestions be 

accompanied by specific proposals for 

how we could objectively validate 

compliance through data we already 

collect. 

In addition, we solicited comments on 

whether we should also establish 

standards on how much lower drug 

costs should be in return for preferred 

cost sharing. We are aware that there is 

a wide range of savings projections 

associated with the use of limited 

networks. For instance, a January 2013 

study prepared for the Pharmaceutical 

Care Management Association (PCMA) 

provides various estimates ranging from 

5 percent to 18 percent [at http:// 

www.pcmanet.org/images/stories/

uploads/2013/visantepcma%20pharmacy%20networks

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

solicited comment on whether Medicare 

should require a minimum level of 

savings, such as 10 percent or 15 

percent, over the costs available at retail 

cost-sharing rates. We believe that 

substantial discounts in this range 

would be necessary to balance the 

extremely low preferred cost sharing 

rates offered by many sponsors in 2013. 

We also solicited comments on how 

broadly preferred cost sharing should be 

applied to drugs on a sponsor’s 

formulary. For instance, is it reasonable 

to offer cost sharing as low as $0 for 

only the least expensive generics on 

formulary? Or should preferred cost 

sharing have to apply to a minimum 

percentage of formulary products to be 

a meaningful benefit instead? Or should 

preferred cost sharing have to apply to 

all drugs available at pharmacies 

offering preferred cost sharing? This 

would require that the prices of all 

drugs at those pharmacies could be no 

higher than the prices at the other 

network pharmacies. Such a policy 

would prevent sponsors from offering 

lower prices on drugs with preferred 

cost sharing while offering higher prices 

on other drugs not subject to preferred 

cost sharing. Our concern is that 

without such rules, it is possible that 

the beneficiary is motivated to change 

pharmacies in order to pay very low 

copays on some drugs, but the program 

may end up paying higher costs on 

other drugs the beneficiary purchases at 

the same pharmacy out of convenience. 

We also proposed a clarification in 

terminology to better describe the 

application of the policy to a sponsor’s 

approved Part D pharmacy network. 

Specifically, we proposed to delete the 

definitions of ‘‘preferred pharmacy’’ and 

‘‘non-preferred pharmacy’’ from 

§ 423.100 and to add a new definition of 

preferred cost sharing. ‘‘Preferred cost 

sharing’’ would mean lower cost sharing 

for certain covered Part D drugs at 

certain network pharmacies offered in 

accordance with the requirements of 

§ 423.120(a)(9). We would then require 

that Part D sponsors would revise any 

marketing materials to reflect the 

revised nomenclature, and eliminate 

any references to preferred or nonpreferred network pharmacies. We 

solicited comment on whether any 

further clarifications of terminology are 

needed for this policy proposal. 

We received the following comments 

and our responses follow: 

Comment: Many commenters strongly 

supported our proposal to require 

consistently lower negotiated prices at 

pharmacies offering preferred cost 

sharing. These commenters found it 

troubling that some Part D plans’ 

negotiated prices were not lower for 

some drugs at pharmacies offering 

preferred cost sharing and stated that 

the alignment of preferred cost sharing 

with lower negotiated prices is 

necessary to ensure that arrangements 

with pharmacies to offer preferred cost 

sharing do not cost the government 

more and provide savings for 


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beneficiaries. The commenters assert 

that the current framework is not 

transparent and allows PBMs to 

maximize profits by moving as much 

volume as possible to their mail order 

pharmacies with little, if any, savings 

for the beneficiary, and even the 

possibility that the beneficiary could 

pay more than they would at a 

pharmacy without preferred cost 

sharing. 

However, other commenters strongly 

opposed our proposal to require 

consistently lower negotiated prices at 

pharmacies offering preferred cost 

sharing. While no commenters dispute 

that benefit designs that provide 

preferred cost sharing at some network 

pharmacies must not increase payment 

to Part D plans, many dispute our 

proposal to make this determination 

based entirely upon negotiated prices. 

They assert that the reference in the 

statute to ‘‘an increase in payments’’ 

does not refer solely to negotiated prices 

but must also take into consideration 

the direct subsidy, reinsurance 

subsidies, end of year reconciliation, 

and beneficiary premiums. Several 

commenters said that we do not have 

the authority to implement this proposal 

because it violates the section 1860D– 

11(i) statutory non-interference 

provision that prohibits CMS from 

instituting a price structure for the 

reimbursement of Part D drugs. One 

commenter said that while they share 

our objectives for preferred cost sharing 

arrangements to lower costs for the Part 

D program and beneficiaries, they 

believe these arrangements can be 

beneficial if the price concessions are 

reflected in prices at the pharmacies 

and/or used to lower premiums. 

Commenters also stated that requiring 

lower negotiated prices for every drug 

will restrict the flexibility that Part D 

sponsors need to negotiate discounts 

with pharmacies, which will lead to 

increased prices and beneficiary 

disruption. Moreover, commenters 

argue that savings from preferred cost 

sharing cannot be determined at the 

individual drug level because that does 

not account for different drug mixes at 

different pharmacies that could better be 

determined by actuarially sound 

aggregate methods of comparison. One 

commenter recommended that we 

implement a ‘‘fixed basket of drugs’’ 

approach similar to our Out-of-Pocket 

(OOPC) tools used for determining 

meaningful differences between basic 

and enhanced plans. A number of 

commenters also contend that such a 

consistently-lower-price requirement is 

unworkable because their contracts 

frequently have a ‘‘lesser of’’ provision 

to ensure they only pay the pharmacies’ 

usual & customary prices when such 

prices are lower than the negotiated rate 

and they would have no way to ensure 

that pharmacy usual & customary prices 

are never lower at pharmacies that do 

not offer preferred cost sharing. Finally, 

most commenters opposed CMS 

establishing standards on how much 

lower drug costs should be in return for 

preferred cost sharing. 

Response: We appreciate the 

significant support we received for the 

proposal and continue to believe that 

the proposal would provide a 

transparent mechanism for ensuring 

compliance with the statutory 

requirement that prohibits benefit 

designs with preferred cost sharing at 

certain network pharmacies from 

increasing payments to plans. While we 

agree that basing increased payments to 

plans entirely on negotiated prices is 

not the only possible interpretation of 

the statutory requirement, we believe it 

is a reasonable interpretation that would 

allow us to uniformly apply the 

statutory requirement while also 

providing price transparency to 

beneficiaries and maximizing price 

competition. 

Nevertheless, we premised this 

proposal on our related proposal to 

change the definition of ‘‘Part D 

Negotiated Price’’ to include all 

pharmacy price concessions. If we are 

going to use negotiated prices as the sole 

basis for determining increased 

payments to plans for purposes of 

section1860D–4(b)(1)(B) of the Act, then 

all pharmacy price concessions must be 

in the negotiated price because the price 

would need to have the same meaning 

at every network pharmacy. 

Consequently, because we are finalizing 

a different definition of negotiated price 

than originally proposed, one that will 

allow for the exclusion of some 

pharmacy price concessions from the 

negotiated price, we will not be 

finalizing our proposal to require 

consistently lower negotiated prices at 

pharmacies offering preferred cost 

sharing. Clearly if some price 

concessions are not reflected in the 

negotiated price, a higher negotiated 

price may not result in increased 

payments to plans. We also are not 

finalizing an alternative requirement at 

this time, in light of the comments that 

suggested different approaches because 

we intend to consider them further as 

we determine how best to ensure, in a 

transparent manner, that preferred cost 

sharing does not increase payments to 

plans. While we are not finalizing the 

proposal, we disagree with the 

commenter who stated that CMS does 

not have the authority to implement 

such a requirement because it is 

consistent with our obligation to 

implement and enforce many statutory 

requirements under the Part D program 

that directly or indirectly affect 

negotiations between pharmacies and 

Part D sponsors, in particular section 

1860D–4(b)(1)(B) of the Act, and 

including several other closely related 

statutory provisions contained in 

section 1860D–4(b)(1) of the Act. For 

example, we have previously 

established retail and non-retail 

pharmacy network adequacy 

requirements under this authority to 

ensure convenient pharmacy access as 

required under section 1860D–4(b)(1)(C) 

of the Act. 

Comment: Some commenters asserted 

that our April 2013 study (‘‘Negotiated 

Pricing between Preferred and NonPreferred Pharmacy Networks’’, posted 

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

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/. 

Downloads/PharmacyNetwork.pdf) 

that we cited as showing some 

negotiated prices for drugs were higher 

at pharmacies offering preferred cost 

sharing than the rest of the network was 

flawed. Therefore, they contend that our 

rationale for the proposal was flawed. 

They point out that this study only 

looked at prescription drug event (PDE) 

data and did not take into consideration 

any direct or indirect remuneration. 

They claim that even if you accept the 

results of this study as stated, it shows 

only that drug prices were ‘‘slightly 

higher’’ and only in ‘‘a few’’ preferred 

networks in ‘‘some plans’’. In addition, 

commenters raised methodological 

concerns because the CMS study was 

not normalized for different drug mix 

and utilization between plans, which 

they said will bias the results and lead 

to incorrect conclusions that will 

contribute to higher costs for 

beneficiaries and the Part D program. 

Response: We appreciate the detailed 

comments regarding the validity of our 

study and the conclusions that we drew. 

However, we disagree with the assertion 

that our study was flawed and believe 

some commenters misinterpreted our 

findings. Specifically, despite the 

comments, we did not conclude that our 

findings showed that some pharmacies 

with preferred cost sharing were more 

expensive than some other pharmacies 

that were not offering preferred cost 

sharing. We acknowledge that this study 

did not take into consideration price 

concessions reported as DIR or 

differences in drug mix, and therefore 

agree that one cannot make that 

conclusion given the current definition 

of negotiated price and variability 

among plans on what is included in the 


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price. Nevertheless, we believe the 

findings of some higher negotiated 

prices at some pharmacies offering 

preferred cost sharing demonstrates that 

we cannot assume point-of-sale 

negotiated prices are always lower at 

pharmacies offering preferred cost 

sharing and, therefore cannot assume 

that benefit designs with some 

pharmacies offering preferred cost 

sharing never increase payments to 

plans. Instead, we believe our study 

highlighted this vulnerability and the 

need for us to propose a transparent and 

consistent method for ensuring these 

benefit designs do not increase 

payments to plans. 

Comment: Some commenters strongly 

supported our proposal to remove the 

definitions of preferred and nonpreferred pharmacies and replace them 

with a definition of preferred cost 

sharing. These commenters agreed that 

the term ‘‘preferred pharmacy’’ is 

confusing for beneficiaries who 

sometimes interpret this to mean nonpreferred pharmacies are out-ofnetwork. Other commenters opposed 

the proposal because they believe the 

change in terminology will be confusing 

for beneficiaries. They note that under 

the current framework plans may 

already refer to non-preferred 

pharmacies as ‘‘other network 

pharmacies’’ and, therefore, there is no 

need for this change. Moreover, some 

commenters opposed removing the term 

‘‘preferred pharmacy’’ because they 

believe it refers not only to lower cost 

sharing but also quality of services. 

Another commenter who was 

supportive of the proposed change also 

raised concerns about beneficiary 

confusion from the change in 

terminology and urged CMS to consider 

education and outreach efforts to help 

beneficiary understand the new 

terminology and add related language to 

Medicare & You. 

Response: We appreciate the 

comments we received on this proposal. 

We agree with supporters that this 

change will help avoid confusion 

regarding pharmacy network status and 

more accurately reflect what is meant by 

preferred. While any change has the 

potential to initially create some 

confusion, we disagree that 

substantively this change will be more 

confusing to beneficiaries going 

forward. In addition, we are perplexed 

by the comments that said their 

identification of preferred pharmacies 

also takes into consideration the quality 

of pharmacy services because that was 

never part of the regulatory definition. 

Nevertheless, we are not finalizing this 

proposal because it is so closely tied to 

the other preferred cost sharing proposal 

to revise § 423.120(a)(9) that is not being 

finalized as a result of changes to the 

definition of negotiated price in this 

final rule (as described in section 

III.A.25 of this final rule). 

After considering of the public 

comments received, we are not 

finalizing the proposed changes to 

§§ 423.120(a)(9) and 423.100. We will 

undertake notice and comment 

rulemaking if we are going to make 

changes to these provisions in the 

future. 

18. Prescription Drug Pricing Standards 

and Maximum Allowable Cost 

(§ 423.505(b)(21) 

We proposed a change to the 

regulations governing the disclosure and 

updating of prescription drug pricing 

standards used by Part D sponsors to 

reimburse network pharmacies to make 

clear that drug pricing based on 

maximum allowable cost is subject to 

these regulations. Section 173 of MIPPA 

amended sections 1860D–12(b) and 

1857(f)(3) of the Act to add a provision 

requiring the regular updating of 

prescription drug pricing standards. 

Specifically, for plan years beginning on 

or after January 1, 2009, CMS’s contracts 

with Part D sponsors must include a 

provision requiring sponsors to update 

any standard they use to reimburse 

network pharmacies based on the cost of 

the drug to accurately reflect the market 

price of acquiring the drug. These 

updates must occur not less frequently 

than once every 7 days, beginning with 

an initial update on January 1 of each 

year. 

We codified this requirement in 

§ 423.505(b)(21). We also amended 

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

or written arrangements between Part D 

sponsors and pharmacies or other 

providers, first tier, downstream and 

related entities. Specifically, 

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

sponsors’ pharmacy contracts include a 

provision establishing regular updates 

of any prescription drug pricing 

standard used by the Part D sponsor, 

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

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

Part D sponsor’s pharmacy contract 

indicate the source used by the Part D 

sponsor for making any such pricing 

updates. We finalized these regulations 

in a final rule entitled, ‘‘Medicare 

Program; Medicare Advantage Program 

and Prescription Drug Benefit 

Programs’’ at 76 FR 54600 (September 1, 

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

We stated in the preamble to the 

September 2011 final rule that a 

‘‘prescription drug pricing standard’’ is 

an accepted methodology based on 

published drug pricing. In the preamble 

to the proposed rule, we explained that 

this was because we were unaware at 

the time that there is at least one 

standard based, at least in part, on costs 

of the drugs that is not based strictly on 

published drug pricing, which is 

maximum allowable cost prices. Now 

that we have become aware of these 

types of pricing standards, we wish to 

amend our regulatory requirement. We 

believe that the updating requirement 

should apply to pricing standards based 

on the cost of a drug, even when the 

standard is not based on published drug 

pricing, an approach consistent with the 

intent of the statute. The text of section 

173 of MIPPA indicates the provision’s 

purpose—Part D sponsors must update 

their prescription drug pricing 

standards regularly ‘‘to accurately 

reflect the market price of acquiring the 

drug.’’ We believe that this statement of 

purpose indicates that the Congress 

intended to provide pharmacies with a 

means of ensuring that they have 

current data on the amount of 

reimbursement that they can expect, 

including in cases when the 

reimbursement is based upon maximum 

allowable cost prices. 

When the source of a prescription 

drug pricing standard is published 

publicly, such as with AWP or WAC, 

pharmacies can determine their 

reimbursement for all drugs at any given 

time and can monitor these sources to 

ensure they are being reimbursed 

correctly. However, when a prescription 

drug pricing standard is not published 

publicly, network pharmacies are 

unable to promptly determine whether 

their reimbursement is consistent with 

their contractual arrangements. This, in 

turn, presents risks to the Medicare Part 

D program in a number of ways. For 

example, disclosure of the source used 

to determine drug prices is necessary for 

pharmacies to ensure accurate payment 

of their claims, which is necessary for 

accuracy in the costs submitted to CMS 

by Part D sponsors on PDEs without 

unnecessary later adjustments that are 

disruptive to the operation of the Part D 

program. 

In addition, when network 

pharmacies are unable to determine 

whether their reimbursement is 

consistent with their contractual 

arrangements, the accuracy of the prices 

displayed in the Medicare Prescription 

Drug Plan Finder (‘‘MPDPF’’) is 

questionable. While these prices only 

provide an estimate of Part D drugs 

costs at particular pharmacies, 

beneficiaries do use the MPDPF to make 

drug purchasing choices. If a pharmacy 

does not know what it will be paid for 

drugs on any given day, it cannot test 

the MPDPF and validate the prices. 


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Thus, there is no assurance that the 

posted prices are accurate, and 

pharmacies are deprived of the 

opportunity to compete based on more 

accurate prices, and beneficiaries may 

make choices based on erroneous 

estimated drug costs. This is contrary to 

the public policy goal of facilitating 

competition in the health care system 

and supporting consumers to be 

informed purchasers of health care. 

Also, when we compare posted prices to 

prices submitted on PDEs to evaluate 

the estimates provided in the MPDPF, 

there can be no assurance that those 

values correspond to the payments 

pharmacies actually receive. 

For this and other reasons detailed in 

the preamble to the proposed regulation, 

as well as in response to comments 

received on the proposed regulation, we 

are defining ‘‘prescription drug pricing 

standard’’ in regulation. Specifically, in 

§ 423.501 a ‘‘prescription drug pricing 

standard’’ is now defined as ‘‘any 

methodology or formula for varying the 

pricing of a drug or drugs during the 

term of a pharmacy reimbursement 

contract that is based on the cost of a 

drug, which includes, but is not limited 

to, drug pricing references and amounts 

that are based upon average wholesale 

price, wholesale acquisition cost, 

average manufacturer price, average 

sales price, maximum allowable cost, or 

other cost, whether publicly available or 

not.’’ In addition, we are finalizing the 

following technical changes to make the 

regulations on prescription drug pricing 

standards easier to reference: (1) To 

combine the current requirements 

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

into (i) and eliminate the reference to 

the effective contract year 2009 as no 

longer necessary. These requirements 

generally state that Part D sponsors 

agree to update any prescription drug 

pricing standard (as would be defined in 

§ 423.501) on January 1 of each contract 

year and not less frequently than once 

every 7 days thereafter. Also, we are 

moving the current requirement to 

indicate the source used for making any 

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

§ 423.505(i)(3)(viii)(B), so that it is 

clearer by its placement in the 

regulation that this requirement is on 

Part D sponsors. 

For new paragraph 

§ 423.505(b)(21)(iii), we are finalizing a 

new requirement and not a technical 

change, that Part D sponsors agree in 

their contracts with CMS to disclose all 

individual drug prices to be updated to 

the applicable pharmacies in advance of 

their use for reimbursement of claims, if 

the source for any prescription drug 

pricing standard is not publicly 

available. This means, in conjunction 

with the proposed definition of a 

‘‘prescription drug pricing standard’’ 

discussed previously, that Part D 

sponsors have to convey to network 

pharmacies the actual maximum 

allowable cost prices to be changed in 

advance. We are requiring that the 

actual maximum allowable cost prices 

be disclosed in advance because, if the 

pharmacies are not able to use the 

updates as a reference against which 

they can check their reimbursements, 

there would be no point to the statutory 

requirement. 

As a final technical change, we are 

eliminating language in 

§ 423.505(i)(3)(viii)(A) about 

establishing regular updates of any 

prescription drug pricing standard used 

by the Part D sponsor, which is 

duplicative to language in 

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

changes described previously, there 

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

§ 423.505(i)(3)(viii) (which we note will 

be redesignated as § 423.505(i)(3)(vii) 

due to other changes in this final rule), 

and this provision simply requires that, 

if applicable, each and every contract 

governing Part D sponsors and first tier, 

downstream, and related entities, must 

contain provisions addressing the 

prescription drug pricing standard 

requirements of § 423.505(b)(21). We 

believe these changes will make the 

regulation text easier to reference and 

understand. 

Comment: We received a very 

significant number of supportive 

comments for our proposal. These 

commenters asserted that maximum 

allowable cost prices are a source of 

deep and ongoing concern for 

pharmacies. Specifically, these 

commenters assert that PBMs update 

maximum allowable cost prices of drugs 

for which the drug costs are declining 

in a timely manner, but do not do so 

when the drug costs are increasing. 

These commenters asserted in particular 

that there were significant spikes in the 

acquisition costs for certain generic 

drugs in Fall 2013, but that PBMs did 

not update their maximum allowable 

cost prices accordingly. These 

commenters also offered specific 

examples of maximum allowable cost 

prices of drugs that they asserted 

resulted in reimbursement that was 

below pharmacy acquisition costs for 

the drugs, yet the drugs were not 

available on the market at lower prices. 

These commenters stated that 

pharmacies were forced not to stock 

certain drugs due to inadequate 

reimbursement based on maximum 

allowable cost prices of drugs, 

sometimes creating access issues for 

patients. These commenters further 

stated that the pharmacies are even in 

danger of going out of business 

altogether due to the low maximum 

allowable cost prices for drugs, and that 

if pharmacies are forced to close their 

doors for this reason, there would be 

even greater health care access issues in 

many communities. 

The supportive comments stated that 

greater transparency in maximum 

allowable cost prices of drugs would not 

only give pharmacies the ability to shop 

for more cost-effective versions of 

generic drugs, but would improve 

pharmacies’ ability to evaluate Medicare 

Part D plan contract proposals, plan 

their business staffing levels and 

potential capital investments, and 

monitor claims reimbursements and 

appeal when it appears that there has 

been a reimbursement error. 

Conversely, some other commenters 

opposed our proposal. One commenter 

asserted that our proposal was based 

upon anecdotal complaints from 

pharmacies. This commenter stated that 

PBMs make their most utilized 

maximum allowable cost list available 

upon request to any pharmacy that asks 

for it, and that pharmacies almost never 

make such a request. 

Response: We thank the commenters 

for their supportive comments of our 

proposal. Given the voluminous number 

of supportive comments we received, 

we disagree with the commenter that 

stated that our proposal was based upon 

anecdotal pharmacy complaints. 

However, we were surprised to learn 

that pharmacies do not routinely request 

PBMs’ most utilized maximum 

allowable cost lists, and wonder if 

pharmacies do not realize that they are 

available upon request. We agree with 

the supportive commenters that greater 

drug price transparency will further 

increase competition in the drug market 

which can lead to even lower drug 

prices. Therefore, we encourage 

pharmacies to make requests for the 

most utilized maximum allowable cost 

lists from the PBMs with which they do 

business, and thank the commenter for 

this suggestion. 

Comment: Many commenters support 

our proposal out of concern that the 

uncertainties surrounding current 

maximum allowable cost prices for 

drugs fall more heavily on smaller rural 

and community pharmacies and may 

limit beneficiary access. Additionally, 

these commenters expressed support for 

greater drug price transparency for 

Medicare beneficiaries. 

Response: We thank the commenters 

for their support of our proposal. 

Comment: Some commenters opposed 

our proposal, asserting that it would 

increase costs by requiring a specific 


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time period (which many commenters 

interpreted to be 7 days advance notice) 

for advance notice, as generic drug costs 

generally decrease over time. It also 

appeared that some commenters 

asserted that requiring any advance 

notice of maximum allowable cost 

prices would increase costs, including 

one who made a general assertion that 

it would permit pharmacies and drug 

manufacturers to ‘‘game the system’’ by 

modifying the timing of their various 

transactions in a manner that capitalizes 

on the pricing changes. Other 

commenters stated that the proposal 

would interfere with a mechanism that 

incentivizes pharmacies to purchase the 

least expensive generic drug available. 

Finally, some commenters opposed the 

requirement, asserting that requiring 

price updates at least every 7 days is 

redundant of the frequent updates that 

are inherent in a maximum allowable 

cost pricing mechanism and only adds 

administrative cost. 

Conversely, many commenters 

requested that PBMs be required to give 

at least 7 days prior notice before a 

maximum allowable cost price change. 

One commenter opposed the proposal, 

but recommended as an alternative that 

maximum allowable cost prices be 

updated every 7 business days, and not 

necessarily beginning on January 1 of 

each year. Another commenter opposed 

the proposal, but recommended as an 

alternative that the no-less-than-7 day 

update requirement for maximum 

allowable cost prices be extended to no 

less than every 14 days. 

Response: This requirement does not 

specify any particular time period for 

advance notice of maximum allowable 

cost prices to network pharmacies. The 

requirement is that maximum allowable 

cost prices of drugs must be updated at 

least every 7 days and disclosed in 

advance of their use, if the source for 

any prescription drug pricing standard 

is not publicly available. Also, if generic 

prices generally decrease over time, 

updating maximum allowable cost 

prices for drugs at least every 7 days 

generally should have a downward 

pressure on overall drug costs. 

Therefore, we do not agree with the 

commenters that the requirement will 

necessarily increase costs. Also, 

maximum allowable cost prices 

currently must be disclosed at point-ofsale (POS) in order for a drug claim to 

process, so we do not believe that mere 

advance notice changes the drug claims 

processing system so significantly as to 

permit gaming of the system, 

particularly since the commenter that 

raised this concern provided no detail to 

back up its assertions about how any 

such gaming would occur. Furthermore, 

we do not understand the argument for 

the status quo—that disclosing 

maximum allowable cost prices only at 

POS better incentivizes pharmacies to 

purchase the least expensive generic 

drugs compared to requiring some 

advance notice of those prices to the 

pharmacies. We think pharmacies will 

still be incentivized to acquire a drug at 

the lowest cost possible regardless of 

whether disclosed maximum allowable 

cost prices are declining or increasing. 

We further were not persuaded by the 

argument that the requirement is 

redundant, as it seems to suggest that 

the Part D sponsors/PBMs will 

frequently update maximum allowable 

cost prices anyway and disclose them at 

POS, but requiring them to be updated 

at least every 7 days and disclosed in 

advance adds significant administrative 

costs. In fact, we think just the 

opposite—that negligible administrative 

costs will be incurred by Part D 

sponsors due to this requirement, since 

they are using and updating maximum 

allowable cost prices for reimbursement 

of drug claims already and must make 

minimal changes to that current system 

to comply with this requirement. In 

other words, so long as Part D sponsors 

are updating maximum allowable cost 

prices as frequently as commenters 

asserted that the prices change and 

using them for reimbursement, then the 

new updating and disclosure 

requirement changes nothing for that 

sponsor, other than that the sponsor 

must now disclose the maximum 

allowable cost prices to its network 

pharmacies in advance of their use 

(rather than just at point-of-sale) in a 

way that enables the pharmacy to 

connect a claim to the correct drug price 

at the appropriate point in time in order 

to validate the price. However, we 

acknowledge that to the extent the 

assertions of some commenters are 

true—that PBMs update maximum 

allowable cost prices only when drug 

prices are declining, but not when they 

are increasing—then we would agree 

that this requirement may also result in 

more updating for PBMs. 

In addition, we note that the 

requirement to update prescription drug 

pricing standards every 7 days 

beginning on January 1 of each year is 

a statutory one. We do not have the 

authority to implement different update 

timing requirements, nor to disregard 

the January 1 start date every year. 

Comment: Some commenters stated 

that our proposal was operationally 

infeasible, as there are different 

maximum allowable cost lists for 

different pharmacies, types of 

pharmacies, types of programs 

(commercial, Medicare D, TRICARE, 

etc.) and over 100,000 drugs are subject 

to maximum allowable cost prices, 

(sometimes daily). Some other 

commenters stated that sending network 

pharmacies a stream of continuous 

maximum allowable cost pricing 

updates would be a nuisance and 

distraction and not helpful to network 

pharmacies. One commenter did not 

object to our proposal, as long the 

requirement can be met in a manner that 

is efficient, such as on a look-up basis 

through a secure internet site that 

network pharmacies can access at any 

time to obtain the most current 

maximum allowable cost pricing for a 

particular drug. 

One commenter requested that we 

require maximum allowable cost prices 

to be disclosed via a certain consistent 

format layout and delivery method and 

include industry standard drug 

identifiers, such as Generic Pricing 

Indicators (GPI), and that the data 

format allow for efficient data analysis 

such as MS Excel, or a text document 

that could be converted to Excel. 

Response: We were not persuaded by 

the commenters that stated our proposal 

was operationally infeasible. It does not 

make sense to us that Part D sponsors/ 

PBMs can manage the complexity in 

pharmacy reimbursement described in 

the comments, but cannot manage to 

modify that existing system in order to 

disclose the prices in advance of their 

use to network pharmacies, and update 

them at least every 7 days. Rather, we 

were persuaded by the commenter that 

described one option for meeting the 

requirement—through a secure internet 

site that allowed network pharmacies to 

look up their drug prices. This option 

would be compliant with the 

prescription drug pricing standard 

requirement, so long as the site or other 

delivery method to convey maximum 

allowable cost prices enables 

pharmacies to connect a claim to the 

correct drug price at the appropriate 

point in time in order to validate the 

price. We decline to require a certain 

format layout and delivery method for 

disclosure of maximum allowable cost 

prices, but note these matters can be 

addressed by the parties in their 

negotiations. 

Comment: Some commenters asserted 

that requiring the disclosure of 

maximum allowable cost methodology 

would increase Part D program costs by 

revealing competitive information. 

Many other commenters requested that 

we require PBMs to disclose the specific 

NDCs used to compute maximum 

allowable cost prices on drugs. 

Response: Our proposal did not 

require Part D sponsors/PBMs to 

disclose their maximum allowable cost 


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methodology, nor the proprietary data 

source or basis used to develop 

reimbursement rates. We note that 

423.505(b)(21)(ii) will require a Part D 

sponsor to indicate the source for 

making updates to a prescription drug 

pricing standard. In the case of publicly 

available standards, the sponsor would 

identify the standard. In the case of 

maximum allowable cost pricing that is 

not publicly available, the sponsor 

would indicate that the standard is 

maximum allowable cost pricing to 

meet this particular requirement. We 

also decline to require Part D sponsors 

to disclose the specific NDCs used to 

compute maximum allowable cost 

prices. However, we note that these 

matters can be addressed in contractual 

negotiations. 

Comment: Some commenters asserted 

that maximum allowable cost prices are 

not a prescription drug pricing standard, 

and that CMS is exceeding its statutory 

authority in making it one. One 

commenter asserted that the Congress’ 

intent in enacting section 173 of MIPPA 

was to ensure that pricing standards are 

timely adjusted when market prices 

fluctuate and not to ensure that 

pharmacies have current data on 

reimbursement amounts. This 

commenter also stated that when a 

payment methodology uses non-public 

costs for setting prices, payment 

amounts may have no direct 

relationship to fluctuations in 

acquisition costs. Many commenters 

specifically supported the language 

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

proposed definition of prescription drug 

pricing standard, stating that without 

this language, PBMs will shift to a 

different drug claim reimbursement 

mechanism over time and assert that the 

new mechanism is not subject to the 

prescription drug pricing standard 

regulation. Another commenter 

helpfully pointed out that our proposed 

definition of ‘‘prescription drug pricing 

standard’’ mistakenly referred to 

‘‘wholesale average cost’’ instead of 

‘‘wholesale acquisition cost.’’ 

Response: We thank the commenters 

for their supportive comments and note 

that we are finalizing the definition of 

‘‘prescription drug pricing standard’’ as 

proposed, with the exception of 

changing ‘‘wholesale average cost’’ to 

‘‘wholesale acquisition cost.’’ We 

disagree with the commenters that 

maximum allowable cost prices are not 

a prescription drug pricing standard, 

and we disagree that we are exceeding 

our authority in specifying in regulation 

that maximum allowable cost prices, 

like other prescription drug standards, 

must be updated in accordance with the 

statutory requirements. In our view, it is 

clear that Congress believed that if a 

standard is based on the cost of a drug 

(whether directly or indirectly), it must 

be updated to accurately reflect the 

market price of acquiring the drug. 

Since the statutory language of section 

173 of MIPPA does not exclude 

maximum allowable cost prices from 

the term ‘‘prescription drug pricing 

standard,’’ and maximum allowable cost 

prices are based on the cost of the drug 

and thus fluctuate and are updated, we 

believe it is reasonable to interpret the 

term, ‘‘prescription drug pricing 

standard,’’ to include maximum 

allowable cost prices. As such, they 

must be treated as any other 

prescription drug pricing standard 

under the statutory and regulatory 

requirements. In the case of published 

prescription drug pricing standards, the 

standards themselves provide 

pharmacies with current data on 

reimbursement amounts. In the case of 

non-published ones, disclosing the 

prices themselves in advance of their 

use provides this data. We agree with 

the commenter who asserted that 

MIPPA section 173 is intended to 

ensure that prices are adjusted timely, 

but we disagree that it necessarily 

follows that the Congress did not intend 

to ensure that pharmacies had access to 

current data on reimbursement 

amounts. We believe that the 

requirement for timely updating of 

reimbursement standards must include 

sufficient transparency so that 

pharmacies can determine that the 

updating requirement is being fulfilled. 

The disclosure requirements we are 

finalizing here are consistent with the 

updating requirement, and are 

appropriate to ensure sufficient 

transparency. 

Comment: Many commenters stated 

that having current data on the amount 

of reimbursement pharmacies can 

expect in turn impacts costs that plan 

sponsors submit to CMS, as well as 

prices displayed on Medicare 

Prescription Drug Plan Finder (MPDFP). 

Other commenters asserted that the 

MPDFP is updated every 2 weeks with 

pricing that is effectively a month old, 

and that the validity of estimated prices 

on the MPDPF does not depend on the 

ability of pharmacies to verify the prices 

shown, and that this responsibility is on 

Part D sponsors. One commenter stated 

that our requirement would necessitate 

more frequent updating of the MPDPF. 

Response: We thank the commenters 

for their supportive comments of our 

similar assertions in the preamble to the 

proposed rule. Our proposal does not 

affect the current process for Part D 

sponsors to submit drug price for the 

MPDPF. Our point about the MPDPF in 

the preamble to the proposed rule was 

that this requirement will enable 

pharmacies to validate maximum 

allowable cost prices in the MPDPF. 

While we agree with the commenters 

that the MPDPF is not a real-time 

information system, but rather reflects 

drug prices at a point in time, we note 

that these prices should be the correct 

prices for that point in time. Currently, 

however, pharmacies have no ready way 

to validate the prices in the MPDPF that 

are based on maximum allowable cost 

prices if they choose to do so. Once 

maximum allowable cost prices are 

disclosed to pharmacies in a way that 

enables pharmacies to connect a claim 

to the correct drug price at the 

appropriate point in time, they will be 

able to validate prices in the MPDPF 

and alert sponsors, or CMS, to any 

issues. 

Comment: A few commenters 

requested a delay in the effective date 

for implementation of this requirement 

until January 1, 2016. This delay would 

provide for more preparation time. 

Response: We were persuaded by 

comments to delay the effective date of 

this proposal until 2016 to give Part D 

sponsors time to consider the format 

layout and delivery method for 

conveying maximum allowable cost 

prices to network pharmacies in a 

manner that allows the pharmacies to 

connect a claim to the correct drug price 

at the appropriate point in time in an 

efficient way. 

Comment: Many commenters 

requested that we include a definition 

for which drugs can be included on a 

maximum allowable cost list, and 

requirements for an appeals process for 

challenging maximum allowable cost 

prices and for standards related to 

pharmacy audits. One commenter stated 

that it sends 200 requests per month to 

PBMs to increase their maximum 

allowable cost reimbursement rates to 

be closer to pharmacy acquisition costs 

and that very few are ever responded to, 

and fewer still are ever adjusted. 

Response: These comments are out of 

scope of our proposal. 

In light of all the comments received, 

we are finalizing this proposal without 

change, except for correcting the error in 

the definition for prescription drug 

pricing standard previously noted and 

delaying the effective date until January 

1, 2016. 

19. Any Willing Pharmacy Standard 

Terms & Conditions (§ 423.120(a)(8)) 

Section 1860D–4(b)(1)(A) of the Act 

requires Part D plans to permit any 

pharmacy meeting the plan’s Terms and 

Conditions (T&C) to participate in the 

plan’s network. We used this authority 


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to establish requirements under 

§ 423.120(a)(8) and 423.505(b)(18) that 

plan sponsors have reasonable and 

relevant T&C for network participation 

in their standard contract, and allow 

any pharmacy meeting the T&C to 

participate as a network pharmacy for 

that plan. Section 1860D–4(b)(1)(B) of 

the Act permits sponsors to reduce cost 

sharing ‘‘below the level otherwise 

required,’’ notwithstanding paragraph 

(A). Thus, the statute permits a 

‘‘preferred’’ cost sharing level to be 

offered at some network pharmacies. 

Since the beginning of the program, we 

have required sponsors to offer standard 

T&Cs to any willing pharmacy in order 

to achieve broad network access, but 

have permitted sponsors to offer 

different T&Cs in return for preferred 

cost sharing to a smaller subset of its 

network. We have previously stated that 

we believed our interpretation of these 

two seemingly conflicting statutory 

provisions struck an appropriate 

balance between the need for broad 

pharmacy access and the need for Part 

D plans to have appropriate contracting 

tools to lower costs. In this section we 

proposed that in place of sponsors 

having one contract with standard terms 

for any willing pharmacy and a second 

preferred cost sharing contract for a 

limited subset of pharmacies, that 

sponsors instead have standard T&C for 

network participation that list all 

combinations of cost sharing and 

negotiated prices possible for retail 

settings under the plan, allowing any 

willing pharmacy the opportunity to 

offer preferred cost sharing if the 

pharmacy can offer the requisite level of 

negotiated prices. 

When discussing cost sharing, 

distinctions are made in this section 

between plans offering a preferred cost 

sharing level and plans that do not. For 

the purposes of this section, the cost 

sharing levels offered at retail 

pharmacies not contracted to offer 

preferred cost sharing are referred to as 

standard cost sharing levels. Cost 

sharing levels offered at retail 

pharmacies at the preferred T&C are 

referred to as preferred cost sharing 

levels. 

We have heard from many 

pharmacies, many of them small 

independent community pharmacies, 

that plans do not offer any willing 

pharmacy the opportunity to offer 

preferred cost sharing. Instead, some 

pharmacies are being offered only the 

plan’s standard T&C, at the highest level 

of beneficiary cost sharing. We received 

more than 200 comments in response to 

our discussion of this topic in the 

Announcement of Calendar Year (CY) 

2014 Medicare Advantage Capitation 

Rates and Medicare Advantage and PDP 

Payment Policies and Final Call Letter 

(2014 Call Letter) pp. 175 and 176 at 

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

Downloads/Announcement2014.pdf. 

Most of these comments were from 

pharmacies concerned about barriers to 

entry for participation in preferred 

networks, and many of these argued that 

such limited networks violate the 

statutory intent of the network access 

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

the Act. In particular, these commenters 

disagreed that such barriers were 

consistent with the any willing 

pharmacy requirement as stated in 

1860D–4(b)(1)(A) of the Act. 

Consequently, we reviewed our 

original regulatory interpretation of 

these provisions, not only in light of 

these complaints, but also in light of our 

experience in the Part D program. We 

believe that an alternative reading of 

sections 1860D–4(b)(1)(A) and (B) of the 

Act to reduce barriers is not only 

permissible, but also it would have the 

following key policy benefits, which we 

describe as follows: 

• Increased access for beneficiaries to 

preferred level cost sharing with any 

willing pharmacy able to agree to the 

T&C that include preferred cost sharing. 

• Improved opportunity for 

competition among pharmacies 

contracting with the sponsor to charge 

no more than the ceiling price stated in 

the contract for preferred cost sharing, 

reducing costs charged to the program. 

• Improved clarity for beneficiaries 

surrounding cost sharing levels 

available at retail and mail order 

pharmacies. 

We have heard the assertion that 

limited networks achieve greater savings 

than broader networks, and that 

moreover, allowing more participants 

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

lead to increased prices. However, we 

have been running a natural experiment 

of sorts relative to this assertion in the 

Part D program. If limited networks per 

se led to significantly lower costs, we 

would see consistently significant 

savings in those network segments 

relative to the rest of the sponsors’ 

networks. However, an April 2013 

analysis by CMS, ‘‘Negotiated Pricing 

Between Preferred and Non-Preferred 

Pharmacy Networks’’, reviewed actual 

program experience and indicated that 

this is not the case across the board (see 

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

Prescription-Drug-Coverage/

PrescriptionDrugCovGenIn/Downloads/

PharmacyNetwork.pdf). As the 2012 

claims show, there is wide variation in 

discounting across sponsors. Consistent 

savings are not seen uniformly. In some 

cases, pharmacies extending high 

discounts are ones that have been 

excluded from limited networks offering 

preferred cost sharing, while some 

pharmacies within the limited networks 

offer effectively no discounts compared 

to the rest of the network. 

We have also heard the argument that 

the pharmacies in currently limited 

networks are offering deeper discounts 

solely in return for increased market 

share and that they will withdraw such 

offers if the limited network is opened 

up to other pharmacies that can meet 

those T&C. We are skeptical that such 

participants in the highly competitive 

retail market will abandon their market 

share by returning to the broader 

network T&C. As some network 

pharmacies offering standard cost 

sharing have been able to extend 

discounts in pricing even deeper than 

what is seen in some pharmacies 

offering preferred cost sharing, it is not 

obvious that negotiated prices would 

necessarily increase in the aggregate in 

the event that a limited number of 

pharmacies consider changing from 

preferred to standard cost sharing. We 

have also been informally told by one 

sponsor with preferred cost sharing in a 

limited network that its preferred costsharing T&C already are offered to any 

willing pharmacy. For these reasons, we 

do not believe that our proposal would 

result in increased prices. 

We also believe that there is a limit to 

the number of cost sharing levels offered 

under a benefit plan that can be well 

understood by beneficiaries. When 

establishing its network, a Part D 

sponsor does not offer identical T&C for 

network participation to every 

pharmacy. Certain terms will 

necessarily differ among contracts with 

the different types of pharmacies 

needed to provide all Part D drugs, if for 

no other reason than to address the 

different access and service standards 

established by CMS. These various 

types include at a minimum: Retail, 

mail-order, long-term care institutional, 

limited-distribution-drug specialty, and 

home infusion therapy pharmacies. 

Terms will also differ with respect to 

negotiated prices and the level of cost 

sharing that a pharmacy’s claims will be 

subject to. For instance, long-term care 

institutional, specialty, and infusion 

pharmacies are generally offered at the 

standard level of cost sharing (for the 

applicable formulary tier) for a month’s 

supply of a covered drug. Retail and 

mail-order pharmacies, in contrast, 

currently may contract with plans to be 

offered at more than one cost sharing 

level. 


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Cost sharing at retail and mail-order 

pharmacies currently vary on three 

dimensions: Whether the cost sharing is 

standard or preferred, on the quantity 

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

dispensing location. 

We proposed that a more simplified 

benefit design, incorporating these three 

variables and accommodating a more 

clearly defined set of cost sharing levels, 

would promote better understanding of 

Part D plan benefits, both in terms of 

beneficiary cost sharing and prices 

charged to the program, as well as 

streamlined contracting options. We 

also proposed to expressly state the total 

number of possible cost-sharing levels, 

to clarify expectations and to preempt 

the introduction of additional or 

unauthorized cost-sharing levels in the 

future. 

For prescriptions not subject to Long 

Term Care, specialty pharmacy, or home 

infusion pricing, the interaction of the 

following four provisions of section 

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

authorized levels of cost sharing: 

Standard, preferred, and extended days’ 

supplies for retail and mail order 

pharmacies. We proposed to minimize 

the number of variations on these three 

levels to the following options and to 

ensure that standard T&C for network 

participation offer every level available 

for each respective pharmacy type. First, 

we proposed to limit long term care, 

specialty, and infusion pharmacy cost 

sharing to the standard monthly rate, as 

is industry practice today. Second, we 

proposed to limit retail pharmacies to 

the three authorized levels; either the 

standard or preferred monthly rate (for 

supplies up to 34 days), and one 

extended days’ supply cost sharing rate 

not exceeding three times the monthly 

retail rate (either three times the 

standard monthly retail rate or three 

times the preferred monthly retail rate, 

depending upon the T&C of the 

pharmacy’s contract). Third, we 

proposed to limit the levels of cost 

sharing at mail-order pharmacies to one 

monthly rate and one extended day mail 

order cost sharing rate (for any supplies 

greater than 34 days) for reasons 

discussed previously. We additionally 

solicited comments on the frequency of 

mail order being used to fill 

prescriptions lasting one month or less. 

We note that these proposals would not 

alter our requirements around the 

dispensing of any days’ supplies less 

than 30 days, which is still subject to 

the ‘‘daily cost sharing’’ provision at 

§ 423.153(b)(4). 

In summary, we proposed to use the 

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

of the Act to establish rules defining 

convenient access within a Part D 

pharmacy network, combined with the 

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

the Act to revise the any willing 

pharmacy requirements, to ensure that 

any pharmacy that can meet the 

applicable T&C for offering standard or 

preferred cost sharing can join the 

network on those terms. We believe the 

network access provisions in section 

1860D–4(b)(1) of the Act support 

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

cost sharing offered under a sponsor’s 

benefit plans. We believe that doing so 

supports the Congressional intent to 

have plans compete on negotiated prices 

by making this price competition more 

open and accessible to pharmacies. 

Specifically, we proposed to revise 

§ 423.120(a)(8) to require that, in 

establishing its contracted pharmacy 

network, a Part D sponsor offering 

qualified prescription drug coverage 

must comply with all of the following 

requirements: 

• Must offer and publicly post 

standard terms and conditions for 

network participation for each type of 

pharmacy in the network subject to the 

following: 

++ May not require a pharmacy to 

accept insurance risk as a condition of 

participation in the PDP sponsor’s 

contracted pharmacy network. 

++ Must offer payment terms for 

every level of cost sharing offered under 

the sponsor’s plans consistent with CMS 

limitations on the number and type of 

cost sharing levels, and for every type of 

similarly situated pharmacy. 

• Must contract with any willing 

pharmacy able to meet one set of the 

terms and conditions offered by that 

plan for that type of pharmacy. 

We also proposed to make conforming 

changes to the contracting provisions at 

§ 423.505(b)(18) to require Part D 

sponsors to agree to have standard T&C 

for network participation that meet the 

requirements described in 

§ 423.120(a)(8), with reasonable and 

relevant T&C of participation for each 

type of pharmacy in its network. We 

believe these proposed requirements 

would better ensure that each Part D 

plan: (1) Provides convenient access to 

Part D drugs in all Part D settings and 

to the extent practical, at all cost sharing 

levels; and (2) offers cost sharing levels 

that encourage beneficiaries to make 

choices that minimize costs not only for 

themselves, but also to the Medicare 

Part D program as a whole. We solicited 

comments on these proposals to expand 

the any willing pharmacy T&C and to 

streamline the levels of cost sharing 

offered under those standard T&C. We 

believe these proposals would increase 

beneficiary understanding of and access 

to cost sharing that is better aligned 

with the lowest negotiated prices, 

improve market competition, and 

increase downward pressure on total 

program costs. We received more than 

4,000 comments on these proposals and 

our response follows: 

Comment: This proposal received 

significant support from commenters 

citing an interest in expanding access to 

preferred cost sharing and creating a 

more level playing field for small and 

independent pharmacies. Many 

reported that the lower cost sharing at 

a limited number of pharmacies offering 

preferred cost sharing leads many 

beneficiaries to drive sometimes great 

distances to access these savings, even 

when they have a stated preference to 

stay with a local pharmacy, or one 

where they have a long-term history 

with the pharmacist. Many other 

commenters reported that some current 

marketing practices are mistakenly 

interpreted as suggesting that only 

pharmacies offering preferred cost 

sharing can be used by enrollees of that 

plan, also leading many beneficiaries to 

leave their preferred choice of where to 

access pharmacy services. 

Response: We appreciate the strong 

support we received for this proposal. 

We agree with many of the commenters 

who wrote that beneficiaries should be 

able to choose where they obtain their 

pharmacy services, and we are very 

concerned to hear that the current 

incentives (and potentially current 

marketing of pharmacies offering 

preferred cost sharing) lead many 

beneficiaries to believe that only those 

pharmacies offering preferred cost 

sharing can be used. We are also 

concerned by the many comments 

reporting that beneficiaries are now 

driving 30–60 miles to the nearest 

pharmacy offering preferred cost 

sharing, or are feeling forced into using 

mail-order services, despite a preference 

to stay with a local pharmacy. We share 

the concerns of commenters who 

suggest that current contracting 

practices by sponsors, only extending 

preferred cost sharing T&C with select 

pharmacies, are being interpreted by 

Medicare beneficiaries as a violation of 

the Any Willing Pharmacy provision in 

statute. While the Any Willing 

Pharmacy provision applies only to 

participation in a plan’s pharmacy 

network, not the subset of pharmacies 

offering preferred cost sharing, many 

commenters reported that access to 

preferred cost sharing does not align 

with beneficiaries’ expectation for 

choice of pharmacy service provider. 

That is, if a plan offers preferred cost 

sharing, beneficiaries assume they will 

be able to access that cost sharing at 

their own ‘‘preferred’’ pharmacy. 


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Comment: Some commenters asserted 

that requiring plan sponsors to allow 

any willing pharmacy to accept publicly 

disclosed terms and conditions to offer 

preferred cost sharing to plan enrollees, 

in exchange for requisite drug price 

discounts, would limit sponsors’ ability 

to negotiate significant discounts from a 

more limited number of pharmacies. 

Some of these commenters stated that 

they did not believe CMS had the 

authority to make this change. A few 

commenters suggested that CMS use its 

current authority to respond to plan 

offerings that we determine to be 

discriminatory in the availability and 

access they provide to preferred cost 

sharing, and to reject plans failing to 

offer fair access. Many of the opponents 

of this proposal objected to publicly 

posting contract T&C, as potentially 

undermining price competition. These 

commenters suggested that this change 

would ultimately result in higher drug 

costs, as a higher number of pharmacies 

offering preferred cost sharing would 

lead to a decrease in the volume of 

enrollees electing to use any one of 

these pharmacies, and as a result 

pharmacies would not be as willing to 

negotiate deeply discounted drug prices 

without the promise of a high volume of 

enrollees. Some commenters submitted 

economic analyses in support of their 

claims. Some, but not all opponents 

questioned CMS’ assumption that 

pharmacies currently offering preferred 

cost sharing would not elect to 

discontinue offering preferred cost 

sharing if such terms and conditions 

were available to any willing pharmacy. 

Response: We continue to believe that 

reduced preferred cost sharing offered to 

plan enrollees should be aligned with 

reduced drug prices charged to the 

program, aligning the cost sharing price 

signals with high value plans offering 

reduced drug pricing. We believe that 

opening up these limited networks to 

any pharmacy willing to charge no more 

than the contract’s ceiling price to 

qualify for offering the lower preferred 

cost sharing may be necessary to restore 

price competition in these networks. We 

disagree with the comments suggesting 

that this provision violates the noninterference provision. Expanding 

access to preferred cost sharing aligns 

with the authority to establish rules 

defining convenient access within a Part 

D network, combined with the authority 

to interpret the any willing pharmacy 

requirements. We believe the network 

access provisions in section 1860D– 

4(b)(1)(A) of the Act support expanding 

§ 423.120(a)(8) to establish access 

standards for all levels of cost sharing 

offered under a sponsor’s benefit plans, 

and that this expansion aligns with 

Congressional intent to have open 

competition between plans based on 

negotiated price. 

Numerous comments from opponents 

of the provision cited published 

analyses that predate Part D on the 

elimination of selective contracting 

practices at the state level and higher 

drug expenditures noted after this 

change. However, we are concerned that 

traditional analyses that study drug 

expenditures after an expansion of a 

previously limited network may not be 

directly relevant to the Part D market. 

While we recognize the general parallels 

between the studies submitted for 

consideration and the any willing 

pharmacy proposal, any attempt to 

generalize these studies to the Part D 

benefit would need to incorporate 

multiple other variables, especially 

given the revenue streams other than 

point-of-sale pricing that may distort 

other economic incentives. The studies 

submitted offer only limited explanation 

of what trends in utilization, pricing, 

and care management surrounded the 

state-level changes, and without that 

context we do not consider these 

analyses persuasive. Further supporting 

our concerns, one commenter provided 

alternative economic analysis that 

supported our assumption that within 

the Part D market expanding access to 

any willing pharmacy may not affect 

drug prices. 

While we continue to believe that 

there are benefits in increasing 

transparency and in permitting 

pharmacies willing to charge reduced 

prices in exchange for offering preferred 

cost sharing, in light of these comments 

we believe it is necessary to further 

analyze the potential impacts on the 

Part D market. Considering the 

conflicting comments and analyses 

submitted, and the potential 

consequences of implementing any 

changes based on incorrect 

assumptions, we believe it is important 

to wait and to spend additional time 

considering the evidence for potential 

financial impacts within the Part D 

benefit. We will be closely studying 

preferred cost sharing practices, 

including the associated point-of-sale 

drug pricing, going forward. In response 

to the comments suggesting that CMS 

use its current authority to respond to 

plan offerings that we determine to be 

discriminatory in its proposed 

availability and access to preferred cost 

sharing, we will further explore our 

authority in this area. In addition, we 

plan to closely monitor beneficiaries’ 

access to preferred cost sharing, as well 

as drug pricing by pharmacies offering 

preferred cost sharing, to determine 

whether future rulemaking in this area 

is necessary. 

In summary, pending further study, 

we are not finalizing the any willing 

pharmacy contracting proposed 

provision changes to § 423.120(a)(8) or 

423.505(b)(18), nor the proposed 

changes to limit the authorized levels of 

cost sharing. We will engage in further 

notice and comment rulemaking on this 

issue as warranted in the future. 

20. Enrollment Requirements for 

Prescribers of Part D Covered Drugs 

(§ 423.120(c)(5) and (6)) 

To improve our ability to oversee the 

Medicare Part D program, we proposed 

to implement section 6405(c) of the 

Affordable Care Act effective January 1, 

2015. This section provides the 

Secretary with authority to require that 

prescriptions for covered Part D drugs 

be prescribed by a physician or eligible 

professional (as defined at section 

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

1395w–4(k)(3)(B)) who is enrolled in the 

Medicare program pursuant to section 

1866(j) of the Act (42 U.S.C. 1395cc(j)). 

We generally proposed in revised 

§ 423.120(c)(5) and new paragraph (6) 

that a prescriber of Part D drugs must 

have (1) an approved enrollment record 

in the Medicare program, or (2) a valid 

opt-out affidavit on file with a Part A/ 

Part B Medicare Administrative 

Contractor (A/B MAC) in order for a 

prescription to be eligible for coverage 

under the Part D program. More 

specifically, we proposed the following: 

• Under § 423.120(c)(5)(ii)(A) and (B), 

a Part D sponsor must deny or must 

require its PBM to deny a pharmacy 

claim for a Part D drug if: (1) An active 

and valid physician or eligible 

professional National Provider Identifier 

(NPI) is not contained on the claim; or 

(2) the physician or eligible professional 

(i) is not enrolled in the Medicare 

program in an approved status, and (ii) 

does not have a valid opt-out affidavit 

on file with an A/B MAC. 

• Under § 423.120(c)(5)(ii)(C) and 

(c)(6)(ii), to receive payment for a drug, 

a beneficiary’s request for 

reimbursement from a Part D sponsor 

must be for a Part D drug that was 

dispensed in accordance with a 

prescription written by a physician or 

eligible professional who: (1) Is 

identified by his or her legal name in 

the request; and (2) is either enrolled in 

Medicare in an approved status or has 

a valid opt-out affidavit on file with an 

A/B MAC. 

• Under § 423.120(c)(6)(i), in order for 

a Part D sponsor to submit to CMS a 

prescription drug event (PDE) record, 

the PDE must pertain to a claim for a 

Part D drug that was dispensed in 


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accordance with a prescription written 

by a physician or eligible professional 

who is either (1) enrolled in Medicare 

in an approved status, or (2) has a valid 

opt-out affidavit on file with an A/B 

MAC. 

• Under § 423.120(c)(6)(iii), a Part D 

sponsor must deny or must require its 

PBM to deny a pharmacy claim for a 

drug (or a request for reimbursement 

from a Medicare beneficiary for a drug) 

if the claim does not meet the 

requirements of § 423.120(c)(6)(i) or (ii), 

respectively. 

The overriding purpose of these 

provisions is to help ensure that Part D 

drugs are prescribed only by physicians 

and eligible professionals who are 

qualified to do so under state law and 

under the requirements of the Medicare 

program. 

Our proposed enrollment deadline of 

January 1, 2015 was intended to give 

physicians and eligible professionals at 

least 6 months after the publication of 

a final rule to complete the Medicare 

enrollment process. We solicited 

comments regarding the propriety of 

this effective date. 

The Medicare enrollment process 

requires that an A/B MAC screen and 

validate each enrollment application 

submitted by a physician or eligible 

professional prior to the decision to 

approve or deny enrollment in the 

Medicare program. The enrollment 

application collects identifying 

information about the applicant and his 

or her credentials, such as licensure 

status. We have been concerned about 

instances where unqualified individuals 

are prescribing Part D drugs. In fact, in 

a June 2013 report the OIG found that 

the Part D program inappropriately paid 

for drugs ordered by individuals who 

clearly did not appear to have the 

authority to prescribe. (See ‘‘Medicare 

Inappropriately Paid for Drugs Ordered 

by Individuals Without Prescribing 

Authority’’ (OEI–02–09–00608).) There 

have also been reports that the 

prescriptions of physicians with 

suspended licenses have been covered 

by the Part D program. This should not 

happen, and we believe we can better 

address these and similar vulnerabilities 

by verifying the credentials of 

prescribers through either the Medicare 

enrollment process or their submission 

of a valid opt-out affidavit. 

With respect to the latter, we note that 

under section 1802(b) of the Act and the 

implementing regulations at § 405.400 et 

seq., certain physicians and eligible 

professionals can opt-out of the 

Medicare program and enter into private 

contracts with Medicare beneficiaries. 

By entering into such contracts, these 

individuals do not bill the Medicare 

program for non-emergency services 

they furnish to beneficiaries. 

Under our proposal, in short, the 

prescriptions of a physician or eligible 

professional who is not enrolled in 

Medicare and does not have a valid optout affidavit on file with an A/B MAC 

would not be covered under the Part D 

program. As explained in the proposed 

rule, CMS would furnish or make 

available to Part D sponsors a list of 

physicians and eligible professionals 

who have an approved Medicare 

enrollment record or who have a valid 

opt-out affidavit on file with an A/B 

MAC. 

We also solicited comments on the 

following issues: 

• Whether all pharmacies should be 

required to enroll in Medicare in order 

to dispense covered Part D drugs. 

(Alternatively, we sought comment on 

whether requiring Medicare enrollment 

for network pharmacies is a ‘‘best 

practice’’ in pharmacy contracting by 

plan sponsors, and should be an integral 

part of sponsors’ required fraud, waste 

and abuse programs.) 

• Whether doctors of dental surgery 

or dental medicine, including family 

dentists, should be required to enroll in 

Medicare in order to prescribe covered 

Part D drugs. (Note that we did not 

propose to exclude dentists from our 

requirements. Sections 423.120(c)(5) 

and (6) were intended to apply to 

dentists.) 

We received a significant number of 

comments regarding these proposed 

provisions. Summaries of the comments 

as well as our responses follow: 

Comment: A number of commenters 

opposed our proposed changes to 

§ 423.120(c)(5) and the addition of 

§ 423.120(c)(6). Several commenters 

were concerned that these requirements 

would disrupt Medicare beneficiaries’ 

current relationships with their 

physicians or otherwise prevent patients 

from seeing certain physicians, hence 

denying them care. One commenter 

stated that it appears that state licensure 

alone is no longer sufficient for an 

individual to prescribe drugs, and that 

§ 423.120(c)(5) and (6) would 

inappropriately limit one’s ability to 

prescribe when he or she is otherwise 

permitted to do so under state law. The 

requirement to enroll is particularly 

disconcerting, the commenter added, 

considering that the prescribing 

individual (as opposed to the pharmacy) 

is not even receiving reimbursement 

from Medicare for the prescribed drug. 

Another commenter stated that 

medication should be based on a 

patient’s needs, rather than on whether 

a physician is in the Medicare system. 

Several commenters also requested 

further clarification regarding the intent 

of our proposed revisions. 

Response: The central purpose of our 

changes to § 423.120(c), as alluded to 

previously, is to ensure that we can 

verify that the prescriber is 

appropriately licensed and certified, is 

not excluded or debarred from 

Medicare, and is otherwise qualified 

under Medicare regulations to prescribe 

Part D drugs. Again, we have been 

concerned that unqualified individuals 

are prescribing such drugs, and the 

previously-referenced OIG report bears 

this out. The enrollment process will 

help ensure that Medicare beneficiaries 

and the Trust Funds are protected, 

which is why we intend to proceed with 

our proposal. We note further that these 

changes are fully consistent with our 

requirement in § 424.507 that 

physicians and eligible professionals 

who order or certify certain services and 

items are either enrolled in Medicare or 

have a valid opt-out affidavit on file 

with an A/B MAC. 

Comment: Several commenters 

contended that Medicare should not 

require physicians who do not 

participate in or take Medicare to enroll 

in the program. 

Response: Our changes to § 423.120(c) 

permit a physician or eligible 

professional who has a valid opt-out 

affidavit on file with an A/B MAC to 

prescribe Part D drugs. 

Comment: Many commenters, some of 

whom supported our proposed changes, 

expressed concern about the proposed 

January 1, 2015 date. Several of them 

requested that the implementation of 

§ 423.120(c)(5) and (6) be delayed until 

2016 or even 2017 to give CMS, 

prescribers, and plan sponsors adequate 

time to prepare and to address all 

operational and system challenges. 

Other commenters suggested that CMS 

utilize a phased-in approach, similar to 

that which was used for CMS’ 

implementation of § 424.507. These 

commenters asserted that this would 

help ensure that patient care is not 

interrupted, that all information 

regarding prescribers’ enrollment 

statuses is correct, that appropriate 

system testing is done, that CMS 

engages in regular communication with 

all affected stakeholders, and that CMS 

can more accurately report the number 

of physicians and eligible professionals 

who will be affected by our proposal. 

Additional commenters recommended 

that any revised implementation date be 

on January 1 so as to coincide with the 

beginning of the new plan year. 

Response: We agree with these 

commenters regarding the need to allow 

adequate time to prepare. Therefore, we 

are revising § 423.120(c)(5) and (6) to 


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establish an effective date of June 1, 

2015. We understand the commenters’ 

desire for a January 1 date, but we do 

not believe a delay until January 1, 2016 

is feasible given our aforementioned 

program integrity concerns. A June 1, 

2015 date, we believe, strikes an 

appropriate balance between the need to 

have sufficient time to prepare and the 

need to ensure that only qualified 

individuals are prescribing Part D drugs. 

We wish to assure plan sponsors, 

prescriber and supplier organizations, 

and beneficiary advocacy groups that 

we will regularly communicate with 

them in the months leading up to the 

June 1, 2015 effective date to address 

whatever concerns they have and to 

keep them abreast of CMS’ preparations 

for implementation. 

Plan sponsors, prescribers, 

beneficiaries, and other affected parties 

should note that existing policies that 

will be superseded by our changes 

remain intact (and should continue to 

be adhered to) through May 31, 2015. 

In order to: (1) Help ensure that 

stakeholders can effectively determine 

which provisions apply to them before 

and after June 1, 2015, (2) simplify and 

consolidate our proposed changes to 

§ 423.120(c), and (3) eliminate potential 

duplication between the provisions we 

proposed in (c)(5)(ii) and in (c)(6), we 

are making several technical revisions. 

The existing version of paragraph (c)(5) 

will remain intact with the exception of 

the addition of the ‘‘Before June 1, 2015, 

the following are applicable’’ language 

at the very beginning of the paragraph. 

We are not finalizing our proposed 

changes to paragraph (c)(5)(ii), but are 

instead merging them with our addition 

of paragraph (a)(6). Hence, our final 

version of new paragraph (c)(6) will 

read as follows: 

‘‘(6) Beginning June 1, 2015, the 

following are applicable— 

(i) A Part D sponsor must deny, or 

must require its pharmaceutical benefit 

manager (PBM) to deny, a pharmacy 

claim for a Part D drug if an active and 

valid physician or eligible professional 

(as defined in section 1848(k)(3)(B)(i) or 

(ii) of the Act) National Provider 

Identifier (NPI) is not contained on the 

claim. 

(ii) A Part D sponsor must deny, or 

must require its PBM to deny, a 

pharmacy claim for a Part D drug if the 

physician or eligible professional (when 

permitted to write prescriptions by 

applicable State law)— 

(A) Is not enrolled in the Medicare 

program in an approved status; and 

(B) Does not have a valid opt-out 

affidavit on file with an A/B Medicare 

Administrative Contractor (MAC). 

(iii) A Part D sponsor must deny, or 

must require its PBM to deny, a request 

for reimbursement from a Medicare 

beneficiary for a drug if the request is 

not for a Part D drug that was dispensed 

in accordance with a prescription 

written by a physician or, when 

permitted by applicable State law, other 

eligible professional (as defined in 

section 1848(k)(3)(B)(i) or (ii) of the Act) 

who— 

(A) Is identified by his or her legal 

name in the request; and 

(B)(1) Is enrolled in Medicare in an 

approved status; or 

(2) Has a valid opt-out affidavit on file 

with an A/B MAC. 

(iv) In order for a Part D sponsor to 

submit to CMS a prescription drug event 

(PDE) record, the PDE must contain an 

active and valid individual prescriber 

NPI and must pertain to a claim for a 

Part D drug that was dispensed in 

accordance with a prescription written 

by a physician or, when permitted by 

applicable State law, an eligible 

professional (as defined in section 

1848(k)(3)(B)(i) or (ii) of the Act) who: 

(A) Is enrolled in Medicare in an 

approved status, or 

(B) Has a valid opt-out affidavit on file 

with an A/B MAC. 

We note that in our final version of 

§ 423.120(c)(6)(iv), we have included 

the language ‘‘must contain an active 

and valid individual prescriber NPI.’’ 

This is not a new mandate, for a PDE 

must currently have the required NPI 

under § 423.120(c)(5)(i). We are simply 

clarifying that this requirement 

continues on and after June 1, 2015. 

Again, these are merely technical 

revisions. They do not involve any 

changes to our proposed policies. 

Comment: A commenter stated that 

proposed § 423.120(c)(5) and (6) reflect 

CMS’ continued efforts to protect the 

Medicare program from inappropriate 

payments for prescription drugs. 

Response: We appreciate the 

commenter’s support. 

Comment: A commenter requested 

that CMS furnish sub-regulatory 

guidance concerning the following 

issues related to § 423.120(c)(5) and (6): 

(1) the pharmacy’s capability at point of 

service (POS) to verify that the 

prescriber’s NPI and Medicare 

enrollment are valid; (2) whether plan 

sponsors will be expected to deny at the 

point of service if the beneficiary’s 

prescriber has not completed either the 

enrollment process or an opt-out 

affidavit; (3) how CMS will disseminate 

relevant information to plan sponsors 

on a timely basis to enable sponsors to 

set up point of service edits and prevent 

negative beneficiary impacts; (4) 

whether CMS will require sponsors to 

allow pharmacies to override these 

denials, similar to other Prescriber ID 

edits; (5) which party (assuming CMS 

requires sponsors to pay claims at point 

of service and investigate post-claim 

payment) will be financially responsible 

when it is subsequently confirmed that 

the prescriber is not enrolled or has not 

validly opted-out; and (6) how CMS and 

sponsors will ensure that beneficiaries’ 

access to needed Medicare-covered 

drugs are not delayed or denied due to 

this new process. Other commenters 

requested clarification regarding 

whether § 423.120(c)(5) and (6) establish 

any new responsibilities for plan 

sponsors or pharmacies. 

Response: We anticipate 

disseminating, as deemed necessary, 

sub-regulatory or other guidance to 

address the topics raised by the 

commenter and any new requirements 

for plan sponsors and pharmacies. 

Furthermore, and as already stated, we 

will regularly communicate with plan 

sponsors, prescriber and supplier 

associations, and beneficiary 

organizations prior to the June 1, 2015 

effective date to address their concerns. 

Comment: A commenter expressed 

concern that there would be a flood of 

CMS–855 enrollment application forms 

or opt-out affidavit submissions by 

physicians and practitioners. The 

commenter asserted that this could 

cause application processing delays 

and, consequently, the denial of claims 

for drugs prescribed by practitioners 

whose applications could not be 

processed to completion before the 

implementation date. Another 

commenter requested information 

regarding the process and timeline for 

Medicare enrollment. Another 

commenter suggested that CMS could 

give a grace period to accept PDEs for 

physicians and eligible professionals 

who have applied for enrollment but are 

still awaiting the outcome of their 

application submission. Yet another 

commenter stated that the large number 

of revalidation applications being 

submitted could delay the processing of 

prescribers’ CMS–855 applications. 

Response: We believe that our 

extension of the effective date to June 1, 

2015 will give physicians and eligible 

professionals plenty of time to submit 

their enrollment applications or opt-out 

affidavits to their A/B MACs and to 

have the latter process these materials to 

completion before § 423.120(c)(6) is 

implemented. Therefore, we do not 

believe that the grace period suggested 

by the third commenter is or will be 

necessary. As we stated in the proposed 

rule, we believe that the number of 

prescribers who are neither Medicareenrolled nor have validly opted-out is 


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very low in any event, given that many 

physicians and eligible professionals 

furnish or order Part B services. 

Nevertheless, we will monitor this 

situation as June 1, 2015 approaches, 

and will communicate with plan 

sponsors, prescriber and supplier 

organizations, and beneficiary advocacy 

groups about progress in physician and 

eligible professional enrollment in 

Medicare pursuant to the requirements 

of § 423.120(c)(6). 

Information on the general provider 

enrollment process and the timeframes 

for application processing can be found 

on CMS’ Web site at http://

www.cms.gov/Medicare/ProviderEnrollment-and-Certification/

MedicareProviderSupEnroll/index.html. 

Comment: Several commenters 

questioned the accuracy of the 

verification process, specifically as it 

relates to PECOS. The commenters 

stated that PECOS may not capture all 

enrolled individuals and that the 

information in the system may either be 

inaccurate or inconsistent with the data 

in NPPES. Another commenter 

requested that CMS permit enrollment 

via PECOS or a contractor’s legacy 

system. 

Response: We are continuously 

enhancing PECOS and are confident 

that all enrolled and opted-out 

prescribers will be accurately reflected 

in the system. In addition, all current 

enrollments have been transitioned to 

the PECOS system and all new 

enrollments are directly entered into 

PECOS. 

Comment: A number of commenters 

requested information about how plan 

sponsors and pharmacies will be able to 

determine that a prescription was 

written by a prescriber who is enrolled 

or has opted-out. One commenter 

recommended that CMS clarify whether 

the NPI would be used as the primary 

identifier of whether a particular 

physician or practitioner is enrolled. 

Other commenters requested further 

clarification regarding: (1) How our 

proposal will be operationalized; (2) 

whether the proposed list will include 

all enrolled and opt-out prescribers and 

will be sufficiently complete; (3) 

whether or how often CMS will update 

the list; (4) how plan sponsors will have 

access to the file; (5) when CMS will 

define the standard format; (6) whether 

there will be start and end-dates in the 

file; (7) whether there will be an 

indicator for physicians who are in a 

pended status; (8) the extent to which 

NPPES will be used in prescriber 

validation; (9) whether plan sponsors 

will still be required to review the OIG/ 

System Access Management ((SAM); 

formerly GSA) databases; (10) how 

deceased prescribers and taxonomy data 

will be handled; and (11) how plan 

sponsors and pharmacists will identify 

revoked or limited supplier statuses. 

Response: As already indicated, we 

will make available to plan sponsors 

and pharmacies a complete list of 

prescribers who are either enrolled in 

Medicare or who have opted-out. The 

list will be regularly updated. The NPI 

will be one of several identifiers that 

can or will be used. We will, as deemed 

necessary, elaborate further on the 

verification process, the specific 

contents of the aforementioned list, the 

specific frequency with which the list 

will be updated, and various operational 

aspects of our requirements via subregulatory or other guidance. 

Comment: One commenter 

encouraged CMS to include a review of 

the prescriber’s taxonomy code to 

confirm prescribing authority as part of 

the Medicare enrollment process for 

physicians and other eligible 

professionals. 

Response: We appreciate this 

suggestion and will take it under 

advisement as we continue our efforts to 

enhance the provider enrollment 

process. 

Comment: A commenter requested 

clarification concerning whether an 

individual who enrolls in Medicare 

solely to prescribe Part D drugs will be 

required to revalidate his or her 

enrollment every 5 years per § 424.515. 

Another commenter sought clarification 

regarding whether enrollment pursuant 

to § 423.120(c)(5) and (6) would subject 

the enrollee to all of the enrollment 

requirements outlined in §§ 424.500 

through 424.570 (such as revalidation, 

deactivation, retention of medical 

documentation). 

Response: We reserve the right to 

apply applicable requirements in 

§§ 424.500 through 424.570 to 

individuals enrolled in Medicare solely 

to prescribe Part D drugs. This would 

include the requirement in § 424.515 to 

revalidate one’s enrollment every 5 

years. 

Comment: A commenter requested 

that CMS conduct a formal analysis to 

determine the percentage of prescribers 

with an active enrollment status by 

comparing the prescriber NPIs 

submitted on the PDEs to the Medicare 

enrollment records. The commenter was 

concerned that if the unenrolled 

prescribers disproportionately reflect 

certain supplier types or geographic 

areas, this could cause disruptions. The 

commenter also stated that CMS should 

develop a process for allowing 

prescribers who are authorized under 

state law to prescribe but are not eligible 

to be enrolled in Medicare to still 

prescribe Part D drugs that would be 

covered. 

Response: Prior to the June 1, 2015 

date, we will, as deemed necessary, 

share information with plan sponsors 

regarding the numbers and percentages 

of prescribers who are enrolled in 

Medicare. As for the final comment, the 

prescriber must either opt-out of the 

Medicare program or otherwise comply 

with all Medicare enrollment 

requirements. We cannot enroll a 

prescriber who is ineligible to enroll in 

Medicare regardless of the individual’s 

status under state law, for we are bound 

by our established enrollment 

procedures. Consequently, we cannot 

establish the exception process 

envisioned by the commenter. 

Comment: To limit POS denials that 

could affect beneficiary access and 

compromise patient care, a commenter 

made several recommendations 

regarding § 423.120(c)(5) and (6). First, 

the prescriber enrollment files provided 

by CMS should be the single and 

authoritative source of prescriber 

enrollment for all federal health care 

programs. This would eliminate 

duplication of effort, streamline the 

enrollment process for prescribers, 

ensure the consistent application of 

CMS requirements, and eliminate the 

need to review NPPES, the DHHS OIG 

List, and the SAM. Second, a CMS and 

industry task force should be developed 

to establish data integrity criteria, 

identify the minimum necessary data 

elements, establish file dissemination 

frequency to support real-time 

validations, and ensure that appropriate 

information is communicated to the 

pharmacy and patient. Third, a process 

should be developed to address changes 

in a prescriber’s enrollment status (and 

to notify beneficiaries of such changes) 

after the most recent files have been 

disseminated and before the next update 

will be available. Fourth, there should 

be changes to the PDE to support and 

accept multiple Submission 

Clarification Codes, as well as a process 

for CMS to convey more accurate 

information to the A/B MACs to update 

their files. Fifth, a CMS call center 

should be established to support 

prescriber and beneficiary inquiries on 

the prescriber’s enrollment status. Sixth, 

there should be a CMS prescriber 

outreach and education effort to 

emphasize the importance of enrollment 

and to address various prescriber 

questions. 

Response: We appreciate the 

commenter’s suggestions and address 

them as follows. 

Regarding the first recommendation, 

the aforementioned list will be the 

authoritative list of prescribers who are 


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enrolled in Medicare or have opted-out. 

However, it will not contain information 

regarding said individuals’ enrollment 

in other federal health care programs. 

We do not believe such an allencompassing list is feasible at the 

present time due to the differing 

requirements and standards of these 

various programs. 

We will continue to work with the 

health care industry to ensure that the 

files CMS disseminates contain the 

information necessary for plan sponsors, 

pharmacies, and prescribers to enforce 

and comply with all CMS requirements. 

This will include appropriate updates to 

reflect changes in a prescriber’s status, 

as alluded to in the commenter’s third 

suggestion. 

We will consider making changes to 

the PDE as deemed necessary to 

facilitate the appropriate 

implementation of and adherence to 

§ 423.120(c)(6). We will also, as deemed 

necessary, furnish guidance regarding: 

(1) appropriate information for 

prescribers and beneficiaries concerning 

the enrollment status of prescribers; (2) 

the importance of enrollment; and (3) 

vehicles for addressing prescriber 

inquiries. 

Comment: A commenter 

recommended that in order to stop fraud 

on a prepayment basis and to ensure 

that Medicare beneficiaries are 

protected from physicians and eligible 

professionals who prescribe controlled 

substances without a valid DEA 

registration number, CMS should revise 

§ 423.120(c)(6) to require Part D plan 

sponsors to make payments to a 

pharmacy or Medicare beneficiary when 

a Part D controlled substance is 

prescribed by a physician or eligible 

professional who has a valid and active 

DEA registration number. 

Response: We do not believe this 

revision is necessary, for we will be able 

to revoke an individual’s ability to 

prescribe such drugs under 

§ 424.535(a)(13) (as explained in more 

detail later in this section). We believe 

that § 423.120(c)(6) as currently crafted 

(aside from the effective date) will 

achieve our goal of ensuring that only 

qualified physicians and eligible 

professionals can prescribe Part D drugs. 

We further note that having a DEA 

certificate does not necessarily mean 

that a prescriber is in compliance with 

all Medicare requirements. 

Comment: A commenter requested 

clarification regarding whether, if a 

claim is rejected at the POS, a plan will 

be required to provide beneficiaries 

with a list of prescribers that are 

enrolled in the Medicare program. 

Response: No. This will not be 

required. 

Comment: A commenter stated that 

§ 423.120(c)(5) and (6) do not take into 

account the thousands of patients 

currently serviced by interns and 

residents who are yet to be licensed but 

are authorized by state governments to 

examine, treat and prescribe for their 

patients provided they function under 

the supervision of an attending 

physician. The commenter sought 

clarification concerning whether these 

as yet unenrolled individuals would be 

able to order prescriptions. Another 

commenter requested that CMS furnish 

guidance: (1) On how situations in 

which a resident’s enrollment status has 

changed should be handled; and (2) for 

teaching hospitals regarding the 

importance of ensuring that residents 

comply with Medicare enrollment rules 

(including updating enrollment data as 

needed). 

Response: Section 423.120(c)(6) does 

not prohibit interns and residents from 

prescribing Part D drugs to the extent 

that these individuals are otherwise 

qualified to prescribe such drugs under 

applicable law and regulations and to 

either enroll in Medicare or validly optout of the program. 

We will, as deemed necessary, issue 

guidance concerning the importance of 

complying with Medicare enrollment 

rules. 

Comment: A number of commenters 

requested additional clarification 

regarding the number of physicians who 

are not enrolled in Medicare. 

Response: Although a sizable majority 

of physicians nationwide are enrolled in 

Medicare, we do not have a precise 

number. 

Comment: Several commenters 

recommended that CMS make available 

for Medicare Advantage plans and other 

stakeholders access to national, realtime data—preferably in a single file— 

to use in identifying excluded, nonenrolled, and opt-out suppliers. One 

commenter added that any opt-out file 

should have the physician’s NPI and 

specialty, as well as the expiration date 

of his or her opt-out agreement. 

Response: The file alluded to earlier 

that will be distributed to plan sponsors 

will be updated regularly. Specific 

information regarding the frequency of 

the updates and the contents of the file 

will, as deemed necessary, be 

disseminated via sub-regulatory or other 

guidance. 

Comment: A commenter questioned 

whether there is evidence of higher 

levels of fraud, waste, or abuse by 

suppliers who are not enrolled in the 

Medicare program versus those who are 

enrolled, and whether increasing the 

number of enrolled suppliers per 

§§ 423.120(c)(5) and (6) will provide an 

avenue for unscrupulous but unenrolled 

prescribers to defraud Medicare. 

Response: The enrollment process, as 

explained earlier, is designed to ensure 

that we can verify that a supplier meets 

all CMS requirements, such as 

licensure. Without this process, 

unqualified and fraudulent suppliers 

would be able to enter Medicare and bill 

the program, resulting in billions of 

dollars being improperly paid to such 

individuals and organizations. We 

maintain that CMS’ enrollment process 

reduces the amount of potential fraud, 

waste and abuse. Furthermore, we do 

not see how § 423.120(c)(6) will provide 

an avenue for unscrupulous persons to 

defraud Medicare. To the contrary, it 

will protect the Medicare program by 

ensuring that only qualified and 

legitimate individuals can prescribe Part 

D drugs. 

Comment: A commenter disagreed 

with CMS’ proposal to allow a 

physician who has opted-out of the 

Medicare program to prescribe Part D 

drugs to Medicare beneficiaries. The 

commenter stated that CMS does not 

have the legal authority to revoke the 

prescribing privileges of a physician or 

eligible professional who has been 

convicted of health care fraud but is in 

an opt-out status or is practicing via 

private contract. 

Response: Section 1802(b) of the Act 

is clear that certain physicians and 

practitioners may opt-out of the 

Medicare program and enter into private 

contracts with Medicare beneficiaries. 

We believe that to require such 

individuals to enroll in Medicare would 

be inconsistent with this statutory 

provision. 

Comment: A commenter suggested 

that CMS purge all opt-out affidavits if 

they are more than 2 years old and 

establish a systematic process to purge 

all opt-out affidavits on a regular basis. 

Response: We appreciate this 

suggestion and will take it under 

advisement as we continue our efforts to 

enhance the integrity of the Medicare 

program. 

Comment: Several commenters stated 

that numerous other federal 

requirements (for example, DEA 

certificate) and state regulations (for 

example, state medical licensing boards) 

already exist to ensure that medications 

are only prescribed by qualified 

individuals. Rather than implement 

another bureaucratic hurdle, the 

commenters contended that these other 

federal and state regulations should be 

tightened as needed. One commenter 

stated that because there are multiple 

safeguards currently in place through 

the OIG, there is no need for 

§ 423.120(c)(5) and (6). Other 


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commenters stated that § 423.120(c)(5) 

and (6) are unnecessary because (i) Part 

D sponsors are already required to 

review NPPES to verify a prescriber’s 

NPI and other data; (ii) states already 

license and regulate prescribers; and 

(iii) pharmacists are responsible for 

determining that prescriptions are 

written by licensed individuals. 

Response: We disagree with these 

commenters. Data lists that are 

prepared, administered and updated by 

agencies outside of CMS frequently do 

not capture the information we need to 

confirm that a supplier meets Medicare 

requirements. The CMS enrollment 

process is the most practical, thorough, 

and effective means of securing and 

verifying all necessary information on 

physicians and eligible professionals. 

Comment: Several commenters 

expressed support for our proposed 

provisions but sought assurances that 

plans would not be penalized for filling 

prescriptions if, at the time the drug was 

dispensed, the plan did not know of the 

prescriber’s termination. Another 

commenter did not believe there should 

be retroactive enrollment terminations; 

this would eliminate recoupment of 

payment from pharmacies or Part D 

sponsors for prescribers who were 

shown as enrolled by the most current 

information available at the time the 

prescription was filled. Another 

commenter requested clarification as to 

whether there would be performancescore safeguards established for plans 

that appropriately deny drugs based on 

the information available to them 

through the MACs or other parties 

responsible for maintaining said list. 

Another commenter expressed concern 

about the impact that these 

requirements would have on plan 

performance measures due to an 

increased number of complaints from 

beneficiaries relating to prescriptions 

that could not be filled, or with respect 

to which payment would be denied. 

Response: It is important to note that 

our requirements are directed 

specifically at individuals who 

prescribe Part D drugs. Individuals who 

prescribe are required to enroll in 

Medicare (or validly opt-out of 

Medicare) in order to do so. As such, 

plan sponsors would be required to pay 

only for those prescriptions written by 

physicians or eligible professionals 

who, according to CMS, are enrolled in 

Medicare in an approved status or who 

have validly opted-out of Medicare. We 

will, as deemed necessary, further 

address these issues via sub-regulatory 

or other guidance. 

Comment: Several commenters 

believed that the administrative burden 

of these provisions would outweigh any 

potential benefits in deterring fraud, 

waste and abuse; this would be 

especially true for plan sponsors that 

would have to verify a particular 

prescriber’s enrollment or opt-out 

status. The commenters requested that 

CMS more closely study the potential 

administrative impact of these 

provisions. 

Response: We have studied the 

impact of these provisions and believe 

that the benefits to Medicare 

beneficiaries, the Medicare Trust Funds, 

and the program as a whole of 

confirming that physicians and eligible 

professionals are qualified to prescribe 

Part D drugs far outweigh the burden to 

prescribers of completing the 

enrollment process or submitting an 

opt-out affidavit. Besides, as mentioned 

in the proposed rule, a large majority of 

physicians and eligible professionals 

who prescribe Part D drugs are already 

enrolled in Medicare; hence, our 

provisions will have no impact on these 

individuals. Furthermore, those who are 

impacted will have ample time to 

complete the enrollment or opt-out 

process due to the extension of the 

compliance date to June 1, 2015. 

Comment: A commenter suggested 

that CMS issue warnings to prescribers 

for a 6 to 12-month period prior to 

rejecting claims that fail to meet the 

necessary criteria. 

Response: We appreciate this 

suggestion. We are exploring various 

means of alerting prescribers who are 

neither enrolled in Medicare nor have 

submitted a valid opt-out affidavit of the 

need to comply with the requirements 

of § 423.120(c)(6). 

Comment: A commenter suggested 

that CMS consider using technology that 

already exists within the pharmacy 

industry for validating prescriber data, 

for this would (when compared to the 

batch processes): (1) Improve patient 

access to care as the most timely data is 

made available at the time of 

prescription drug dispensing; (2) 

decrease costs associated with audits 

and recovery of funds resulting from 

out-of-date data; and (3) increase 

consistency of data among the multiple 

MACs and pharmacies. Another 

commenter stated that CMS should 

avoid using a PDF file similar to that 

which exists for the current ordering/

certifying edits and instead create a 

database containing this information. 

Response: We are contemplating 

various formats in which the 

previously-discussed list might be 

disseminated to plan sponsors. 

Comment: A commenter requested 

clarification as to: (1) Whether CMS is 

proposing a new provider enrollment 

process for Part D in addition to the 

current enrollment process for obtaining 

Medicare billing privileges; and (2) how 

a Part D revocation would impact Part 

B billing by the same practitioner. 

Response: The provider enrollment 

process under § 423.120(c)(6) will be the 

same as that which is used for 

physicians and eligible professionals 

enrolling in Medicare in order to 

comply with § 424.507. A revocation 

under § 424.535(a) would eliminate the 

individual’s ability to prescribe covered 

Part D drugs because he or she would 

no longer be enrolled in Medicare; 

hence, the requirements of 

§ 423.120(c)(6) would no longer be met. 

Comment: Several commenters 

requested that CMS exclude dentists 

from proposed § 423.120(c)(5) and (6)’s 

application because the provisions 

would place an unnecessary burden on 

dentists and their Medicare-eligible 

patients, and would not address CMS’ 

desire to stop fraud and abuse. One 

commenter added that it is unaware of 

high-billing levels associated with 

prescriptions written by dentists for 

Medicare-eligible patients, yet the 

administrative burden on dentists 

would be significant. Another 

commenter expressed concern that the 

proposal could negatively impact plan 

members, in that members who receive 

prescriptions written by dentists not 

enrolled in the program would be 

financially responsible for such 

prescriptions because they would no 

longer be covered. Another commenter 

noted that Medicare beneficiaries 

enrolled in dual eligible SNPs may 

receive comprehensive dental benefits, 

including certain invasive procedures. 

Dentists may prescribe antibiotics in 

these circumstances, and these drugs 

should be covered under Medicare Part 

D. However, since dentists are not 

typically enrolled in Medicare, our 

proposal could interfere with this 

coverage. Other commenters 

recommended that CMS exclude from 

§ 423.120(c)(5) and (6)’s purview those 

suppliers who do not normally see 

Medicare beneficiaries or receive 

Medicare payment (including 

psychiatrists and Veterans’ 

Administration (VA) doctors) and 

enable them to (after a grace period) 

register with Medicare in a limited 

capacity to enable them to write 

prescriptions for Medicare beneficiaries. 

Response: While we recognize the 

concerns of these commenters, we do 

not believe dentists, psychiatrists, VA 

physicians, or any other physicians or 

eligible professionals should be granted 

special exemptions from § 423.120(c)(6). 

The issue of primary concern to us is 

not the typical volume of drugs these 

individuals prescribe but the need to 


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ensure and confirm that Medicare 

payments are only made for Part D 

drugs that are prescribed by qualified 

physicians and eligible professionals. 

This is precisely the concern that the 

OIG expressed in its previouslyreferenced report. Moreover, we believe 

that our extension of the effective date 

to June 1, 2015 will afford these 

individuals more than adequate time to 

complete the enrollment or opt-out 

process, hence easing the burden on 

them. 

Comment: One commenter: (1) 

Favored requiring dentists to enroll in 

Medicare (or have a valid opt-out 

affidavit on file) in order to prescribe 

Part D drugs; and (2) believed that a 

January 1, 2015 effective date was 

reasonable. 

Response: We agree with this 

commenter’s first comment and intend 

to apply § 423.120(c)(6) to dentists. 

While we appreciate the commenter’s 

second comment, we believe that a June 

1, 2015 effective date is more 

appropriate. 

Comment: A commenter requested 

clarification concerning how these 

provisions would be enforced in cases 

of out-of-network benefits, which permit 

plan enrollees to receive healthcare 

items and services (including 

prescription medicines) across the 

country. Another commenter stated that 

if CMS allows point of service overrides, 

the Prescription Drug Events (PDEs) 

should be accepted and final, with no 

requirement for plans/sponsors to 

provide a retroactive look back. Other 

commenters suggested that CMS should: 

(1) Require plans to hold beneficiaries 

harmless from the consequences of noncoverage for a non-compliant supplier 

for at least one fill of the prescription; 

(2) require plans to reach out to the 

beneficiary and the supplier to explain 

the issue, allowing sufficient time for 

the beneficiary to see another supplier 

or for the supplier to correct his or her 

enrollment status; and (3) reach out to 

policy makers in the states that permit 

foreign prescriptions, to determine what 

kind of alternate supplier credential 

checking might be available to ensure 

that beneficiaries who spend portions of 

the year in other countries can access 

their medications without interruption 

or the unneeded expense of additional 

physician visits. 

Response: We will, as deemed 

necessary, address these matters via 

sub-regulatory guidance or future 

rulemaking. 

Comment: A commenter requested 

clarification as to whether 

§ 423.120(c)(6) applies even if a 

physician or eligible professional is 

state-licensed but is neither Medicareenrolled nor has opted-out. 

Response: Yes, it applies. 

Comment: A commenter requested 

information as to the following: (1) 

Whether plan sponsors would remain 

responsible for ensuring that a 

prescriber is properly enrolled in 

Medicare; (2) whether prescriber 

validation should occur at the point-ofsale and whether plan sponsors are not 

permitted to ‘‘flow down’’ the 

responsibility for this verification 

process to their network pharmacies; 

and (3) whether CMS could prohibit 

Part D plans from reversing pharmacy 

claims with prescriber verification 

errors found in audits if the prescriber 

enrollment verification found by that 

plan was later found to be inaccurate. 

Response: We will, as deemed 

necessary, address these matters via 

sub-regulatory guidance or future 

rulemaking. 

Comment: A commenter stated that 

because the vast majority of prescribing 

physicians and other practitioners are 

already enrolled as Medicare suppliers, 

§§ 423.120(c)(5) and (6) should not 

impose a great burden on prescribers. 

However, the commenter encouraged 

CMS to make any requirements for 

beneficiary requests for reimbursement 

from Part D sponsors as clear and 

concise as possible for beneficiaries. 

Prescribers should be able to quickly 

generate forms for patients who want to 

submit them to their plan sponsors 

directly. 

Response: We agree with the 

commenter’s first statement, and will 

attempt to ensure that beneficiaries 

understand the requirements for 

requesting reimbursement. 

Comment: A commenter urged CMS 

to require plans to cover the costs 

associated with the charge-back if there 

is an error in the claim related to 

Medicare enrollment, and that the cost 

for verification and correction of any 

claims be borne by the plan through 

their administrative costs. 

Response: We are not prepared in this 

final rule to issue a definitive statement 

regarding costs associated with chargebacks. Any such statement will, as 

deemed necessary, be addressed via 

sub-regulatory or other guidance. 

Comment: A commenter urged CMS 

to explore options to reduce member 

disruptions and to allow plans to 

manage prescribers not meeting these 

requirements. Such options could 

include: (1) Allowing a period of ‘‘soft 

edits’’ to effectively track and manage 

potential future disruptions; (2) 

applying our requirements only to new 

fills; or (3) allowing prescriptions to be 

grandfathered up to a year after the 

effective date. 

Response: We believe that our 

extension of the effective date to June 1, 

2015, as well as CMS’ outreach efforts, 

will greatly reduce the potential for 

coverage disruptions. However, we will 

monitor the progress of the 

implementation of § 423.120(c)(6) to 

ensure that such disruptions do not 

occur. 

Comment: A commenter stated that 

the proposed rule did not address how 

Part D beneficiaries in the U.S. 

territories would be impacted by 

proposed § 423.120(c)(5) and (6). 

Response: We anticipate conducting 

outreach, as needed, for beneficiaries in 

U.S. territories regarding how they may 

be affected by these provisions. 

Comment: A commenter expressed 

concern that CMS had proposed to no 

longer allow Part D coverage for foreign 

prescriptions. 

Response: We did not propose to deny 

coverage for foreign prescriptions. We 

simply proposed to require that all 

prescribers of Part D drugs be enrolled 

in Medicare or in a valid opt-out status. 

We may, as deemed necessary, further 

address this issue via sub-regulatory 

guidance. 

Comment: Several commenters 

requested clarification concerning 

whether plan sponsors would be able to 

accept a pharmacy claim for an 

automatically-generated refill 

prescription if the prescriber is not 

enrolled in Medicare. The commenters 

also recommended that § 423.120(c)(5) 

and (6) only be applied to new 

prescriptions. 

Response: The pharmacy claims 

described by the commenters will not be 

covered if the prescriber is not enrolled 

in Medicare and does not have a valid 

opt-out affidavit on file with an A/B 

MAC, regardless of whether the 

prescription is new or a refill. 

Comment: A number of commenters 

opposed the notion of requiring 

pharmacies to enroll in Medicare in 

order to distribute Part D drugs. They 

expressed concern about the burden and 

cost involved for pharmacies, and the 

potential disruption to the Part D 

program that would result if thousands 

of pharmacies were required to enroll. 

One commenter stated that Part D 

sponsors or their PBMs have direct 

contractual relationships with 

pharmacies and perform their own 

credentialing and verifications before 

allowing pharmacies into their 

networks; sponsors have the necessary 

experience and expertise to identify and 

remove unlicensed, fraudulent or 

otherwise unqualified pharmacies from 

their networks. 


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Response: Because we concur with 

these contentions, we do not intend to 

apply § 423.120(c)(6) to pharmacies at 

this time. 

Comment: A commenter requested 

clarification concerning whether the 

pharmacy requirement for enrollment 

refers to Part B DMEPOS supplier 

enrollment for drugs. 

Response: Our earlier reference to 

pharmacy enrollment pertains to Part D 

drugs. However, as stated previously, 

we are not applying § 423.120(c)(6) to 

pharmacies at this time. 

Comment: One commenter supported 

the notion of requiring pharmacy 

enrollment. 

Response: We appreciate this 

comment. However, as already stated, 

we do not intend to apply 

§ 423.120(c)(6) to pharmacies at this 

time. 

Given this, we are finalizing our 

proposed provisions in § 423.120(c) 

with several exceptions. First, the 

January 1, 2015 effective date is changed 

to June 1, 2015. Second, the existing 

version of paragraph (c)(5) will remain 

intact with the exception of the addition 

of the ‘‘Before June 1, 2015, the 

following are applicable’’ language at 

the very beginning of the paragraph. 

Third, we are not finalizing our 

proposed changes to paragraph (c)(5)(ii), 

but are instead merging them with our 

addition of paragraph (a)(6). Our final 

version of new paragraph (c)(6) will 

thus read as follows: 

‘‘(6) Beginning June 1, 2015, the 

following are applicable— 

(i) A Part D sponsor must deny, or 

must require its pharmaceutical benefit 

manager (PBM) to deny, a pharmacy 

claim for a Part D drug if an active and 

valid physician or eligible professional 

(as defined in section 1848(k)(3)(B)(i) or 

(ii) of the Act) National Provider 

Identifier (NPI) is not contained on the 

claim. 

(ii) A Part D sponsor must deny, or 

must require its PBM to deny, a 

pharmacy claim for a Part D drug if the 

physician or eligible professional (when 

permitted to write prescriptions by 

applicable State law)— 

(A) Is not enrolled in the Medicare 

program in an approved status; and 

(B) Does not have a valid opt-out 

affidavit on file with an A/B Medicare 

Administrative Contractor (MAC). 

(iii) A Part D sponsor must deny, or 

must require its PBM to deny, a request 

for reimbursement from a Medicare 

beneficiary for a drug if the request is 

not for a Part D drug that was dispensed 

in accordance with a prescription 

written by a physician or, when 

permitted by applicable State law, other 

eligible professional (as defined in 

section 1848(k)(3)(B)(i) or (ii) of the Act) 

who— 

(A) Is identified by his or her legal 

name in the request; and 

(B)(1) Is enrolled in Medicare in an 

approved status; or 

(2) Has a valid opt-out affidavit on file 

with an A/B MAC. 

(iv) In order for a Part D sponsor to 

submit to CMS a prescription drug event 

(PDE) record, the PDE must contain an 

active and valid individual prescriber 

NPI and must pertain to a claim for a 

Part D drug that was dispensed in 

accordance with a prescription written 

by a physician or, when permitted by 

applicable State law, an eligible 

professional (as defined in section 

1848(k)(3)(B)(i) or (ii) of the Act) who: 

(A) Is enrolled in Medicare in an 

approved status, or 

(B) Has a valid opt-out affidavit on file 

with an A/B MAC. 

These revisions to our proposed 

paragraph (c)(6) do not involve any 

changes from our proposed policy. They 

are merely technical changes designed 

to better fit the existing regulatory text. 

21. Improper Prescribing Practices 

(§§ 424.530 and 424.535) 

a. Background and Program Integrity 

Concerns 

We stated in the preamble to the 

proposed rule that notwithstanding our 

proposed provisions in § 423.120(c), 

additional program safeguard 

enhancements were necessary to protect 

the Medicare Trust Funds from fraud, 

waste and abuse, and to ensure that Part 

D drugs are prescribed only by qualified 

suppliers. Along with the 

aforementioned OIG report (‘‘Medicare 

Inappropriately Paid for Drugs Ordered 

by Individuals Without Prescribing 

Authority’’ (OEI–02–09–00608)), we 

cited another OIG report titled, 

‘‘Prescribers with Questionable Patterns 

in Medicare Part D’’ (OEI–02–09– 

00603). This report highlighted a 

number of instances in which 

physicians and eligible professionals 

prescribed inordinate amounts of drugs 

to Part D beneficiaries in 2009. For 

example— 

• Medicare paid a total of $9.7 

million—151 times more than the 

average—for one California physician’s 

prescriptions; most of this physician’s 

prescriptions were filled by two 

independent pharmacies, both of which 

the OIG had identified as having 

questionable billing; 

• One hundred and eight general-care 

physicians each ordered an average of 

71 or more prescriptions per 

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

• An Ohio physician ordered more 

than 400 drugs each for 13 of his 665 

beneficiaries; and 

• A Texas physician ordered more 

than 400 prescriptions each for 16 

beneficiaries and prescribed 700 or 

more drugs for 3 of these beneficiaries. 

The OIG also noted examples of 

physicians prescribing a high 

percentage of Schedule II and III drugs 

in 2009. In one case, 78 percent of the 

prescriptions a Florida physician 

ordered were for Schedule II drugs even 

though the OIG found that 4 percent of 

the prescriptions ordered by prescribers 

nationwide were for Schedule II drugs. 

For one beneficiary, the physician 

prescribed a 605-day supply of 

morphine sulfate, a 524-day supply of 

oxycodone HCl, a 460-day supply of 

fentanyl, and a 347-day supply of 

hydromophone HCl. 

The OIG has recommended that CMS 

exercise greater oversight of the Part D 

program, not only to curb the specific 

practices outlined previously but also to 

stem the overall risk of fraud and abuse 

that the program presents. The OIG has 

expressed particular concern over the 

potential for beneficiaries to become 

addicted to or otherwise be seriously 

harmed by certain drugs if they are 

inappropriately prescribed in 

dangerously excessive amounts. We 

share this concern, particularly as we 

continue to receive reports of improper 

prescribing practices. The difficulty, as 

we explained in the proposed rule, is 

that CMS does not possess the legal 

authority to take administrative action 

against the prescriber. This means, in 

many cases, that the individual can 

continue prescribing drugs that will be 

covered under Part D and, if he or she 

is enrolled in Medicare, remain so 

enrolled to furnish medical services. We 

believe this is inconsistent with: (1) The 

OIG’s recommendations in its various 

Part D reports; and (2) our goals of 

protecting and promoting the health and 

safety of Medicare beneficiaries and of 

safeguarding the Medicare Trust Funds. 

To this end, and as we explain in this 

section, we proposed several changes to 

Part 424, subpart P. 

b. Drug Enforcement Administration 

(DEA) Certification of Registration 

The DEA implements and enforces 

Titles II and III of the Comprehensive 

Drug Abuse Prevention and Control Act 

of 1970, and the Controlled Substances 

Import and Export Act, as amended, and 

collectively referred to as the Controlled 

Substances Act (CSA) (21 U.S.C. 801– 

971); the implementing regulations for 

these statutes are in 21 CFR Parts 1300 

through 1321. The CSA makes 

possession of authority under state law 


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to dispense controlled substances a 

requirement for both obtaining and 

maintaining a DEA Certificate of 

Registration. 

We view a DEA Certificate of 

Registration to prescribe controlled 

substances as similar to a state’s 

requirement that a physician or eligible 

professional be licensed or certified by 

the state to furnish health care services. 

Indeed, we are concerned that a 

physician or eligible professional’s 

improper prescribing practices may be 

duplicated in the Medicare program. To 

address these issues, we proposed the 

following: 

• Adding a new § 424.530(a)(11) 

granting CMS the authority to deny a 

physician or eligible professional’s 

Medicare enrollment application if: (1) 

His or her DEA Certificate is currently 

suspended or revoked; or (2) the 

applicable licensing or administrative 

body for any state in which the 

physician or eligible professional 

practices has suspended or revoked the 

physician or eligible professional’s 

ability to prescribe drugs, and such 

suspension or revocation is in effect on 

the date he or she submits his or her 

enrollment application to the Medicare 

contractor. 

• Adding a new § 424.535(a)(13) 

granting CMS the authority to revoke a 

physician or eligible professional’s 

Medicare enrollment if: (1) His or her 

DEA Certificate is suspended or 

revoked; or (2) the applicable licensing 

or administrative body for any state in 

which the physician or eligible 

professional practices suspends or 

revokes his or her ability to prescribe 

drugs. Again, this approach is consistent 

with our requirement that suppliers 

maintain compliance with all applicable 

licensure and certification requirements. 

(We also solicited comments on 

whether our proposed additions of 

§§ 424.530(a)(11) and 424.535(a)(13) 

should be expanded to include 

pharmacy activities.) 

We believe that the loss of the ability 

to prescribe drugs via a suspension or 

revocation of a DEA Certificate or by 

state action is a clear indicator that a 

physician or eligible professional may 

be misusing or abusing his or her 

authority to prescribe such substances. 

We also believe that our proposed 

provisions were consistent with the 

OIG’s recommendations and, equally 

important, are necessary to protect 

Medicare beneficiaries and the Trust 

Funds. 

We received a number of comments 

related to our proposal. Summaries of 

the comments and our responses are as 

follows: 

Comment: Several commenters 

expressed support for §§ 424.530(a)(11) 

and 424.535(a)(13), stating that these 

provisions would help reduce abusive 

prescribing. 

Response: We appreciate the support 

of these commenters. 

Comment: Various commenters 

recommended that CMS: (1) Verify a 

DEA registration number submitted on 

the CMS–855I or the CMS–855O with 

the DEA prior to enrolling a physician 

or eligible professional into Medicare; 

(2) require physicians and eligible 

professionals to report a change 

(voluntary termination, revocation, 

suspension) in their DEA registration 

number within 30 days of the change; 

(3) modify the CMS–855I and CMS– 

855O to require that physicians and 

eligible professionals report a DEA 

registration number suspension or 

revocation within 30 days; (4) require 

that a physician or eligible professional 

have a DEA number for each state in 

which the physician or eligible 

professional is prescribing controlled 

substances; (5) require its Part D 

sponsors to establish the necessary edits 

to deny a prescription for a controlled 

substance when the physician or 

eligible professional does not maintain 

a validly issued and active DEA 

registration number in the state where 

the prescription was written; (6) refer to 

the DEA the name and NPI of any 

physician or eligible professional who is 

enrolled in Medicare in multiple states 

and who is only using a single DEA 

registration number to prescribe 

controlled substances to Medicare 

beneficiaries; and (7) establish a data 

matching agreement with the DEA to 

verify the DEA registration numbers 

assigned by the DEA for all physicians 

and eligible professionals enrolled in 

Medicare. Another commenter 

suggested that CMS establish a 3-year 

reenrollment bar under § 424.535(c) for 

any physician or eligible practitioner 

who is revoked pursuant to 

§ 424.535(a)(13), or at least identify in 

the final rule what the reenrollment bar 

length will be. The commenter also 

recommended that the reenrollment bar 

apply to Medicare Advantage 

Organizations, not simply the Part B 

Medicare program and Part D drugs. 

Response: We appreciate these 

suggestions and will take them into 

consideration as part of our ongoing 

efforts to strengthen payment safeguards 

in the Medicare program. 

Comment: Several commenters 

recommended that CMS allow 

physicians and eligible professionals to 

self-report a DEA license revocation or 

suspension (or a state licensing body 

revocation or suspension associated 

with prescribing drugs) within 30 days 

of the revocation, suspension, or 

voluntary surrender of their DEA 

registration. 

Response: We do not believe that a 

physician or eligible professional 

should be permitted to evade 

§ 424.535(a)(13) and the subsequent 

reenrollment bar merely by reporting 

the DEA certificate suspension or 

revocation to CMS. The issues of 

concern to us are the certificate 

revocation or suspension itself and the 

consequent need to protect Medicare 

beneficiaries and the Trust Funds, and 

not so much the physician or eligible 

professional’s voluntary revelation of 

the revocation or suspension. 

Comment: A commenter requested 

that CMS furnish two lists to Part D 

sponsors: (1) A list of physicians and 

eligible professionals who have a DEA 

registration number that CMS has 

confirmed with the DEA; and (2) a list 

of physicians and eligible professionals 

who do not have a valid and active DEA 

registration number. The data on these 

lists, the commenter suggested, could be 

broken down by state. 

Response: We appreciate this 

suggestion and will take it under 

advisement as we continue our efforts to 

strengthen the integrity of the Part D 

program. 

Comment: Several commenters 

requested clarification concerning 

whether CMS intends to implement 

§ 424.535(a)(13) retrospectively and 

revoke the Medicare billing privileges of 

physicians and eligible professionals 

who have had their DEA number 

suspended or revoked. One commenter 

opposed a retroactive application of our 

proposal. 

Response: We retain the discretion to 

revoke the billing privileges of an 

enrolled physician or eligible 

professional whose DEA certificate is 

suspended or revoked at the time 

§ 424.535(a)(13) becomes effective. 

Comment: A commenter requested 

CMS’ rationale for permitting an 

individual to enroll in Medicare after 

the DEA has: (1) Denied him or her a 

DEA certificate of registration; or (2) 

suspended or revoked a DEA 

registration number and the suspension 

or revocation is still in force. 

Response: In the commenter’s second 

scenario, we would be able to deny the 

individual’s enrollment under 

§ 424.530(a)(11). As for the first 

scenario, our focus in preparing our 

proposed rule was on individuals who 

had active DEA certificate suspensions 

or revocations. We nonetheless 

appreciate the commenter’s apparent 

suggestion and may consider addressing 

it in future rulemaking. 


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Comment: Several commenters 

recommended that § 424.535(a)(13) not 

be applied in cases where a physician’s 

DEA number was suspended due to 

substance abuse issues and the 

physician is in counseling. 

Response: We do not believe that a 

blanket exemption from 

§ 424.535(a)(13)’s potential application 

for such individuals is warranted or 

justified. However, we note that 

§ 424.535(a)(13), like most other 

revocation reasons in § 424.535, is 

discretionary, meaning that CMS is not 

required to exercise its revocation 

authority. Although we have the 

discretion to invoke § 424.535(a)(13) 

regardless of the grounds for the DEA 

certificate revocation or suspension, we 

would also be able to take into account 

the circumstances surrounding the 

suspension or revocation prior to 

making a final determination. 

Comment: Several commenters 

requested clarification as to whether: (1) 

Proposed § 424.535(a)(13) applies to 

non-controlled substances; and (2) 

whether a voluntary surrender of a DEA 

certificate (for instance, a semi-retired 

physician wishes to prescribe only noncontrolled substances) would invoke 

§ 424.535(a)(13). The commenters 

believed that non-controlled substances 

should be excluded from 

§ 424.535(a)(13)’s purview if the 

prescriber otherwise maintains the legal 

authority to prescribe such drugs, is in 

good standing with a state professional 

licensing board, and has not engaged in 

abusive prescribing. At a minimum, one 

commenter suggested, CMS should refer 

a potential case to the state for review 

prior to making a decision. 

Response: We explained in the 

proposed rule that a DEA certificate of 

registration is not required to dispense 

non-controlled substances. Thus, if 

one’s DEA certificate is suspended or 

revoked, he or she would still be able 

to prescribe non-controlled substances 

absent some other restrictive action 

taken by the DEA or the state (although 

his or her billing privileges could still 

be revoked under § 424.535(a)(13)). Yet 

we note that § 424.535(a)(13) can be 

invoked if the applicable licensing or 

administrative body for any state in 

which the individual practices suspends 

or revokes his or her ability to prescribe 

drugs. Therefore, if the state rescinds 

the person’s ability to prescribe any 

drugs, the individual (should 

§ 424.535(a)(13) be invoked) would be 

prohibited from prescribing Part D 

controlled and non-controlled drugs. 

The voluntary surrender of a DEA 

certificate would not constitute grounds 

for revocation under § 424.535(a)(13). 

The provision as written is limited to 

certificate revocations and suspensions. 

However, we may consider addressing 

this issue via future rulemaking. 

Comment: Several commenters 

recommended that CMS: (1) Explain 

how it will obtain information from the 

DEA regarding registration numbers that 

are valid, approved, revoked, 

suspended, voluntarily surrendered, 

etc.; (2) make available to Part D 

sponsors the information necessary to 

deny a Part D claim for controlled 

substances when a physician or eligible 

professional does not have a valid and 

active DEA registration number in the 

state in which the prescription is 

written; and (3) explain whether this 

data will be in the file that is to be used 

for the enforcement of §§ 423.120(c)(5) 

and (6). 

Response: We will, as deemed 

necessary, address these issues via subregulatory or other guidance. 

Comment: Several commenters 

requested clarification concerning 

whether a physician would be able to 

reenroll in Medicare after the 

suspension or revocation of his or her 

DEA registration is lifted. 

Response: If we revoke a physician’s 

billing privileges under § 424.535(a)(13), 

the physician would be able to submit 

a CMS–855 application for enrollment 

upon the expiration of his or her 

reenrollment bar. 

Comment: A commenter 

recommended that CMS clarify whether 

physicians and eligible professionals 

have 30 days to report a DEA 

registration number revocation per 

§ 424.516(d). 

Response: The individual would be 

required to report this information to 

CMS under § 424.516(d) to the extent 

the CMS–855 mandates that such 

information be disclosed on the 

application. 

Comment: A commenter suggested 

that CMS revise and update item B1 in 

section 3 of the CMS–855I and the 

CMS–855O, which states ‘‘Any 

revocation or suspension of a license to 

provide health care by any state 

licensing authority; this includes the 

surrender of such a license while a 

formal disciplinary proceeding was 

pending before a state licensing 

authority,’’ to read as follows: ‘‘Any 

revocation or suspension of a license to 

provide health care by any state 

licensing authority or Drug Enforcement 

Administration Registration number. 

This includes the surrender of such a 

license while a formal disciplinary 

proceeding was pending before a state 

licensing authority.’’ The commenter 

also sought clarification regarding 

whether CMS will indeed treat a DEA 

registration number denial or revocation 

as a final adverse legal action. 

Response: We appreciate this 

suggestion and will take it under 

advisement as we continue our efforts to 

strengthen the integrity of the Part D 

and Part B programs. 

At this stage, CMS does not have the 

legal authority to treat a DEA certificate 

revocation or suspension as a final 

adverse action because the current 

definition of the latter term in § 424.502 

does not specifically include DEA 

actions. However, we may address this 

issue through future rulemaking. 

Comment: A commenter supported 

our proposal to require Part D 

physicians and eligible professionals 

who prescribe controlled substances to 

obtain and maintain a valid DEA 

certificate of registration as a condition 

of enrollment. Yet the commenter 

recommended that the provision apply 

only to those individuals who prescribe 

controlled substances; this would avoid 

impacting the ability of practitioners 

providing services solely in local public 

health departments to prescribe noncontrolled medications. 

Response: As stated previously, if 

one’s DEA certificate is suspended or 

revoked, he or she would still be able 

to prescribe non-controlled substances 

absent some other restrictive action 

taken by the DEA or a state (although 

his or her billing privileges could still 

be revoked under § 424.535(a)(13)). 

However, if the state in which the 

individual practices suspends or 

revokes his or her ability to prescribe 

any drugs, the individual (should 

§ 424.535(a)(13) be invoked) would be 

prohibited from prescribing Part D 

controlled and non-controlled drugs. 

Comment: Several commenters 

opposed our proposed addition of 

§ 424.535(a)(13), stating that a 

suspended DEA certificate or state 

license does not necessarily reflect one’s 

inability to treat Medicare patients 

safely and at a high standard. This is 

particularly true, one commenter 

contended, considering that many DEA 

certificate or licensure revocations, 

suspensions, or restrictions are due to 

the physician or practitioner’s medical 

illness, usually drug abuse and 

dependence. Such individuals generally 

complete treatment programs 

successfully and should be given a 

second chance. At a minimum, the 

commenter maintained, CMS should 

take into account such situations in 

determining whether to invoke 

§ 424.535(a)(13). 

Response: As explained earlier, 

§ 424.535(a)(13) is a discretionary 

authority, and CMS can use its 

discretion to take into account the 


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individual’s particular circumstances in 

determining whether a revocation is 

warranted. But we caution that we are 

not required to do so, and there may be 

instances in which we decide that the 

certificate revocation or suspension 

alone, on its face, is sufficient to justify 

invoking § 424.535(a)(13). 

For the reasons stated in this section, 

we are finalizing our proposed additions 

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

c. Patterns or Practices of Prescribing 

We also proposed to add a new 

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

to revoke a physician or eligible 

professional’s Medicare enrollment if 

CMS determines that he or she has a 

pattern or practice of prescribing Part D 

drugs that— 

• Is abusive and represents a threat to 

the health and safety of Medicare 

beneficiaries; or 

• Fails to meet Medicare 

requirements. 

We chose not to define ‘‘abusive’’ and 

‘‘threat to the health and safety of 

Medicare beneficiaries’’ in the proposed 

rule, primarily because the myriad of 

questionable situations that could 

warrant the possible application of 

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

the flexibility to address each case on its 

own merits. We believed that the 

sounder approach was to propose a list 

of criteria that we would use in 

determining whether a prescriber is 

engaging in prescribing practices 

sufficient to warrant a revocation. 

In determining instances of a pattern 

or practice of prescribing that is abusive 

and a threat to the health and safety of 

Medicare beneficiaries, we proposed to 

consider several factors, including— 

• Whether there are diagnoses to 

support the indications for which the 

drugs were prescribed; 

• Whether there are instances where 

the necessary evaluation of the patient 

for whom the drug was prescribed could 

not have occurred (for example, the 

patient was deceased or out of state at 

the time of the alleged office visit); 

• Whether the physician or eligible 

professional has prescribed controlled 

substances in excessive dosages that are 

linked to patient overdoses; 

• The number and type(s) of 

disciplinary actions taken against the 

physician or eligible professional by the 

licensing body or medical board for the 

state or states in which he or she 

practices, and the reason(s) for the 

action(s); 

• Whether the physician or eligible 

professional has any history of ‘‘final 

adverse actions’’ (as that term is defined 

in § 424.502); 

• The number and type(s) of 

malpractice suits that have been filed 

against the physician or eligible 

professional related to prescribing that 

have resulted in a final judgment against 

the physician or eligible professional or 

in which the physician or eligible 

professional has paid a settlement to the 

plaintiff(s) (to the extent this can be 

determined); 

• Whether any State Medicaid 

program or any other public or private 

health insurance program has restricted, 

suspended, revoked, or terminated the 

physician or eligible professional’s 

ability to prescribe medications, and the 

reason(s) for any such restriction, 

suspension, revocation, or termination; 

and 

• Any other relevant information 

provided to CMS. 

In determining whether a physician or 

eligible professional has a pattern or 

practice of prescribing that fails to meet 

Medicare requirements, we proposed to 

consider the following factors, including 

whether the physician or eligible 

professional— 

• Has a pattern or practice of 

prescribing without valid prescribing 

authority; 

• Has a pattern or practice of 

prescribing for controlled substances 

outside the scope of the prescriber’s 

DEA Certificate of Registration; 

• Has a pattern or practice of 

prescribing drugs for indications that 

were not medically accepted—that is, 

for indications neither approved by the 

Food and Drug Administration (FDA) 

nor medically accepted under 1860D– 

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

evidence that the physician or eligible 

professional acted in reckless disregard 

for the health and safety of the patient. 

Many patterns and practices of 

prescribing, though perhaps 

questionable on their face, do not upon 

investigation involve abusive or 

fraudulent behavior nor involve 

substandard medical care. As such, we 

proposed to base any revocation under 

proposed § 424.535(a)(14) on situations 

that fall outside the norm of appropriate 

prescribing, and only after carefully 

considering the relevant factors. A 

thorough, detailed investigation by CMS 

of the physician or eligible 

professional’s prescribing practices 

would be a prerequisite for the use of 

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

eligible professionals who engage in 

reasonable prescribing activities would 

not be impacted by our proposal. We 

noted further that CMS, rather than the 

Part D plans or the A/B MACs, would 

make all determinations under our 

proposed provisions, though 

information contained in referrals from 

Part D Plan sponsors may be used as 

part of CMS’ analysis to make 

revocation decisions. 

We received a high volume of 

comments regarding proposed 

§ 424.535(a)(14). Comment summaries 

and our responses are as follows. 

Comment: A number of commenters 

opposed our proposed addition of 

§ 424.535(a)(14). They generally stated 

that this revocation reason would 

negatively impact Medicare 

beneficiaries by restricting access to 

important medications and disrupting 

current care plans, hence creating a 

chilling effect on the practice of 

medicine. They asserted that the 

proposed provision could dissuade 

physicians from appropriate 

prescribing. What may be considered 

excessive prescribing for the general 

population, they added, could be 

clinically appropriate given a patient’s 

individual circumstances, particularly 

in pain management; many ‘‘off-label’’ 

uses are clinically appropriate and 

represent the standard of care, 

especially with cancer patients. Several 

commenters also stated that the process 

of finding the right medication for a 

particular individual may involve trial 

and error over the course of months, if 

not years; decisions about specific 

medications to prescribe must be based 

on clinical observations, knowledge of 

past history, awareness of side effects, 

and a process of collaboration between 

doctor and patient. One commenter 

stated that policies that markedly limit 

the use of substances to treat chronic 

pain could increase the suicide rate. 

Response: We appreciate these 

comments and fully recognize the 

commenters’ concerns. We certainly 

understand that each patient is 

different, as is: (1) His or her specific 

medical condition; (2) the setting in 

which he or she is being treated; and (3) 

the types and doses of medications that 

may legitimately be required. As 

alluded to in the proposed rule and as 

we more emphatically state here, we 

only intend to invoke § 424.535(a)(14) in 

very limited and exceptional 

circumstances. For this reason, we do 

not believe that § 424.535(a)(14) will 

have a chilling effect on physician or 

practitioner prescribing activities or will 

restrict beneficiaries’ access to 

medications. Indeed, it will become 

clear to honest and legitimate 

prescribers (once § 424.535(a)(14) 

becomes effective and is implemented) 

that our focus is restricted to cases of 

improper prescribing that are so 

egregious that the physician or 

practitioner’s removal from the 

Medicare program is needed to protect 

Medicare beneficiaries. 


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Comment: Many commenters 

contended that state medical licensing 

boards are the appropriate bodies to 

review prescribing practices; one such 

commenter stated that prescription 

restrictions under Part D should only be 

imposed if the state board finds a 

pattern of negligence in prescribing 

practices. Other commenters 

recommended that CMS, in lieu of 

utilizing § 424.535(a)(14), refer cases of 

improper prescribing to the applicable 

state board for its review and 

disposition, with one commenter adding 

that CMS could then decide whether to 

take action based on the state’s findings. 

This commenter stated that such 

investigatory actions should be left to 

the state; having both CMS and the state 

undertake separate investigations would 

be duplicative and redundant, perhaps 

slowing down both investigations in the 

process. 

Response: We recognize the leading 

position of state medical boards in 

monitoring the practice of medicine. 

However, such bodies operate 

independently of CMS. They play no 

role in overseeing the Medicare 

program, a responsibility that rests 

exclusively with CMS. As such, we 

must be able to rapidly take steps on our 

own volition (without having to wait for 

possible action by state licensing boards 

or other bodies) to protect Medicare 

beneficiaries and the Trust Funds from 

abusive behavior. 

Comment: Several commenters 

asserted that CMS lacks the statutory 

authority for § 424.535(a)(14). 

Response: We disagree. As we stated 

in the proposed rule, sections 1102 and 

1871 of the Act give the Secretary the 

authority to establish requirements for 

the efficient administration of the 

Medicare program. We believe that 

§ 424.535(a)(14) is necessary to help 

ensure the integrity and efficiency of the 

Medicare program. 

Comment: Several commenters 

opposed the use of 

§ 424.535(a)(14)(i)(F), which addresses 

prescription-related malpractice suits, 

as a criterion. One commenter 

contended that CMS’ assertion that the 

existence of such a lawsuit is somehow 

equivalent to liability is incorrect. The 

commenter, as well as others, stated that 

many liability insurers settle cases with 

little or no merit. Another commenter 

stated that it would be difficult for CMS 

to verify the existence of such suits and 

settlements, while another commenter 

contended that certain physician 

specialties at high risk for malpractice 

suits could be unfairly targeted under 

§ 424.535(a)(14). 

Response: We did not assert in the 

proposed rule (and do not in this final 

rule) that such a lawsuit automatically 

equates to liability. We realize that 

certain cases are settled with no 

admission or even existence of liability. 

Nonetheless, it would be inappropriate 

and even irresponsible for CMS to 

completely disregard situations where a 

physician or practitioner has, for 

example, been sued several times for 

prescription-related malpractice and has 

either settled one of the cases or has had 

at least one final judgment against him 

or her. 

We stress that § 424.535(a)(14)(i)(F) 

will represent only one of several factors 

in our § 424.535(a)(14) determinations, 

and it will not in and of itself be 

dispositive. 

With respect to the next-to-last 

comment, we included the language ‘‘to 

the extent this can be determined’’ at 

the end of proposed 

§ 424.535(a)(14)(i)(F) based on our 

recognition that it may occasionally be 

difficult to ascertain the specific 

outcome of such suits. 

Regarding the last comment, and as 

already stated: (1) We only intend to 

invoke § 424.535(a)(14) in very limited 

and exceptional circumstances; (2) we 

will account for the patient’s particular 

situation and setting in determining 

whether a § 424.535(a)(14) revocation is 

warranted; and (3) § 424.535(a)(14)(i)(F) 

is only one of a number of factors we 

will consider. 

Comment: Several commenters stated 

that CMS’ proposal is duplicative of 

current safety mechanisms, ignores the 

long history of states regulating the 

licensure process, adds yet another layer 

of regulatory burden and administrative 

costs to the program, and gives the 

federal government an excessive amount 

of latitude without furnishing clear 

objectives. They added that CMS has 

stepped outside its statutory authority 

and into regulating the practice of 

medicine, and has also usurped the 

authority of state boards to regulate the 

practice of medicine. They requested 

that CMS work with the medical 

community through pre-rulemaking 

activities, such as listening sessions, 

town halls, and the issuance of requests 

for information (RFI), to better develop 

any future proposals to address the 

agency’s concerns. Another commenter 

stated that CMS should focus on 

preventing individuals who do not have 

the authority to prescribe (such as 

massage therapists) from prescribing 

Part D drugs rather than on applying 

§ 424.535(a)(14). 

Response: Section 424.535(a)(14) is 

not an attempt by CMS to regulate the 

practice of medicine or to usurp state 

medical boards’ roles in doing so. States 

remain free to take action against 

physicians and practitioners as they 

deem fit. Again, though, Medicare is a 

distinct program that is under the 

purview of CMS, not the states. We 

must have the ability to remove abusive 

prescribers from the Medicare program 

without having to obtain or wait for 

approval from state licensing boards or 

other bodies that do not have oversight 

of Medicare. 

As mentioned earlier, we have the 

authority under sections 1102 and 1871 

of the Act to establish requirements for 

the efficient administration of the 

Medicare program. We believe this 

includes ensuring that the Part D 

program is properly administered, and 

that Medicare beneficiaries and the 

Trust Funds are protected. We believe 

that § 424.535(a)(14) will be an 

important part of these objectives. 

We appreciate the recommendation 

that we work with the medical 

community in developing future 

proposals and will take it under 

advisement. 

As for the final comment, our 

addition of (c)(6) is aimed at stemming 

the problem of unqualified prescribers. 

Yet we disagree with the implication 

that this issue should be our sole focus. 

Other matters, such as egregious and 

dangerous prescribing practices by 

physicians and eligible professionals, 

must be addressed as well. 

Comment: Several commenters 

expressed concern about the potential 

application of § 424.535(a)(14) to 

hospice and palliative physicians. They 

stated that medications furnished in a 

hospice or palliative setting often 

require doses and indications that are 

generally not seen in conventional care. 

Such doses, they contend, are often 

necessary to relieve pain and furnish 

comfort to terminally ill patients, noting 

also that dosages might vary depending 

on what stage of the dying process the 

patient is in; terminally ill patients, they 

state, require different pain management 

strategies and often higher doses of 

opioids than those who are not 

terminally ill. The possible application 

of § 424.535(a)(14) to hospice and 

palliative physicians, they asserted, 

could prevent these physicians from 

prescribing needed medications to 

dying patients due to concerns about 

prescribing outside the usual norms. 

They requested an exception to 

§ 424.535(a)(14) when the patient is 

specifically receiving hospice or 

palliative services. Another commenter 

suggested exempting from 

§ 424.535(a)(14) those physicians who 

are ABMS-board certified in hospice 

and palliative medicine, or medical 

directors certified by the Hospice 

Medical Director Certification Board. 


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Response: We decline to establish a 

specific exception for hospice or 

palliative physicians or services, for this 

would eliminate our ability to take 

action against truly egregious and 

dangerous prescribing practices that 

may occur in such settings. However, as 

stated earlier, we fully understand that 

each patient is different, as is his or her 

specific condition and needs. We will 

operate under this overriding principle 

when considering whether 

§ 424.535(a)(14) should be invoked in a 

particular instance. 

Comment: A number of commenters 

contended that several of the criteria 

identified by CMS are beyond the 

expertise of CMS regulators. 

Response: We disagree. We have 

physicians and other medical personnel 

on staff who we anticipate may be 

consulted, as needed, in potential 

§ 424.535(a)(14) cases. 

Comment: A commenter stated that 

because of the limited number of 

certified hospice and palliative 

physicians, most hospice and palliative 

patients will be cared for by their 

primary care physician or mid-level 

practitioner. The commenter 

recommended that CMS add an appeals 

process with peer-review to ensure that 

good clinicians are not penalized 

unduly. Other commenters expressed 

concern that the proposed rule made no 

mention of appeal rights, while one 

commenter requested how physicians 

can defend themselves against a 

§ 424.535(a)(14) revocation. 

Response: A physician or eligible 

professional whose Medicare billing and 

prescribing privileges are revoked under 

§ 424.535(a)(14) may appeal the 

revocation per 42 CFR part 498. Also, as 

already mentioned, we anticipate that 

physicians and other medical personnel 

of CMS may be consulted, as needed, in 

potential § 424.535(a)(14) cases. 

Comment: One commenter stated that 

CMS should clarify the term ‘‘necessary 

evaluation’’ as it is used in 

§ 424.535(a)(14)(i)(B); the commenter 

explained that a hospice or palliative 

physician must often rely on the 

evaluations of the nurses and is not 

always able to physically see a 

homebound patient. The commenter 

was concerned that he or she would not 

be able to adjust dosages without seeing 

the patient. Another commenter stated 

that in applying this criterion, CMS 

should focus more on the prescriber’s 

status than on beneficiaries who may be 

evaluated outside of their normal 

residence. 

Response: We are not in a position to 

further clarify or define the term 

‘‘necessary evaluation’’ in this rule, for 

we must retain the flexibility to address 

the variety of factual scenarios that 

could potentially implicate 

§ 424.535(a)(14). However, we recognize 

the commenter’s concern, and as stated 

earlier we will account for the patient’s 

particular needs and circumstances. 

We intend to review all aspects of the 

prescriber’s and the patient’s statuses 

and physical locations when examining 

this criterion. 

Comment: A commenter 

recommended that in lieu of adopting 

its proposed new revocation policy, 

CMS should use its existing regulatory 

authority under § 405.371 to suspend 

Part D prescribing privileges when there 

is a credible allegation of fraud. If CMS 

believes it lacks the legal authority to 

implement a payment suspension that 

precludes a physician or eligible 

professional from prescribing, ordering, 

or certifying services for a Medicare 

beneficiary when a credible allegation of 

fraud exists, CMS should consider 

proposing a new policy that expands on 

the existing provisions in § 405.371 and 

allow the public to comment on this 

policy. Another commenter requested 

that CMS explain how a revocation 

under § 424.535(a)(14) is different from 

an OIG exclusion based on a conviction 

of fraud. Another commenter contended 

that CMS, through § 424.535(a)(14), 

would essentially be making fraud 

determinations that CMS lacks the 

statutory authority to undertake. 

Response: We disagree with the first 

commenter’s recommendation and the 

third commenter’s statement because 

abusive or inappropriate prescribing 

does not necessarily involve fraudulent 

behavior, although it could well involve 

improper payments. We further believe 

that revocation is a more appropriate 

remedy for abusive prescribing than a 

payment suspension. In the latter 

situation, the prescriber would remain 

enrolled in Medicare despite his or her 

improper prescribing; we believe this 

goes against the overall objective of 

§ 424.535(a)(14), which is to protect 

Medicare beneficiaries and the Trust 

Funds from abusive behavior. 

Comment: A commenter suggested 

that CMS should, prior to finalizing 

§ 424.535(a)(14), solicit comments on a 

process of notification and opportunity 

to correct prior to implementing a 

revocation under § 424.535(a)(14). Other 

commenters likewise stated that before 

revoking a supplier under 

§ 424.535(a)(14), CMS should notify the 

supplier of the potential revocation and 

enable the supplier to respond. 

Response: We disagree. Providing a 

physician with an opportunity to take 

corrective action would not be 

appropriate under these circumstances, 

given that CMS would have based its 

revocation action on a prescriber 

engaging in a pattern or practice of 

abusive prescribing over some period of 

time. One of our goals with 

§ 424.535(a)(14) is to place prescribers 

on notice that abusive prescribing 

practices can result in the individual’s 

losing his or her Medicare billing 

privileges. To permit an abusive 

prescriber to avoid revocation by simply 

modifying his or her behavior 

temporarily would undermine this 

objective and, more importantly, would 

not undo the harm that may have been 

done to Medicare beneficiaries because 

of the prescriber’s practices. 

Comment: Several commenters 

suggested that CMS be required to 

consult with and receive written 

approval from the OIG and/or the 

Department of Justice prior to any 

invocation of § 424.535(a)(14). 

Response: We do not agree. As 

mentioned earlier, CMS administers the 

Medicare program. We must be able to 

expeditiously remove abusive 

prescribers from the Medicare program 

without having to secure prior approval 

from law enforcement. Indeed, failure to 

take such quick action would be 

inconsistent with the spirit of the two 

aforementioned OIG reports that urged 

CMS to exercise greater oversight of the 

Part D program. 

Comment: A commenter opposed the 

criterion in § 424.535(a)(14)(i)(B) that 

reads, ‘‘Whether there are instances 

where the necessary evaluation of the 

patient for whom the drug was 

prescribed could not have occurred (for 

example, the patient was deceased or 

out of state at the time of the alleged 

office visit).’’ The commenter stated that 

this factor does not address whether the 

physician or eligible professional is out 

of the country when the new 

prescription for a Part D drug was given 

to a beneficiary. Another commenter 

stated that the criterion does not: (1) 

Outline cases where a physician or 

eligible professional is allowed under 

state law to prescribe Part D drugs over 

the phone to a Medicare beneficiary 

who is on vacation and may need a Part 

D prescription; and (2) differentiate 

between a prescription for a new Part D 

drug a day after the death of a Medicare 

beneficiary and a refill of an existing 

Part D medication by the spouse or 

child after the death of the Medicare 

patient. This commenter requested that 

CMS rescind this criterion unless it 

furnishes more information, such as 

how it will be used as a factor in making 

a revocation determination. Another 

commenter requested the removal of 

this criterion if it will be based solely on 

PDE data. 


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Response: The example cited in 

§ 424.535(a)(14)(i)(B) is not the only one 

to which the criterion could apply. The 

term ‘‘for example’’ indicates that 

multiple factual scenarios are 

envisioned. Such is the case with 

§ 424.535(a)(14)(i)(B). We will consider 

the specific facts of each situation in 

determining whether the resolution of 

this factor weighs in favor of a 

revocation under § 424.535(a)(14). In 

addition, we will consider information 

besides PDE data when evaluating this 

criterion. 

Comment: A commenter opposed the 

criterion outlined in 

§ 424.535(a)(14)(i)(D) regarding the 

number and type(s) of disciplinary 

actions. The commenter contended that 

CMS did not indicate whether it would 

use a particular state licensing board 

decision (for example, a reprimand or 

fine) as its basis for taking an action 

under § 424.535(a)(14). The commenter 

stated that CMS should rescind this 

portion of its proposal unless it: (1) 

Provides more information regarding the 

state medical board actions that would 

be used as a factor in making a decision 

under § 424.535(a)(14); and (2) affords 

the public an opportunity to comment 

on CMS’ implementation approach. 

Response: We are not in a position to 

outline every conceivable disciplinary 

action that a state medical board could 

impose. Such actions vary widely by 

state and by magnitude, which is why 

§ 424.535(a)(14)(D) accounts for the 

specific type of disciplinary action 

involved. 

Comment: Several commenters stated 

that the term ‘‘abusive’’ should be 

stricken from the rule because it is too 

broad and subjective. Others requested 

that CMS at least provide more 

clarification and guidance: (1) As to the 

meaning of the terms ‘‘abusive,’’ 

‘‘excessive dosage,’’ ‘‘improper 

prescribing practices,’’ and ‘‘threat to 

patient health and safety’’; and (2) 

regarding the steps that would be taken 

if the agency determines that a 

prescriber’s Medicare enrollment should 

be revoked; one commenter stated that 

CMS Publication 100–18, Chapter 9, 

contains a definition of ‘‘abusive’’ 

whereas our proposed rule did not. 

Another commenter recommended that 

this guidance incorporate evidencebased guidelines and research along 

with the patient’s history. 

Response: We did not define these 

terms in the proposed rule and decline 

to do so in this final rule because of the 

need to retain our flexibility in 

addressing a variety of factual scenarios. 

Any revocation under § 424.535(a)(14) 

would be processed in the same manner 

as all other revocations, with the 

exception that with these revocations, 

the applicable Part D plan sponsor(s) 

would also be notified of CMS’ 

revocation action so that the sponsor 

can terminate the individual’s 

prescribing privileges. 

Comment: A commenter stated that 

while CMS noted in its proposed rule 

that it would conduct a complete and 

thorough investigation prior to any 

revocation, there are no safeguards to 

ensure a full investigation. The 

commenter added that CMS did not 

identify who would conduct these 

investigations. Other commenters 

requested information as to the process 

for determining whether abusive 

prescribing or a threat to patient health 

and safety exists. Another commenter 

stressed the need for a clearly defined 

protocol that would be followed before 

any revocation decision is made. 

Response: We stated in the proposed 

rule and reiterate here that in every case 

we will carefully consider all of the 

relevant factors before invoking 

§ 424.535(a)(14); this will include a 

review of all of the evidence before us, 

including the patient’s particular needs, 

circumstances, and setting. CMS and 

contractor staff will conduct the 

investigations, with CMS personnel 

performing the evaluation of the factors 

and making the final determination. 

More detailed information regarding the 

review process will, as deemed 

necessary, be disseminated via subregulatory or other guidance. 

Comment: Several commenters 

requested clarification regarding 

whether CMS intends to implement 

§ 424.535(a)(14) retrospectively. They 

supported a strictly prospective 

application. 

Response: We reserve the right to 

revoke the billing privileges of a 

physician or eligible professional 

enrolled as of the effective date of this 

rule who has engaged or is engaging in 

abusive prescribing as described in 

§ 424.535(a)(14). However, the effective 

date of the revocation would not be 

earlier than the effective date of this 

final rule. 

Comment: A commenter questioned 

whether CMS will routinely scour its 

data for suppliers with suspicious 

prescribing patterns and, if so, what 

CMS will then do. 

Response: Consistent with our current 

practices, we will be alert for such 

prescribing patterns. Once a pattern is 

detected, we will conduct a review and 

investigation using our existing 

procedures. If, based on this review, we 

believe that a situation involving 

abusive prescribing may exist, we will 

determine whether action under 

§ 424.535(a)(14) is warranted. 

Comment: A commenter stated that 

proposed § 424.535(a)(14) is 

unnecessary because the OIG has the 

ability to exclude from Medicare (under 

42 U.S.C. 1320a–7(b)(6)(B)) any 

individual who has furnished items or 

services to patients substantially in 

excess of the patients’ needs or of a 

quality that does not meet 

professionally recognized standards of 

care. 

Response: While we recognize that 

the OIG has its exclusion authority, 

CMS is the agency directly responsible 

for administering the Medicare program 

and for protecting Medicare 

beneficiaries and the Trust Funds. 

Consequently, CMS should be able to 

use its own authority to pursue 

administrative actions to address our 

concerns regarding abusive prescribing. 

We also reiterate that the OIG has 

recommended that CMS exercise greater 

oversight over the integrity of the Part 

D program and has noted its concern 

about abusive prescribing. Therefore, we 

believe it is proper for CMS (and 

consistent with the OIG’s 

recommendations) to implement 

§ 424.535(a)(14). 

Comment: Several commenters 

expressed support for our proposed 

addition of § 424.535(a)(14). One 

commenter stated that this will allow 

for more effective monitoring of 

improper prescribing behaviors. The 

commenter noted that inappropriate 

prescribing can result in overutilization 

of medications that increase program 

costs without providing any health 

benefit and can harm beneficiaries. 

Another commenter stated that 

§ 424.535(a)(14) will enable CMS to 

exercise greater control over the Part D 

program. 

Response: We appreciate the support 

of these commenters. 

Comment: Several commenters 

recommended that CMS explain in the 

final rule whether CMS or Medicare 

contractors will use clinical staff 

(physicians and pharmacists) in 

determining whether Part D prescription 

drug abuse has occurred and whether a 

revocation under § 424.535(a)(14) is 

warranted. 

Response: As stated earlier, we may 

use clinical staff, as needed, in making 

§ 424.535(a)(14) determinations. 

Comment: One commenter 

recommended that CMS, in lieu of 

finalizing § 424.535(a)(14), revoke the 

Medicare billing and/or prescribing 

privileges of individuals under 

§ 424.535(a)(10) when the medical 

documentation does not support the 

Part D prescription written by the 

physician or eligible professional. The 

commenter believed that this approach 


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would be easier and more cost-effective 

to implement and would avoid the need 

for CMS to make clinical judgments. 

Response: Section 424.535(a)(10) does 

not apply to Part D prescriptions. 

Consequently, § 424.535(a)(10) cannot 

be used in lieu of § 424.535(a)(14). 

Comment: A commenter requested 

clarification concerning whether CMS 

or its Medicare contractors will conduct 

medical document reviews to determine 

whether an abusive prescribing pattern 

exists. 

Response: Medical document reviews 

are one of several actions we may 

undertake in determining whether an 

invocation of § 424.535(a)(14) is 

warranted. 

Comment: With respect to the 

criterion regarding diagnoses to support 

indications for which the drugs were 

prescribed, a commenter: (1) Questioned 

how CMS will cross-reference Part D 

prescriptions with appropriate 

diagnoses; and (2) stated that CMS 

should include all scientificallysupported indications, whether on the 

FDA labeling or not. 

Response: We will, as deemed 

necessary, furnish sub-regulatory or 

other guidance to address the 

commenter’s first issue. We agree with 

the commenter’s second comment, and 

intend to include all scientificallysupported indications irrespective of 

whether they are on the FDA labeling. 

Comment: One commenter expressed 

concern about the potential impact of 

§ 424.535(a)(14) on pharmacies and 

their patients. The commenter stated 

that beneficiaries may see an 

interruption in the continuity of their 

health care if their physician is no 

longer qualified to be a Medicare 

supplier; the commenter believed there 

should be options available to ensure 

that health care is not interrupted. 

Response: As explained earlier, we 

only intend to invoke § 424.535(a)(14) in 

exceptional circumstances. 

Consequently, we do not believe that 

patient access in general will be 

impacted. 

Comment: In referring to the criterion 

in § 424.535(a)(14) regarding private 

insurers, a commenter stated that CMS 

does not have the statutory authority to 

make enrollment and revocation 

decisions based upon the actions of 

commercial health insurers. The 

commenter urged CMS to explain its 

legal justification for invoking 

§ 424.535(a)(14) on this ground. The 

commenter also suggested that CMS 

explain how it will obtain information 

regarding private insurer actions taken 

against physicians and practitioners and 

whether these insurers will be required 

to furnish such data to CMS. 

Response: We disagree with the 

commenter’s assertion that we do not 

have the authority to consider the 

actions of private insurers in 

determining whether a § 424.535(a)(14) 

is appropriate. Again, we have the 

authority under sections 1102 and 1871 

of the Act to establish requirements for 

the efficient administration of the 

Medicare program. If private insurers 

have taken actions against a particular 

physician or practitioner for 

questionable prescribing activities, we 

believe it would be appropriate for us to 

consider this information in light of our 

obligation to oversee the Part D program 

in a responsible manner. We will 

attempt to work with private insurers to 

facilitate the appropriate exchange of 

information. 

Comment: A commenter opposed the 

following criterion: ‘‘Whether the 

physician or eligible professional has 

prescribed controlled substances in 

excessive dosages that are linked to 

patient overdoses.’’ The commenter 

contended that CMS: (1) Did not 

provide the source or sources that it will 

use to obtain this information, and (2) 

already has a similar reason for 

revocation in § 424.535(a)(3) regarding 

felony convictions. The commenter 

stated that if CMS adopts this criterion, 

CMS should add the following language 

to the end thereof: ‘‘that result in a 

felony conviction of criminal neglect or 

misconduct.’’ The commenter also 

recommended that CMS: (1) Cite the 

sources it will use to obtain information 

on patient overdoses; and (2) defer to 

the state medical boards regarding 

whether a physician or eligible 

professional is posing an immediate risk 

to Medicare Part D beneficiaries 

(assuming CMS intends to consider state 

actions in its § 424.535(a)(3) 

determinations). 

Response: We are unclear as to the 

specific information to which the 

commenter is referring; namely, 

whether the commenter is alluding to 

published clinical data (for example, 

professional journals) or to information 

regarding a particular patient’s 

overdose. If it is the latter, as we 

suspect, we intend to use both publicly 

available and internal data to determine 

whether cases of excessive prescribing 

exist. To the extent this data is obtained 

from state medical boards, CMS (for 

reasons alluded to earlier) does not 

believe a prior determination by the 

state of an immediate risk to Part D 

beneficiaries is necessary. 

Comment: A commenter suggested 

that in lieu of revoking an individual 

under § 424.535(a)(14), CMS should 

place the physician under a payment 

suspension and deactivate his or her 

Medicare billing privileges. Another 

commenter recommended that CMS 

consider a sliding scale to include 

lower-level consequences (such as 

suspensions) for less severe 

occurrences. 

Response: We disagree. With a 

payment suspension, the physician 

would remain enrolled in Medicare and 

be able to prescribe Medicare Part D 

drugs and provide Medicare Part B 

services (although he or she would have 

Medicare payments withheld for a 

period of time). Moreover, there would 

be no legal basis under § 424.540 to 

deactivate the supplier’s prescribing 

privileges, which is why revocation is 

the most appropriate remedy to address 

these situations. 

Comment: A commenter stated that 

the sole use of PDE data to identify 

prescriber trends is insufficient to 

determine abusive practices, for such 

data cannot distinguish between: (1) 

Legitimate high dose and frequency of 

prescriptions; and (2) illegitimate 

prescribing. 

Response: We agree and intend to use 

various data sources to detect such 

practices. 

Comment: Several commenters stated 

that prescribers may avoid long-term 

care practice for fear of being revoked 

from Medicare. 

Response: We disagree. We 

mentioned earlier that we only intend to 

invoke § 424.535(a)(14) in exceptional 

circumstances involving truly abusive 

behavior. Accordingly, we do not 

believe that § 424.535(a)(14) will deter 

prescribers from practicing in long-term 

care settings. 

Comment: A commenter suggested 

that CMS provide additional data to 

plans in order to improve a plan’s 

ability to identify inappropriate patterns 

and to apply claims processing edits 

correctly/timely. 

Response: We agree and are 

considering various means of doing so. 

Comment: One commenter stated that 

a revocation under § 424.535(a)(14) 

alone will not suspend or revoke the 

practitioner’s right to prescribe drugs 

under state law, meaning that patients 

other than Medicare beneficiaries would 

still be at risk. This is especially true, 

the commenter added, considering that 

§ 424.535(a)(14) does not require such 

CMS revocations to be reported to the 

state. 

Response: It is possible that a 

prescriber revoked under 

§ 424.535(a)(14) may still be able to 

retain his or her state license. However, 

we are currently working with the states 

to facilitate a closer exchange of 

information regarding Medicare actions 

taken against physicians and 


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practitioners, which may facilitate 

concomitant action taken by states. 

Comment: Several commenters 

requested clarification as to whether a: 

(1) Part D plan sponsor would be 

penalized if it fills a prescription from 

a terminated supplier when information 

about the termination is not available 

(for example, in cases of retroactive 

termination or an error with CMS 

records); and (2) whether a pharmacy 

would be penalized for filling a 

prescription order that has been 

approved through the claims 

adjudication process. The commenter 

opposed the application of such 

penalties. 

Response: We believe these comments 

are outside the scope of this final rule. 

Comment: A commenter 

recommended that CMS remove the 

following as a factor for revocation: 

‘‘Has a pattern or practice of prescribing 

for controlled substances outside the 

scope of the DEA Certificate of 

Registration.’’ The commenter instead 

suggested that CMS work with the DEA. 

Response: We disagree with the 

commenter. As previously mentioned, 

we are responsible for administering the 

Medicare program and must be able to 

take quick action against abusive 

prescribers without the prior approval 

of another agency. 

Comment: A commenter stated that, 

on its face, each criterion appears 

reasonable. However, the commenter 

expressed concern that the rule does not 

provide guidance on the application and 

weight given to each factor, which could 

allow for subjective, contradictory, and 

discriminate revocation decisions 

(especially with respect to the last 

criterion that permits CMS to consider 

‘‘any other relevant information 

provided to CMS.’’). 

Response: We understand the 

commenter’s concern and note that we 

will, as deemed necessary, be issuing 

sub-regulatory guidance that explains in 

more depth the operational details of 

the § 424.535(a)(14) determination 

process. In addition, CMS, rather than 

its contractors, will make all final 

determinations. This will ensure greater 

overall uniformity, as well as a more 

consistent application of the various 

factors. 

Comment: While supporting much of 

our proposed addition of 

§ 424.535(a)(14), a commenter expressed 

concerns regarding several criteria. 

First, the commenter (referring to 

proposed § 424.535(a)(14)(i)(A)) stated 

that there are many reasons why a 

physician might prescribe a particular 

drug without a formal diagnosis (for 

instance, the physician may be unable 

to conduct a full evaluation due to 

distance, cultural preference, etc.). 

Second, the commenter recommended 

that a statute of limitations be imposed 

regarding the individual’s final adverse 

action history. 

Response: We recognize that there 

may be instances where a formal 

diagnosis does not or cannot occur. In 

applying § 424.535(a)(14)(i)(A), we will 

consider the reason such a diagnosis did 

not take place. Regarding the 

commenter’s second concern, we do not 

favor a statute of limitations for the final 

adverse action criterion; CMS must be 

able to retain its flexibility in this 

regard. Nonetheless, we will take into 

account when the adverse action 

occurred when analyzing whether it 

supports a finding of abusive 

prescribing. 

Comment: A commenter 

recommended that CMS forgo adopting 

§ 424.535(a)(14) and instead work with 

the Congress to suspend Coverage and 

Payment for Questionable Part D 

Prescriptions, as described in the FY 

2015 Department of Health and Human 

Services performance budget. 

Response: We continue to work with 

the Congress in our efforts to enhance 

Part D program integrity, and we believe 

that § 424.535(a)(14) is an important 

step in this direction. 

Comment: With respect to the 

criterion dealing with state disciplinary 

actions, a commenter suggested that 

CMS monitor prescriber licensure 

statuses and status changes in lieu of 

state disciplinary actions. The 

commenter stated that many states do 

not publish state board disciplinary 

actions in a standardized format that 

can be easily used to ascertain a 

prescriber’s practicing privileges. 

Response: We recognize that state 

disciplinary data may not always be 

available. To the extent that it is, 

though, we do not believe it should be 

completely disregarded, even if the 

action did not result in a licensure 

suspension or revocation. 

Comment: A commenter requested 

that CMS ensure that innovative abusedeterrent technologies are employed as 

a tool in working to curb prescription 

drug abuse in Medicare. Another 

commenter recommended that CMS 

utilize health information technology 

systems to collect and organize data for 

measuring performance, supporting 

clinical decisions, and evaluating 

quality improvement processes; drug 

utilization procedures and prescription 

drug monitoring programs (PDMPs), for 

instance, could be important tools for 

improving public health and clinical 

practice. 

Response: We appreciate these 

suggestions and note that we are 

considering various technological and 

system-based means of enhancing our 

oversight of the Part D program. 

Comment: A commenter offered 

several suggestions. First, CMS should 

furnish examples in the final rule as to 

the process of identifying and 

quantifying a pattern or practice as well 

as the actual revocation process of 

Medicare enrollment. Second, CMS 

should offer additional educational 

opportunities for suppliers regarding 

Medicare prescribing practices, which 

would place physicians and eligible 

professionals on notice that they must 

meet Medicare requirements and must 

prescribe properly. 

Response: We agree with the 

commenter’s second recommendation 

and, as stated earlier, plan to conduct 

outreach regarding prescribing 

practices. As for the first suggestion, we 

are not in a position in this final rule to 

furnish specific examples of when we 

would conclude that abusive 

prescribing exists and a § 424.535(a)(14) 

revocation is warranted; again, we must 

retain our flexibility to address a variety 

of factual scenarios. 

The revocation process will be the 

same as that which currently exists for 

all other revocation reasons under 

§ 424.535(a), the lone exception being 

that Part D plan sponsors will be 

notified of a revocation action under 

§ 424.535(a)(14). 

Comment: One commenter 

recommended that CMS revise the 

regulation to permit denial of an 

enrollment application due to 

prescribing practices that are either 

abusive and/or represent a threat to the 

health and safety of Medicare 

beneficiaries. 

Response: We appreciate this 

suggestion and may consider it as part 

of a potential future rulemaking effort. 

Comment: One commenter 

recommended that CMS obtain and 

consider a recommendation from the 

plan sponsor’s medical director as to 

whether the prescribing pattern falls 

outside the standard of care and 

represents a therapeutic use for which 

safety and efficacy is not otherwise 

supported by available scientific 

evidence. 

Response: We appreciate this 

suggestion, but note that CMS staff 

includes medical personnel who, as 

stated earlier, may be consulted as 

needed in potential § 424.535(a)(14) 

cases. 

Comment: A commenter requested 

that CMS eliminate the criterion dealing 

with patterns and practices of 

prescribing without authority and 

instead utilize processes already in 

place to validate prescriptive authority 


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at the point of sale. The commenter also 

recommended that CMS work with 

industry stakeholders to develop a 

streamlined process for capturing data 

that will be used in CMS’ 

§ 424.535(a)(14) determinations. 

Response: We disagree with the first 

comment. The issue is not the technical 

or logistical means of validating 

prescriptive authority but whether the 

unauthorized prescribing of drugs is 

indicative of abusive prescribing. As for 

the second comment, we are somewhat 

unclear as to the commenter’s specific 

request; nevertheless, we will consult 

with plan sponsors and pharmacy 

interest groups as needed to ensure that 

our new provisions are effectively 

implemented. 

Comment: A commenter expressed 

support for CMS’ decision not to define 

‘‘abusive’’ and ‘‘threat to the health and 

safety of Medicare beneficiaries’’ and to 

allow CMS the flexibility to address 

each case on its own merits. However, 

it urged CMS to review the list of 

criteria on a periodic basis and consider 

additions and modifications to reflect 

advances in clinical best practices and 

the evolution of abusive prescribing 

patterns or practices. 

Response: We appreciate the 

commenter’s support and intend to 

regularly review (and, if needed, update 

via further rulemaking) the criteria in 

§ 424.535(a)(14) to account for changes 

in the medical field. 

Comment: A commenter suggested 

that in making § 424.535(a)(14) 

determinations, CMS should: (1) Take 

into account historical information in 

the National Practitioner Data Bank 

(such as past DEA registration 

suspensions); and (2) consider the 

relative severity of any state licensure 

sanctions. 

Response: We appreciate this 

comment. As stated earlier, a physician 

or eligible professional’s final adverse 

action history (both past and present) 

will be a criterion for us to consider; the 

severity of any such actions or sanctions 

will be taken into account as well. 

Comment: A commenter stated that 

proposed § 424.535(a)(14) may run 

counter to Medicare regulations that 

protect patient rights, creating the 

possibility that systematic limitations 

on prescribing practices may constitute 

a violation of patients’ rights to pain 

assessments, palliative care, and the 

provision of hospice care. 

Response: We disagree with the 

commenter. We do not believe that 

§ 424.535(a)(14) will hinder the ability 

of Medicare beneficiaries to receive 

appropriate medications, particularly 

considering that: (1) § 424.535(a)(14) 

will only be applied in egregious 

instances; and (2) the patient’s 

particular needs, circumstances, and 

setting will be taken into account. 

Comment: A commenter stated that 

there needs to be additional information 

in the final rule as to how this 

information would be provided to PBMs 

and how PBMs should administer it; for 

example, guidance is needed on how to 

manage suppliers that are licensed in 

multiple states but have an action 

against them in one state but not the 

other(s). 

Response: We will, as deemed 

necessary, disseminate sub-regulatory or 

other guidance that addresses the issues 

the commenter has raised. 

Comment: Several commenters 

believed that § 424.535(a)(14) could be 

strengthened even further by permitting 

revocation of enrollment based on 

prescribing practices that are abusive 

and/or represent a threat to the health 

and safety of Medicare beneficiaries, as 

opposed to requiring that both of these 

criteria be met. The commenters stated 

that some prescribing practices might be 

fraudulent and abusive but not 

necessarily representative of a threat to 

the health and safety of Medicare 

beneficiaries. 

Response: We agree, and will revise 

§ 424.535(a)(14) accordingly. 

Specifically, the language in 

§ 424.535(a)(14)(i) that reads, ‘‘The 

pattern or practice is abusive and 

represents a threat to the health and 

safety of Medicare beneficiaries,’’ will 

be changed to ‘‘The pattern or practice 

is abusive or represents a threat to the 

health and safety of Medicare 

beneficiaries or both.’’ This will give us 

further flexibility in addressing cases of 

abusive prescribing, which in turn will 

enable us to better protect Medicare 

beneficiaries and the Trust Funds. 

Given these comments and our 

responses, we are finalizing our 

addition of § 424.535(a)(14) with the 

exception noted in the previous 

paragraph. 

We also received a number of 

comments that, in general, either 

applied to all of our proposed 

provisions or were not precisely related 

to any specific proposal. Our summary 

of the comments and are responses are 

as follows. 

Comment: Several commenters 

opposed the use of the CMS–855O on 

various grounds. First, the CMS–855O 

does not collect practice location or 

medical storage information, which the 

commenter believes is a significant 

vulnerability and is inconsistent with 

CMS’ existing regulations. Second, use 

of the CMS–855O is inappropriate 

because proposed and final regulations 

(in which the notice-and-comment 

process is used) regarding its use and 

implementation were not published in 

the Federal Register. Third, the 

commenter contended that CMS does 

not have the statutory or legal basis to 

use an enrollment application other 

than for the express purpose of enrolling 

a provider or supplier; as such, CMS 

exceeded its legal authority to 

implement the CMS–855O for the sole 

purpose of ordering and certifying 

services and items in the Medicare 

program. Fourth, the commenter 

contended that CMS lacks the statutory 

and regulatory basis to establish a 

registration process for Medicare. Fifth, 

the CMS–855O is duplicative of the 

CMS–855I form, the latter of which was 

subject to notice-and-comment; also, 

requiring a physician who is enrolled 

(via the CMS–855I) solely to order or 

certify services or items to then 

complete the CMS–855I if he or she 

wishes to bill Medicare increases the 

paperwork burden. 

Response: These comments are 

outside the scope of this final rule. 

Comment: A commenter 

recommended that to improve 

transparency, CMS should post the 

name, NPI, and reason for each 

Medicare enrollment revocation or 

payment suspension and the duration of 

the revocation or payment suspension 

on the Medicare Provider/Supplier 

Enrollment Web site. The commenter 

believed that this information would be 

useful for Medicare Advantage 

Organizations, Part D sponsors, and the 

public. 

Response: We appreciate this 

suggestion, and will take it under 

advisement as we continue our efforts to 

strengthen the integrity of the Part D 

program. 

Comment: Several commenters 

recommended that CMS: (1) Explain 

why it does not believe the inclusion of 

the practice location on the CMS–855O 

is essential to identifying the physician 

or non-physician practitioner; (2) 

require that all physicians and nonphysician practitioners report their 

practice locations; (3) mandate that only 

physicians with a defined specialty be 

permitted to prescribe Part D drugs; (4) 

remove from the list of physicians and 

eligible professionals with an approved 

enrollment record any physician or nonphysician practitioner with an 

undefined or unlisted physician or nonphysician specialty code; (5) explain 

why it did not solicit comments on the 

use of an electronic signature in the 

Internet-based versions of the CMS– 

855O and the CMS–855I; (6) provide the 

authority to implement and use the 

CMS–855O beginning in July 2011 and 

explain why it did not choose to solicit 


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public comments on changes to 

regulatory provisions found in 

§§ 424.502 and 424.505 for almost 3 

years after adopting and using the CMS– 

855O; (7) explain why it is using the 

CMS–855O rather than the CMS–855I 

since the CMS–855O, in the 

commenter’s view, essentially 

duplicates the CMS–855I; (8) modify 

and use the CMS–855I (rather than 

continue using the CMS–855O) because 

CMS cannot verify the practice location 

of a physician who registers using the 

CMS–855O; (9) explain why CMS has 

not proposed to revise § 424.500 to 

accommodate the registration of 

physicians and non-physician 

practitioners for the sole purpose of 

ordering/certifying services and items in 

the Medicare program; (10) disenroll all 

physicians and practitioners enrolled 

via the CMS–855O and require them to 

enroll via the CMS–855I; and (11) 

provide the number of individuals 

enrolled or registered into the Medicare 

program using the CMS–855O since July 

2011. 

Response: These comments are 

outside the scope of this final rule. 

Comment: A commenter suggested 

that the final rule take action against 

physicians who report via the Internet 

that they are board certified when in 

fact they are not. 

Response: We appreciate this 

suggestion. While we are unable to 

include such a provision in this final 

rule because we did not propose it, we 

will take it under advisement as we 

continue our efforts to strengthen the 

integrity of the Part D program. 

Comment: A commenter 

recommended that CMS require 

physicians and eligible professionals to 

have an active Medicare enrollment to 

order Part B drugs. 

Response: This comment is outside 

the scope of this final rule. 

Comment: A commenter 

recommended that CMS not allow 

physicians and eligible professionals 

who have opted-out of Medicare to 

order or certify services and items when 

they have been suspended or revoked by 

a state licensing body. 

Response: This comment is outside 

the scope of this final rule. 

Comment: A commenter 

recommended that CMS clarify whether 

a Part D Medicare beneficiary will need 

to provide his or her physician’s name 

and NPI to his or her plan sponsor if he 

or she submits a Part D claim for 

payment. 

Response: We will, as deemed 

necessary, address this issue via subregulatory or other guidance. 

Comment: A commenter 

recommended that CMS exclude 

physicians and eligible professionals 

who have opted out of the Medicare 

program from prescribing Part D 

covered drugs because CMS does not 

have the legal authority in either the 

Social Security Act or existing 

regulations to revoke the prescribing 

privileges of a physician or eligible 

professional who has opted-out of the 

Medicare program. 

Response: As we stated previously, 

section 1802(b) of the Act is clear that 

certain physicians and practitioners 

may opt-out of the Medicare program 

and enter into private contracts with 

Medicare beneficiaries. We believe that 

to require such individuals to enroll in 

Medicare would be inconsistent with 

this statutory provision. 

Comment: A commenter 

recommended that CMS explain why 

the April 14, 2012 and September 11, 

2011 Federal Register Notices soliciting 

comments on the CMS–855O state that 

physicians and practitioners submitting 

this form are registering rather than 

enrolling in Medicare, while the April 

2013 proposed rule states that they are 

enrolling in Medicare; the commenter 

stated that existing regulations do not 

provide for a registration process. 

Response: This comment is outside 

the scope of this final rule. 

Comment: A commenter stated that 

diagnosis codes should be placed on 

prescriptions to assess their 

appropriateness. 

Response: This comment is outside 

the scope of this final rule. 

Comment: A commenter: (1) 

Requested clarification regarding 

whether a revocation under our 

proposed provisions would affect a 

physician or eligible professional’s 

Medicaid enrollment; (2) requested 

clarification concerning how a State 

Medicaid agency would differentiate 

between one’s enrollment via the CMS– 

855I and an enrollment via the CMS– 

855O; and (3) suggested that CMS 

provide a complete list of individuals 

who can only order, certify or prescribe 

in the Medicare program. 

Response: With respect to the first 

comment, any Medicare revocation 

results in the termination of the 

provider or supplier’s Medicaid 

enrollment pursuant to § 455.416(c). 

The second comment is outside the 

scope of this final rule. As for the third 

comment, and as alluded to in both the 

proposed rule and in this final rule, we 

plan to make available to Part D 

sponsors a list of physicians and eligible 

professionals who have an approved 

enrollment record or a valid opt-out 

affidavit on file with an A/B MAC. We 

do not intend at this time to modify this 

list (nor to create a separate list) to 

identify those individuals who are 

enrolled solely to order, certify, or 

prescribe in the Medicare program. 

However, we may consider this as part 

of a future enhancement. 

Comment: A commenter suggested 

that CMS require private insurers in Part 

D to report suspected fraud, waste and 

abuse to Medicare’s fraud contractor. 

Another commenter stated that CMS 

should: (1) Encourage Part D sponsors to 

voluntarily report suspected instances 

of physician and eligible professional 

misconduct or abusive prescribing, and 

(2) institute measures to ensure a twoway working dialogue between the 

sponsors and the MEDIC. 

Response: We are working to ensure 

that Part D plans consistently and 

regularly refer suspected fraud, waste, 

and abuse to the MEDIC and that there 

is appropriate communication between 

them. 

Comment: A commenter requested 

that steps be taken to ensure that a 

beneficiary is notified when his or her 

physician’s billing privileges have been 

revoked, and that an exception be made 

for emergency or urgent care situations. 

Similarly, another commenter requested 

clarification as to whether claims will 

be processed for emergency and urgent 

care services furnished by opt-out 

physicians and, if so, how processors 

will identify claims in that scenario. 

One commenter requested that CMS 

furnish guidance regarding: (1) How 

Part D prescribers can complete an optout affidavit; (2) how opt-out prescribers 

will be identified in the file; (3) which 

(if any) edits will apply to opt-out 

prescribers; (4) how various enrollment 

statuses (for example, an enrollment 

application or opt-out affidavit is 

pending) should be handled; (5) how 

terminations should be handled and 

whether changes in enrollment 

(including suspensions and revocations) 

will be communicated to plan sponsors 

at least 30 business days in advance; (6) 

whether the enrollment/opt-out file will 

be made available to prescriber data 

vendors; (7) whether an alert process 

will be established for reinstated or new 

enrollments that occur between file 

deliveries; (8) whether override 

processes will be developed; (9) 

whether procedures for notifying 

beneficiaries of a change in an 

individual’s ability to prescribe Part D 

drugs will be established; (10) whether 

a special call center for Part D 

prescribing issues related to enrollment 

will be created; and (11) how felony 

convictions, exclusions, debarments, 

and State Medicaid program prescriber 

sanctions should be treated for purposes 

of claim denials and coding (for 

instance, whether they should be treated 


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as Medicare revocations or OIG 

exclusions for purposes of claim denials 

and coding). 

Response: We will, as deemed 

necessary, address the aforementioned 

issues via sub-regulatory or other 

guidance. 

Comment: A commenter 

recommended that CMS reestablish the 

systematic deactivation of Medicare 

billing and prescribing privileges if the 

physician or non-physician practitioner 

has not billed the Medicare program in 

more than a year to ensure consistency 

with an OIG recommendation to this 

effect. The commenter also 

recommended that CMS provide the 

number of physicians and eligible 

professionals who have completed the 

CMS–855I and who have not billed the 

Medicare program in more than a year 

as of March 7, 2014, the ending 

comment date for this proposed rule. 

Response: These comments are 

outside the scope of this final rule. 

Comment: A commenter stated that a 

revocation would be too serious a 

penalty for a DEA registration 

suspension or revocation or for 

improper prescribing. 

Response: While we recognize 

commenter’s concern regarding the 

severity of a revocation action, this 

action will in some cases be necessary 

to protect Medicare beneficiaries and 

the Trust Funds. 

Comment: A commenter sought 

clarification regarding whether CMS 

would notify the prescriber at least 30 

days in advance of a forthcoming 

revocation. 

Response: As already stated, the 

operational procedures for revoking 

suppliers under §§ 424.535(a)(13) and 

(14) will be the same as those which 

currently exist for other revocations 

under § 424.535(a), the sole exception 

being that Part D plans will be notified 

of the revocation. 

Comment: A commenter suggested 

that CMS centralize all exclusion, optout, and other lists in one location (to 

the maximum extent possible), 

preferably via a format that Part D plans 

can download and convert into a file 

format compatible with data analytics 

programs. This would enable plans to 

act more quickly against excluded 

suppliers. Another commenter urged 

that CMS update such lists 

expeditiously so that plan sponsors can 

take action as needed. 

Response: We appreciate the first 

commenter’s suggestion and may 

consider this as part of a future 

enhancement. We agree with the second 

commenter’s recommendation and 

stress that CMS attempts to update its 

existing lists (and will attempt to update 

the aforementioned enrolled/opted-out 

prescriber list) as quickly as possible. 

Comment: A commenter requested 

clarification concerning whether: (1) 

Plan sponsors are only supposed to 

deny coverage in the state in which a 

physician’s license is revoked or 

whether denials should be for all states; 

and (2) whether CMS will continue to 

permit a physician with a CMS waiver 

to continue practicing in rural areas 

when he or she is the only physician 

available, even though he or she is 

revoked. 

Response: We believe these comments 

are outside the scope of this final rule. 

Comment: A commenter requested 

clarification regarding whether a 

physician who is prohibited from 

prescribing controlled substances for the 

treatment of non-cancer related chronic 

pain or obesity would have their 

Medicare billing privileges and/or 

prescribing privileges revoked by the 

Medicare program. 

Response: As stated in 

§ 424.535(a)(13), if the applicable 

licensing body for any state in which 

the physician practices suspends or 

revokes his or her ability to prescribe 

controlled drugs, we have the discretion 

to revoke his or her Medicare billing 

and prescribing privileges. Should we 

exercise this discretion, the physician 

would be unable to prescribe covered 

Part D drugs because he or she would 

no longer be enrolled in Medicare. 

Comment: A commenter 

recommended that CMS explain the 

process it uses to identify medical 

licenses that are surrendered while a 

formal disciplinary proceeding was 

pending before a state licensing 

authority. 

Response: This comment is outside 

the scope of this final rule. 

Comment: A commenter encouraged 

CMS to consider participation in the 

Council for Affordable Quality 

Healthcare (CAQH) universal 

credentialing application process used 

by many private sector healthcare 

systems. Having one ‘‘portal’’ for 

physicians to become credentialed for 

both Medicare and private sector health 

plans, the commenter believed, would 

reduce the administrative burden for 

physicians. 

Response: We appreciate this 

comment but believe it is outside the 

scope of this final rule. 

Comment: One commenter, while 

expressing support for §§ 424.530(a)(11) 

and 424.535(a)(13) and (14), requested 

that CMS delay its implementation until 

CMS (1) has fully field-tested the 

Medicare enrollment and reporting 

program, and (2) demonstrates that the 

program will operate at a high level of 

accuracy, with frequent updates, and 

with consistently reliable linkages to 

and from other federal and state 

databases. Another commenter 

recommended that the criterion in 

§ 424.535(a)(14) regarding diagnosis 

codes be delayed until the effects of the 

ICD–10 transition are reviewed. 

Response: While we appreciate the 

first commenter’s support, we do not 

believe that the implementation of these 

provisions (including the criteria in 

(a)(14)) should be delayed. As explained 

earlier, CMS must take steps to ensure 

the integrity of the Part D program and 

to protect both Part D beneficiaries and 

the Trust Funds. 

We are neither finalizing nor 

proposing any regulatory changes as a 

result of these miscellaneous comments. 

22. Broadening the Release of Part D 

Data (§ 423.505) 

We proposed to revise our regulations 

governing the release of Part D data to 

expand the release of unencrypted 

prescriber, pharmacy, and plan 

identifiers contained in prescription 

drug event (PDE) records, as well as to 

make other changes to our policies 

regarding release of Part D PDE data. For 

background, in the May 28, 2008 

Federal Register (76 FR 30664), we 

published a final rule entitled, 

‘‘Medicare Program; Medicare Part D 

Claims Data,’’ (hereinafter referred to as 

the ‘‘Part D data final rule’’) to 

implement regulations that govern the 

collection of PDE data under the 

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

of the Act and the disclosure of this data 

in accordance with section 1106 of the 

Act. The provisions governing the 

collection and disclosure of PDE data 

are codified at § 423.505(b)(8), (f)(3), (1) 

and (m). The Part D data final rule 

governed the collection and disclosure 

of the original 37 elements of PDE data, 

but was updated to apply to any 

additional elements that were added to 

the PDE record. This update was in a 

final rule issued in April 2010 (75 FR 

19678) entitled, ‘‘Medicare Program; 

Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs’’ 

(hereinafter referred to as the ‘‘April 

2010 final rule’’). 

In the preamble to the Part D data 

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

[ ] believe that it is in the interest of 

public health to share the information 

collected under [the authority of 1860D– 

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

CMS.’’ We explained that the release of 

PDE data assists CMS in evaluating the 

Medicare Part D program and assessing 

related policies. We further stated such 

release was in the interest of public 


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health and would improve the clinical 

care of beneficiaries. 

In addition to setting forth the 

significant public policy reasons for 

disclosure of PDE data, we made clear 

in the preambles of both the Part D data 

final rule and the April 2010 rule that 

our primary concerns in releasing PDE 

data are protecting the confidentiality of 

beneficiary identifiable information and 

commercially sensitive data of Part D 

sponsors. Therefore, as described in the 

Part D data final rule and the April 2010 

rule, the release of PDE data is subject 

to certain protections, described here 

generally, such as encryption of 

beneficiary information and aggregation 

of commercially sensitive data of Part D 

sponsors. In addition, whenever PDE 

data is released, we only release the 

minimum data necessary for a given 

purpose, as determined in the sole 

discretion of CMS after review of the 

requestor’s detailed request for data. If 

releasing data to an external entity for 

research purposes, CMS indicated in the 

Part D data final rule that the requestor 

must be a legitimate researcher, 

meaning the requestor has the requisite 

experience and is working for, or on 

behalf of, a reputable institution. (In the 

preamble to the Part D data final rule 

(73 FR 30674 citing 45 CFR 164.501), we 

used the definition of ‘‘research’’ 

contained in the HIPAA Privacy Rule, 

which defines the term as ‘‘a systematic 

investigation, including research 

development, testing, and evaluation, 

designed to develop or contribute to 

generalizable knowledge.’’) In the Part D 

data final rule (73 FR 30674), we also 

indicated that, consistent with our 

current policies for Part A and B data, 

identifiable Part D data would not be 

disclosed for commercial purposes. 

In the preamble to the proposed rule, 

we stated that we believe the current 

limitations on the release of certain data 

elements hinder the use of PDE data in 

a health care environment that is 

substantially transforming due to the 

Affordable Care Act, and that these 

limitations therefore also inhibit 

accompanying insights into prescription 

drug benefit plans that could result from 

broader release of the data. We further 

stated that our experience has led us to 

conclude that broader release of PDE 

data to external entities can increase the 

positive contributions researchers make 

to the evaluation and function of the 

Part D program and improve the 

efficiency of the program and the 

clinical care of its beneficiaries, which 

is in the interest of public health. For 

these reasons, we stated that increased 

access to prescriber, pharmacy, and plan 

identifiers by all categories of requestors 

is of utmost importance and will 

facilitate research by entities outside 

CMS that involves identifiable plans, 

prescribers, and pharmacies. 

Furthermore, we stated that we could 

relax the current policies on the release 

of this PDE data, while still protecting 

beneficiary confidentiality and 

commercially sensitive data of Part D 

sponsors. 

Specifically, we proposed to permit 

the release of unencrypted prescriber, 

pharmacy, and plan identifiers 

(including internal plan/pharmacy 

identification numbers on the claim that 

represent reference numbers assigned by 

the plan at the time a drug is dispensed) 

contained in PDE records to all current 

categories of requestors (including other 

HHS entities and the Congressional 

oversight agencies, non-HHS executive 

branch agencies and states, and external 

entities). We noted that because the 

minimum necessary policy will still 

apply to all such releases, our proposal 

was more a formality with respect to 

HHS entities/Congressional oversight 

agencies and non-HHS executive branch 

agencies/states, since this data is 

available in unencrypted format to these 

same entities under the current Part D 

data regulations ‘‘if needed.’’ For this 

reason, in the proposed rule, we focused 

on the release of unencrypted 

prescriber, pharmacy, and plan 

identifiers to external entities as 

discussed later in this section. 

We acknowledged in the preamble to 

the proposed rule that there still may be 

concerns about releasing unencrypted 

prescriber, plan, and pharmacy 

identifiers to outside entities based on 

comments that were received in 

response to our original proposed Part D 

data regulations, and that were 

discussed in the Part D data final rule 

(73 FR 30675). In particular, we 

addressed concerns that this 

information could be used by 

pharmaceutical companies and others 

who may want to influence physicians’ 

prescribing patterns and interfere with 

their professional judgment. As we 

stated in the proposed rule, it is our 

view today, however, that the vast 

majority of physicians have prescribed 

and do prescribe what they believe are 

the appropriate medications for their 

patients, and they should have no 

concerns with transparency in their 

prescribing patterns. Moreover, we 

stated that there are other measures in 

place to prevent inappropriate influence 

by external entities on prescribers, such 

as section 6002 of Affordable Care Act 

and the federal Anti-Kickback Law 

(section 1128B(b) of the Act). We also 

pointed out that when data are 

completely transparent, it is easier for 

the attempts of some to use the data for 

purposes of inappropriate manipulation 

to be countered by others who have 

access to the same data. We also noted 

that it appears prescriber data are 

already available commercially from 

pharmacy data aggregators. For these 

reasons, we stated that we believe that 

our earlier concerns expressed in the 

Part D data final rule about the release 

of unencrypted prescriber identifiers in 

PDE data to external entities are no 

longer warranted. 

In the proposed rule, in conjunction 

with our proposal to broaden the release 

of unencrypted prescriber identifiers, 

we also highlighted our response to a 

comment discussed in the Part D data 

final rule, which argued that providing 

access to linked physician identifiable 

claims in order to pool them with 

employer data would allow analysis to 

reduce cost of care delivery and 

improve the quality of care (73 FR 

30676). We noted that in response to the 

comment, we did not disagree with the 

commenter, but referenced a variety of 

pay for performance and value-based 

health care initiatives being undertaken 

by CMS at the time in an effort to 

encourage health care providers to 

furnish high quality health care and to 

provide cost and quality information to 

consumers. We also noted that in our 

response to the comment, we had stated 

that we intended to use PDE data in 

those activities, but we declined to 

adopt a policy that would include 

making unencrypted prescriber 

identifiers available for release to 

external entities (except when needed to 

link to another data set). In this 

proposed rule, however, we 

acknowledged that, in light of the goals 

of the Affordable Care Act to improve 

the quality of health care, including 

through better access to information, we 

now agree with the commenter 

regarding the importance of providing 

access to prescriber-identifiable claims 

in order to allow researchers to pool 

them with employer data and conduct 

broader research. 

We noted in the proposed rule that 

our current policy on release of 

ingredient cost and dispensing fee data 

would not change under our proposal, 

meaning the minimum necessary data 

regarding ingredient costs and 

dispensing fees would continue to be 

available for release in disaggregated 

form only to other HHS entities and 

congressional oversight agencies. NonHHS executive branch agencies and 

external entities could still only obtain 

the minimum necessary ingredient cost 

and dispensing fee data, and only in 

aggregated form. 

With respect to our proposal to 

broaden the release of unencrypted plan 


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identifiers, we also explained in the 

proposed rule that an analysis of Part D 

plans, their network pharmacies, and 

average drug costs, can already be 

accomplished through data posted on 

CMS’ Web site and/or purchased in 

public use files. Additionally, the 

Medicare Prescription Drug Plan Finder 

(‘‘MPDPF’’) allows users to view and 

compare all available prescription drug 

plan choices, including plan and 

pharmacy specific estimates of the costs 

of individual drugs. These data can be 

manipulated by researchers to reveal 

information about specific plans and 

pharmacies that contribute to the 

evaluation and functioning of the Part D 

program and can be used to improve the 

public health. Therefore, in light of the 

fact that plan data is already publicly 

available and the public policy rationale 

for increasing access to PDE data by all 

categories of requestors, we stated that 

plan identifiers should be available in 

an unencrypted format. 

For the same reasons that we 

proposed to make prescriber and plan 

identifiers available for release in an 

unencrypted format, we explained in 

the proposed rule that we no longer see 

a reason that pharmacy identifiers 

should not be available for release in an 

unencrypted format. Accordingly, we 

also proposed to release unencrypted 

pharmacy identifiers to all categories of 

requestors. 

We addressed one final aspect of our 

policies governing the release of Part D 

data in the proposed rule. As discussed 

previously, in the preamble to the Part 

D data final rule (73 FR 30664), we 

explained that consistent with CMS’s 

existing policies with respect to Parts A 

and B data, CMS would not release PDE 

data for commercial purposes (but 

external researchers may be funded by 

commercial firms if the researchers are 

free to publish their results regardless of 

the findings). However, for the same 

reasons that we proposed to make 

changes to our rules governing the 

release of PDE data, we also solicited 

comment on the current restriction on 

the release of PDE data for commercial 

purposes. We noted that we were not 

making a specific proposal in this 

regard, but rather, that we wished to 

receive comments on this issue for 

consideration. 

In addition to the proposed changes 

with respect to prescriber, pharmacy, 

and plan identifiers described 

previously, and our request for 

comment on the restriction on the 

release of Part D PDE data for 

commercial purposes, we proposed a 

few other changes to our regulations 

governing the submission, use, and 

release of PDE data, including some 

changes intended to clarify our existing 

policies with respect to several issues 

related to PDE data. First, we proposed 

to add supporting program integrity 

purposes, including coordination with 

states, as an additional purpose deemed 

necessary and appropriate by the 

Secretary for which a Part D sponsor 

must agree to submit all data elements 

included in all its drug claims under 

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

The regulation at § 423.505(f)(3) 

currently contains a non-exclusive list 

of purposes deemed necessary and 

appropriate. Thus, we indicated that we 

believe the use of these data for 

supporting program integrity purposes 

has always been included, even though 

not explicitly listed. However, given the 

importance of our ability to release PDE 

data for program integrity purposes, 

including for coordination with states 

on program integrity, we proposed to 

add this purpose explicitly to the nonexclusive list in § 423.505(f)(3). 

Second, we proposed to clarify that 

non-final action data (for example, 

information on claims subject to 

subsequent adjustment) are available to 

entities outside of CMS. We explained 

that non-final action data are captured 

through the data element, ‘‘Original 

versus Adjusted PDE (Adjustment/

Deletion code).’’ We further explained 

that this is a PDE field which 

distinguishes original from adjusted or 

deleted PDE records, which allows 

sponsors to make adjustments to the 

original PDE record to ensure accurate 

payment. The information included in 

these revised PDE records is thus not 

point-of-sale data. With the increasing 

focus on coordination of care, we noted 

that requests for access to non-final 

action PDE data have understandably 

also increased, and that non-final action 

data are also routinely requested for 

evaluation and research projects. We 

noted that the Part D data final rule (73 

FR 30683) included an appendix that 

explained in more specific detail the 

restrictions relative to the available PDE 

elements for the different categories of 

requestors. Specifically, we noted that 

this appendix stated (73 FR 30685) that 

the data element ‘‘Original versus 

Adjusted PDE (Adjustment/Deletion 

code)’’ was available to other (that is, 

non-CMS) HHS entities and the 

congressional oversight agencies, while 

for non-HHS executive branch agencies, 

states, and external entities, it stated 

that ‘‘Final Action claims would be 

provided, so this element should not be 

needed.’’ Thus, we noted that this 

appendix did not explicitly address the 

question of whether non-final action 

data would be available for release to 

non-HHS executive branch agencies, 

states, and external entities, because 

such data were not expected to be 

needed by these requestors. However, 

since it is clear that these entities do 

need access to non-final data, we 

proposed to clarify that non-final action 

data are also available for release to nonHHS executive branch agencies, states, 

and external entities under the Part D 

data final rule. 

Due to our proposals to make changes 

to our policies governing the release of 

PDE data described previously, we 

proposed to make corresponding 

changes to the current applicable 

regulatory text. In addition, we also 

proposed to eliminate the appendix that 

accompanied the Part D data final rule 

(73 FR 30683) that explained in more 

specific detail which PDE elements 

would be available to different 

categories of requestors, and any 

restrictions that applied. We stated that 

we believed this appendix is no longer 

necessary, as our proposed changes in 

policy would eliminate most of the 

distinctions with respect to the PDE 

data available for release to the different 

categories of requesters, with the 

exception of Total Drug Costs, which 

will continue to be available in 

disaggregated form only to other (that is, 

non-CMS) HHS entities and the 

congressional oversight agencies, and 

we proposed to revise the regulation at 

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

this distinction. We also proposed to 

revise this provision to clarify that we 

will continue to exclude sales tax from 

the aggregation, if necessary for the 

project. Finally, we proposed changes to 

the regulatory text to incorporate notes 

from the current Appendix that are not 

addressed by the existing reference to 

CMS data sharing procedures in 

§ 423.505(m)(1)(ii). 

We received the following comments 

on our proposed revisions to the 

regulations governing the release of Part 

D data: 

Comment: We received a number of 

comments regarding these proposed 

revisions, many of which strongly 

supported our proposed revisions to the 

Part D data regulations. Several 

commenters commended CMS’ ongoing 

work to improve the efficiency of the 

Medicare program and the clinical care 

of its beneficiaries, which these 

commenters asserted will be better 

facilitated through increased data 

transparency that facilitates additional 

research. These commenters stated that 

releasing unencrypted physician, plan, 

and pharmacy identifiers in Part D PDE 

data under the parameters we proposed 

will allow researchers to answer a 

broader range of questions about the 


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program. These commenters further 

stated that greater access to Part D PDE 

data will help ensure that this data is 

used to maximum effect in the creation 

of knowledge and understanding about 

the program and around clinical care 

received by beneficiaries. Commenters 

additionally noted that the increased 

availability of PDE data will enable 

researchers to conduct in-depth 

comparisons of medications provided 

through different outlets, which could 

enable CMS to take proactive measures 

to achieve cost savings. One commenter 

also stated that the public has a 

significant interest in provider, plan, 

and pharmacy professional conduct, as 

these entities are government licensed 

and regulated, and Medicare payments 

are publicly funded. Finally, these 

commenters noted that our existing 

‘‘minimum necessary’’, ‘‘legitimate 

researcher’’, and ‘‘aggregation’’ policies 

are sufficient to provide some common 

sense parameters for release of 

unencrypted identifiers. 

Potential areas of research suggested 

by the commenters were linking 

information on Part D plan features 

(such as premiums, cost-sharing, and 

formularies) to health outcomes and the 

quality of health care provided to 

Medicare beneficiaries. Other 

commenters asserted that broader access 

to prescriber, plan, and pharmacy 

identifiers in PDE data will facilitate 

research in particular for conditions for 

which there are very few viable 

treatments, no available cure, and much 

more work to be done with respect to 

researching and developing safe and 

effective medicines. These commenters 

welcomed the availability of additional 

information to spur further knowledge, 

investigation, and progress on how to 

best treat—and ensure appropriate 

coverage for treating—complex health 

conditions. 

Response: We thank these 

commenters for their comments in 

support of our proposed changes. 

Comment: Other commenters opposed 

our proposed revisions to the policies 

governing the release of Part D data. 

These commenters asserted that the 

existing framework for release of Part D 

PDE data fully accommodates the needs 

of government entities and legitimate 

researchers, and strikes the appropriate 

balance between these needs and the 

legitimate concerns of health care 

providers and Part D plan sponsors 

regarding the widespread dissemination 

of sensitive data, including data that 

specifically identifies them. One 

commenter stated that CMS had not 

articulated a reason for the need to 

identify specific plans, pharmacies, and 

prescribers, and that necessary research 

can be accomplished with encrypted 

identifiers. One commenter requested a 

clarification on the meaning of ‘‘new 

health care environment.’’ Some 

commenters asserted that prescriber, 

plan, and pharmacy identifiers in PDE 

data are commercially sensitive 

information, and that release of these 

identifiers would undermine 

competition and may lead to higher 

costs in the Part D program and less 

choice. A few of these commenters 

asserted similarly that prescription drug 

benefit plans could potentially reverse 

engineer competitively sensitive data 

regarding other plans, which could have 

an anti-competitive effect on the Part D 

bidding process. 

Response: We think the preamble to 

the proposed rule provided a clear 

description of the ways in which the 

Affordable Care Act is transforming the 

health care system in this country—by 

spearheading the drive toward an 

information- and value-based system, 

and the compelling reasons for the 

release of unencrypted prescriber, plan, 

and pharmacy identifiers in Part D PDE 

data to allow for additional research to 

achieve this goal. Specifically, it is in 

the interest of public health to share this 

information with entities outside of 

CMS, as the work of these entities will 

assist CMS in evaluating the Medicare 

Part D program and assessing related 

policies to improve the clinical care of 

beneficiaries. We also note that when 

more data is released about the 

Medicare Part D program, the potential 

research topics expand as well. For 

instance, commenters supportive of the 

proposed expansion in the release of 

Part D data offered examples of 

potential areas of new research, such as 

linking information on Part D plan 

features (such as premiums, costsharing, and formularies) to health 

outcomes and the quality of health care 

provided to Medicare beneficiaries. 

Such research is not possible with 

encrypted plan identifiers, because the 

researchers would not know the specific 

features of the unidentified plans. 

In addition, we are not persuaded that 

these identifiers are commercially 

sensitive data. As we stated in the 

preamble to the proposed rule (79 FR 

1990), an analysis of Part D plans, their 

network pharmacies, and average drug 

costs, can already be accomplished 

through data posted on CMS’ Web site 

and/or purchased in public use files. 

Additionally, the MPDPF allows users 

to view and compare all available 

prescription drug plan choices, 

including plan and pharmacy specific 

estimates of the costs of individual 

drugs. Moreover, we noted that it 

appears that prescriber data are already 

available commercially from pharmacy 

data aggregators. These data can 

currently be manipulated by researchers 

to reveal information about specific 

plans, pharmacies and prescribers. For 

these reasons, we have concluded that 

prescriber, plan and pharmacy 

identifiers are not commercially 

sensitive information, and that it is 

appropriate to share this information in 

an unencrypted format when it is 

needed for a particular study or project. 

Comment: Some commenters 

supported our assertion in the proposed 

rule that release of unencrypted 

identifiers in Medicare Part D PDE data 

subject to our current data release 

policies, including our minimum 

necessary and legitimate research 

policies, will not result in data 

recipients using the data 

inappropriately, such as to influence 

physicians’ prescribing patterns or 

interfere with physicians’ professional 

judgment. These commenters stated that 

physicians are trained to use their best 

medical judgment in making 

prescription decisions for their patients. 

Other commenters disagreed, 

asserting that the release of unencrypted 

identifiers has the potential, for 

instance, to influence prescribing 

patterns and physician judgment, or 

otherwise to be used to draw incorrect 

or inaccurate conclusions that could be 

damaging to the reputations of 

professionals and health care 

organizations. These commenters 

asserted that inappropriate influence 

may adversely affect the quality of care 

for beneficiaries. One commenter stated 

that the Affordable Care Act’s additional 

reporting requirements with respect to 

physician prescribing do not address 

this type of influence, and that CMS has 

assumed that release of this data will 

not adversely affect beneficiaries, rather 

than carefully considering the impact of 

release. Another commenter stated that 

data and statistics are valuable in 

observing trends among patient 

populations, but that they are a blunt 

instrument when applied to individuals. 

One commenter opposed the 

indiscriminate release of data to any 

requesting external entity, including to 

data aggregators that have little 

knowledge of the Medicare Part D 

program. A few commenters encouraged 

CMS to present the data in a way that 

considers the quality of the services 

provided, including an explanation of 

the data limitations, and allows for the 

opportunity to correct information, for 

instance, to include patient noncompliance in the case of release of 

prescriber identifiers. Finally, these 

commenters stated that disputing 

inaccurate findings takes significant 


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time, effort, and expense, and even then, 

it is often impossible to fully mitigate 

the harm caused. 

Response: While we are sensitive to 

the concerns regarding undue influence 

raised by the commenters, for the 

reasons discussed in the proposed rule, 

we agree with those commenters that 

did not believe releasing these data 

would result in improper influence on 

physician prescribing patterns or 

otherwise interfere with the exercise of 

professional judgment. In addition, we 

believe CMS’ current release policies 

will also limit inappropriate use of the 

data. In order for a researcher to gain 

access to CMS data, the researcher must 

submit a research protocol and receive 

approval of the protocol from CMS. In 

addition, all requestors are required to 

sign a Data Use Agreement with the 

agency that limits the use of the data to 

only the approved purposes. The agency 

carefully considers all data requests to 

ensure that the use of the data will not 

exploit or negatively impact Medicare 

beneficiaries. Furthermore, we do not 

believe the professional research 

community would support the 

dissemination of faulty analyses and 

would be quick to offer criticisms of 

poor research, should this happen 

despite our careful evaluation of all data 

requests. We also disagree that data and 

statistics are only valuable in observing 

trends among patient populations. As 

we lead the effort to provide high 

quality care and better health at lower 

costs, data analysis at various levels of 

specificity is crucial. For example, 

analyses at the provider or supplier 

level, when properly adjusted to 

account for differences in patient 

populations, could provide insight into 

differences in the way a given condition 

is treated and help develop best 

practices. In addition, unencrypted 

prescriber identifiers have valuable uses 

beyond reporting on individual 

physician prescribing patterns. For 

example, unencrypted identifiers in Part 

D data can be linked to other sources of 

data, such as claims data from other 

payers, electronic health records, and 

clinical data such as lab results, in order 

to facilitate broader and more complex 

research projects. 

Additionally, we were not persuaded 

that CMS should release data in a way 

that considers the quality of the services 

provided, includes an explanation of the 

data limitations, or allows for the 

opportunity to correct information. This 

is precisely what professional 

researchers do, and as we previously 

noted, we think the professional 

research community would be quick to 

offer criticisms of poor research, should 

a project fail to address these issues 

appropriately. Moreover, if CMS were to 

analyze data before its release for 

research, this practice would undermine 

the independent nature of the analyses 

performed by outside researchers. 

Comment: Some commenters 

specifically supported the release of 

non-final action PDE records, asserting 

such data would permit researchers to 

explore data for a better understanding 

of the Medicare Part D program. The 

comments included a specific example 

of how non-final action data can assist 

researchers in exploring prescription 

adherence and abandonment by tracking 

and accounting for adjusted or deleted 

prescriptions. In contrast, other 

commenters specifically opposed the 

release of non-final data, asserting that 

this information can easily be 

misinterpreted and may cause false 

conclusions that impact providers. One 

commenter opposed our proposed 

clarification regarding release of nonfinal action data stating that CMS had 

failed to articulate a reason for releasing 

non-final action data other than that it 

had received requests for it. 

Response: We disagree with the 

commenter that asserted that CMS failed 

to articulate a reason for releasing nonfinal action data. We think we did 

articulate a reason for releasing nonfinal action data. It is the same as the 

overarching reason to release Part D PDE 

data, which we discussed at length in 

the proposed rule. Specifically, it is in 

the interest of public health to share this 

information with entities outside of 

CMS, as research conducted by these 

entities may assist CMS in evaluating 

the Medicare Part D program and 

assessing related policies to improve the 

clinical care of beneficiaries. In 

addition, as we stated in the preamble 

to the proposed rule, the release of nonfinal action data is necessary due to the 

increased focus on coordination of care 

in the Medicare program and indeed in 

the health care system as a whole. 

Comment: One commenter opposed 

the proposal to allow release of 

unencrypted prescriber and pharmacy 

identifiers stating that the current 

release policies already allow external 

entities to link unencrypted identifier 

elements to another data set. 

Response: We disagree. Under our 

current regulations, the identifiers must 

be re-encrypted after the link has been 

made. Under the regulations as 

finalized, once linked, research at 

higher levels of specificity can be 

conducted that is not possible with 

encrypted identifiers. For instance, a 

researcher conducting a study on 

medication adherence will have many 

more factors to consider and explore 

when the prescribers, plans, and 

pharmacies involved in the research are 

identifiable. Is adherence related to plan 

features? Physician location and/or 

specialty? Pharmacy organization filling 

the prescription? All three? The 

research possibilities will expand, as the 

additional connections that can be 

explored by researchers expand. Drilling 

down to higher and higher levels of 

specificity to understand and 

potentially solve a problem is the very 

nature of 21st century data-driven 

research, and we believe it is essential 

that the Part D data release policies keep 

current. 

Comment: One commenter opposed 

our proposal to release unencrypted 

plan identifiers, asserting that plan 

information is gathered only for Part D 

administration purposes. 

Response: We disagree. Section 

423.505(f)(3) of the regulations states 

that a plan sponsor agrees to submit to 

the Secretary all data elements for 

purposes deemed necessary and 

appropriate by the Secretary, including, 

but not limited to conducting 

evaluations of the overall Medicare 

program. As we noted previously, 

commenters offered examples of 

potential areas of research that will be 

enabled through access to unencrypted 

plan identifiers, such as linking 

information on Part D plan features 

(including premiums, cost-sharing, and 

formularies) to health outcomes and the 

quality of health care provided to 

Medicare beneficiaries. 

Comment: One commenter stated that 

CMS should more specifically define 

‘‘legitimate researcher’’ to ensure that 

Part D data is not released for 

competitive or commercial purposes 

contrary to CMS’ current policy. 

Response: Under current CMS data 

sharing policies, the agency evaluates 

all research requests to ensure that the 

researcher has the expertise to conduct 

the proposed study. In addition, we 

must approve the research protocol 

before any data is shared with a 

researcher. We believe that this review 

process contains appropriate safeguards 

to prevent inappropriate use of the data 

and, as such, we do not believe it is 

necessary to define a ‘‘legitimate 

researcher.’’ Furthermore, we believe a 

variety of different types of individuals 

could submit a valid research request. 

Comment: Some commenters 

supported our proposal to broaden the 

release of Part D data, so long as 

beneficiary privacy is protected. One 

commenter suggested that a biostatistician conduct an expert review of 

the data sets to be released in the 

context of the permitted use(s) to ensure 

beneficiary privacy in the context of the 

permitted uses of the data. Another 


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commenter stated that our proposed 

expansion of the available data will 

compromise beneficiary privacy and 

requested that an approval process 

similar to an IRB be established to 

evaluate requests for such information 

to weigh the risks and benefits of 

disclosure. Another commenter stated 

that CMS should ensure that its efforts 

to protect beneficiary confidentiality do 

not create such onerous data request 

processes that qualified researchers are 

discouraged from attempting to access 

Part D data. Another commenter stated 

that CMS should establish and impose 

appropriate penalties for any breach of 

privacy related to beneficiary 

identifiable information. 

Response: All users accessing 

beneficiary identifiable data are 

required to sign CMS’ Data Use 

Agreement (DUA), which addresses 

privacy and security for the data CMS 

discloses. In addition, the DUA 

currently does, and will continue to 

have, enforcement mechanisms, 

including criminal penalties. CMS 

would make use of these provisions in 

the event of any breach or violation of 

the terms of the DUA. The DUA also 

contains provisions regarding access to 

and storage of CMS data to ensure that 

beneficiary identifiable information is 

stored in a secure system. We believe 

these restrictions are necessary in order 

to ensure that data is only requested in 

compliance with the requirements of the 

regulations and CMS data sharing 

procedures, and that data shared by 

CMS is appropriately protected and is 

not reused or redisclosed without the 

necessary approval. Given that 

researchers have successfully been 

accessing to CMS data under the terms 

of this DUA for years, we do not believe 

these requirements are too burdensome. 

With regard to the suggestion that CMS 

have a bio-statistician review the data 

sets to be released to ensure beneficiary 

privacy, we do not believe this is 

necessary given the beneficiary privacy 

protections in the DUA. However, to the 

extent that CMS releases any deidentified, summarized data sets based 

on the Part D data, the agency carefully 

reviews the proposed release to ensure 

that it does not put beneficiary privacy 

at risk. Finally, we disagree that the 

expansion of the available data will 

compromise beneficiary privacy or that 

additional procedures are necessary in 

order to safeguard beneficiary privacy. 

CMS has an established process to 

evaluate requests for data to ensure that 

there are appropriate safeguards in place 

to protect beneficiary privacy. We 

believe this process contains the 

necessary checks to ensure that the risks 

of the disclosure are minimal. 

Comment: One commenter stated that 

CMS should be as transparent as 

possible under its data use agreements, 

asserting that the public, as well as the 

parties involved, must be able to readily 

determine the manner in which data are 

released, the purpose for the release of 

the data and the parties to whom the 

data are released. 

Response: We are strongly committed 

to transparency. In particular, we have 

established processes to ensure that 

beneficiaries can request information 

about to whom their protected health 

information or personally identifiable 

information has been disclosed, as well 

as the purpose for the release of the 

data. Beneficiaries interested in 

requesting access to this information 

should contact the CMS Freedom of 

Information Act (FOIA) Office (http://

www.cms.gov/center/freedom-ofinformation-act-center.html). 

Comment: One commenter stated that 

CMS should consider whether a 

proliferation of analyses of outdated 

Part D data will truly benefit the Part D 

program, when CMS has the ability to 

commission studies and data analysis 

that would more knowledgeably take 

into account a comprehensive 

understanding of the continually 

changing dynamics of the Part D 

prescription drug market. 

Response: We use Part D data to 

conduct a variety of studies and 

analyses. However, this work does not 

even begin to cover the scope of 

possible analyses that could be 

performed using Part D data. We believe 

that by limiting Part D data analysis to 

that supported by CMS, the agency 

would be inhibiting important research 

and innovation that has the potential to 

result in higher quality care at lower 

costs in the Medicare Part D program, 

and indeed for all Americans. 

After review of the comments we 

received, we are finalizing our proposed 

changes to the regulations governing the 

release of Part D data. Specifically, we 

are finalizing the following revisions to 

the applicable regulatory text: 

• Section 423.505(f)(3) is revised to 

add supporting program integrity 

purposes, including coordination with 

states, as an additional purpose. 

• Section 423.505(m)(1)(iii) is revised 

to remove references to encrypting 

certain identifiers since prescriber, plan, 

and pharmacy identifiers are no longer 

be subject to encryption when released. 

• Section 423.505(m)(1)(iii)(A) is 

revised to clarify that, subject to the 

restrictions contained in paragraph 

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

available not only to HHS, but also to 

other executive branch agencies and 

states, since there is no longer any 

distinction between the two categories. 

• Section 423.505(m)(1)(iii)(B) is 

revised to incorporate a note from the 

appendix that is being eliminated, 

which states: ‘‘Upon request, CMS 

excludes sales tax from the aggregation 

at the individual level, if necessary for 

the project’’ at the end of the provision. 

• Section 423.505(m)(1)(iii)(C) is 

deleted as no longer necessary since 

unencrypted plan identifiers, including 

the internal plan/pharmacy 

identification numbers, are available for 

release. 

• Section 423.505(m)(1)(iii)(D) is relettered as (C) and references to 

encryption of pharmacy and prescriber 

identifiers are deleted, since these 

identifiers are available for release in 

unencrypted format. Additional 

language regarding beneficiary 

identifiers is added to reflect the current 

policy on release of this identifier. In 

addition, we are including the 

statement, ‘‘Public disclosure of 

research results will not include 

beneficiary identifying information,’’ at 

§ 423.505(m)(1)(iii)(C)(2), which also 

reflects current policy as described in 

the appendix that is being eliminated. 

• Section 423.505(m)(3) re-lettered as 

(m)(3)(i) and (m)(3)(ii) is added to 

incorporate a note from the appendix 

that is being eliminated about the status 

of the Congressional Research Service as 

an external entity when it is not acting 

on behalf of a Congressional committee 

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

With respect to our policy not to 

release Part D data for commercial 

purposes, we did not make a specific 

proposal but solicited comments for 

general consideration. We received 

comments on both sides of this topic, 

and thank all the commenters. The 

following is a summary of the 

comments: 

Comment: Commenters that desire a 

change in the policy applauded CMS for 

soliciting comment on this topic. These 

commenters stated that in order to 

improve and modernize the U.S. health 

care system, greater alignment of 

stakeholder incentives is required, and 

that CMS is keenly aware of this pivotal 

requirement for success. These 

commenters stated that the challenge of 

quantifying greater efficiency and 

evidence of improvement as part of 

overall health reform requires more 

access to the unique data sets in federal 

data, and that the current restriction on 

the use of these data for commercial 

purposes will grow increasingly 

challenging in the future as Medicare 

employs more value-based payment 

incentives, and as Medicare data are 


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included in broader multi-payer sets, 

such as those being established by the 

Patient-Centered Outcomes Research 

Institute. These commenters further 

stated that because the quality and 

efficiency of all physician groups, 

health plans, hospital systems, and 

other providers and suppliers can be 

enhanced using data, any notion that 

commercial interest is limited and 

discrete is outdated. They stated that 

PDE data is a valuable asset to all types 

of commercial health care entities in 

limiting the incidence of fraud, 

obtaining practice pattern feedback, 

managing health care delivery to deliver 

value, developing best practice 

standards, and conducting comparative 

effectiveness research. 

The commenters also stated that 

eliminating or reducing this current 

restriction on the release of data for 

commercial purposes is consistent with 

CMS’ desire to foster transparency and 

competition in the Part D program 

during a period of sweeping change to 

the health care system. These 

commenters asserted, for example, that 

suppliers need to incorporate accurate 

data into their product pricing and 

discounting strategies to align their 

approaches with the system-wide drive 

toward value-based decision-making 

and high quality care. 

Commenters additionally stated that 

the more access there is to Medicare 

data, the more dramatically the 

bandwidth for research will be 

increased, leading to increased quality 

of care, system efficiency, and consumer 

satisfaction in the Medicare programs 

and health care system in general. These 

commenters noted that there is deep 

scientific and analytic expertise within 

organizations that are currently 

excluded from accessing CMS data. 

These commenters asserted that the 

standard for data release by CMS should 

be whether the research proposed is of 

high quality and whether it has the 

potential to improve program 

administration or the health of the 

covered population, rather than 

financial benefit and profit status of the 

organization proposing the research. 

These commenters further noted that 

CMS has in place strong research merit 

criteria, rules, and obligations for data 

use and individual privacy protections, 

and that these processes and this 

oversight are sufficient to determine 

whether a requestor should have access 

to PDE or other identifiable data, 

regardless of the researcher’s affiliation. 

Some commenters stated that broader 

release of Part D data would not only 

further public health research and 

analysis of the Part D program, but also 

would serve to further educate 

consumer organizations, patient 

advocates, and ultimately beneficiaries 

about the program generally, as well as 

coverage and prescribing patterns under 

various plans. 

Some commenters stated that they 

would support changing the policy on 

non-release of Part D data for 

commercial purposes, so long as CMS 

ensured that release of the data would 

be conditioned on its use for 

improvement of one or more aspects of 

the Part D program, and CMS carefully 

screened potential recipients of the data 

for demonstrated expertise in using 

research data to improve health 

programs, as well as for any potential 

conflicts of interest or other concerns. 

Commenters that believe that the 

policy of non-release for commercial 

purposes should remain unchanged 

stated that health care entities have 

legitimate concerns regarding the 

widespread dissemination of sensitive 

data, such as data that specifically 

identifies them. These commenters also 

stated that strong program oversight and 

public health and public policy 

imperatives do not exist to 

counterbalance these concerns. 

One commenter stated that CMS lacks 

the authority to release Part D data for 

commercial purposes, because the 

authority cited by CMS limits releases to 

those required for program purposes 

and for improving public health. The 

same commenter asserted that the right 

to make data available for purely 

commercial reasons is a right inherent 

in the ownership of the data, and that 

CMS has never previously asserted an 

ownership over, or right to control the 

use of, data not obtained through access 

to a CMS system. This commenter stated 

that by granting itself this right to 

release Part D PDE data for purely 

commercial purposes, CMS would be 

exercising a right inherent in ownership 

of the data. 

In light of all the comments received 

on both sides of this particular topic, we 

continue to believe that the best 

approach is for our policy regarding the 

release of Part D data for commercial 

purposes to remain consistent with the 

policies for the release of data from 

Medicare Parts A and B. As we 

discussed, in the Part D data final rule 

(73 FR 30672), the procedures that we 

use to make Part D data available are 

built upon the practice that was already 

in place with respect to the release of 

Part A and B data. Furthermore, absent 

specific reasons for treating the data 

differently, we believe it is appropriate 

to have consistent policies for the 

release of data across Medicare Parts A, 

B, and D. Therefore, although we are not 

changing our policy against releasing 

Part D data for commercial purposes at 

this time, we note that in the event the 

policy regarding the release of Parts A 

and B data for commercial purposes 

were to change, we would also revise 

our Part D data sharing policies to be 

consistent with that change. 

23. Establish Authority To Directly 

Request Information From First Tier, 

Downstream, and Related Entities 

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

Under section 1857(d)(2) and 1860D– 

12(b)(3)(c) of the Act, existing 

regulations at §§ 422.504(i) and 

423.505(i) establish various conditions 

that entities contracting as a first tier, 

downstream, or related entity (FDR) to 

an MA organization or Part D sponsor 

must agree to in order to participate in 

the MA or Part D program. One such 

condition at §§ 422.504(i)(2)(i) and 

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

Comptroller General, or their designees 

have the right to audit, evaluate, and 

inspect any books, contracts, computer 

or other electronic systems, including 

medical records and documentation of 

the first tier, downstream, and related 

(FDR) entities related to CMS’ contract 

with the Part C and D sponsor. 

CMS (or its designee(s)) conduct 

routine audits of Part D sponsors and 

MA organizations, as well as conduct 

audits to investigate allegations of 

noncompliance with Part C and/or Part 

D rules and requirements. While 

§§ 422.504(d) and 423.505(d) address 

Part D and MA organizations’ own 

maintenance of records and the rights of 

CMS to inspect those records, 

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

also require plan sponsors to require 

their FDRs to agree to a CMS right to 

inspection. Plan sponsors regularly 

contract with FDRs to perform critical 

Part C and D operating functions. For 

example, many (if not most) Part D 

sponsors delegate critical Part D 

functions to their PBMs. As a result, 

many of the records that we or our 

designees would need to review and 

evaluate when we audit a Part D 

sponsor or MA organization reside with 

its FDRs. 

Our existing regulation at § 423.505 

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

between the Part D sponsor and its FDRs 

must indicate whether records held by 

the FDR pertaining to the Part D 

contract will be provided to the sponsor 

to provide to CMS (upon request), or 

will be provided directly to CMS or its 

designees by the FDR (the Part C 

regulation is silent on this matter). As 

such, we have not previously required 

Part C or Part D FDRs to provide 

information directly to CMS. 


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Two separate reports by the OIG 

(OEI–03–08–00420, dated October 2009 

and OEI 03–11–00310, dated January 

2013), have highlighted barriers 

experienced by the Medicare Drug 

Integrity Contractor (MEDIC), the entity 

contracted by CMS to be responsible for 

detecting and preventing fraud, waste, 

and abuse in the Medicare Parts C and 

D programs nationwide, in obtaining 

requested information in an expeditious 

manner. The 2009 OIG report discussed 

that CMS’ and its designees’ (in this 

case, the MEDIC) lack of authority to 

directly obtain information from 

pharmacies, PBMs, and physicians has 

hindered the MEDIC’s ability to 

investigate potential fraud and abuse 

and the OIG recommended that CMS 

change its regulations to establish its 

authority to obtain necessary 

information directly from FDRs. The 

OIG’s 2013 report reiterated the 

recommendation that CMS have a more 

direct route to obtain records held by 

FDRs so that CMS would be able to 

obtain necessary records in a timely 

fashion. While the 2013 report pointed 

out that sponsors and their FDRs 

generally cooperate in providing the 

information requested by the MEDIC, it 

often takes months for it to reach the 

MEDIC because the MA organization or 

Part D sponsor acts as a gatekeeper. 

In the past, we chose not to be 

prescriptive regarding whether a first 

tier, downstream, or related entity must 

make its books and records available to 

us directly or through the Part C or D 

sponsor. As a consequence of what we 

have learned through the OIG 

investigations and the seriousness with 

which we approach our fraud, waste, 

and abuse oversight obligations, we 

proposed to specify at 

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

that HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records by obtaining them directly from 

any first tier, downstream, or related 

entity. 

We further proposed to revise the 

regulation at §§ 422.504(i)(2)(i) and 

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

and its designees may ‘‘collect’’ records, 

in addition to our existing authority to 

‘‘audit, evaluate, and inspect’’ 

information. The addition of ‘‘collect’’ 

removes any doubt that, in addition to 

our other options for obtaining records, 

we have the authority to request 

information to be reviewed in some 

location other than onsite at a sponsor’s 

or FDR’s facility. Furthermore, this 

proposed provision is intended to 

clarify only that CMS may contact FDRs 

directly and request that they provide 

Part C or D-related information directly 

to CMS. The question as to whether 

CMS has the authority to enter the 

premises of FDRs is to be determined by 

interpreting other applicable statutory 

and regulatory authority. 

Finally, we also proposed to delete 

the existing provision at 

§ 423.505(i)(3)(iv) which gives Part D 

sponsors the choice as to how 

information sought from their FDRs will 

be provided to CMS. Section 423.505 

would be renumbered so that 

paragraphs (v) through (viii) would 

become paragraphs (iv) through (vii). 

We received the following comments 

and our responses follow: 

Comment: Several MA organizations, 

Part D sponsors, and industry 

associations (about a dozen 

organizations all together) raised their 

opposition to this proposal. The main 

argument made by these parties is that 

CMS lacks the legal authority to directly 

access information from FDRs since our 

contractual relationship in these 

situations is with the MA organizations 

and PDP sponsors, not the FDRs 

themselves. One physician’s group 

raised the concern that this provision 

would increase the likelihood of audits. 

Response: We acknowledge that we 

do not have the authority to directly 

regulate FDRs. However, we believe our 

proposal allows us to achieve our goal 

of securing the right of access to FDR 

records because it relies on our ability 

to require the sponsors to incorporate 

such a right of access as part of the 

contractual relationship between the 

sponsors and their FDRs. That is, the 

proposal requires MA organizations and 

PDP sponsors to require their FDRs to 

agree to respond to direct requests for 

information made by CMS. As a 

practical matter, the mechanism for 

sponsors to require their FDRs to agree 

to such a provision is through the 

contractual relationship between the 

parties. We do not believe that this 

proposal in any way changes the 

likelihood of an audit, but merely affects 

the flow of information which we would 

be otherwise requesting. 

Comment: The MA organizations and 

PDP sponsors that commented also 

maintained that since they are 

ultimately accountable to CMS for the 

work performed under their Medicare 

contracts, they have the right to 

participate in and manage the 

information provided to their 

contracting partner (CMS) on their 

behalf by their FDRs. The MA 

organizations and PDP sponsors further 

asserted that allowing the MEDIC or 

other government-related entities to 

circumvent the plan sponsors would 

lead to the collection of potentially 

erroneous information since the plan 

sponsor would not have the opportunity 

to properly vet the information flowing 

from the FDR to CMS. As a result, CMS’ 

and the MEDIC’s information collection 

from FDRs may become less efficient 

than it is under the current regulatory 

regime. Several commenters argued that 

the proposal would in fact increase 

burden, in contrast to CMS’ suggestion 

in the proposed rule that the proposal 

would reduce burden. 

Response: We maintain that having 

direct access to information from FDRs 

is an essential tool in combating fraud, 

waste, and abuse which we should be 

authorized to use. That said, we 

appreciate concerns raised about MA 

organizations and PDP sponsors’ 

interests in managing information 

flowing to CMS, and the concern that 

such information could at times be 

flawed or erroneous without the quality 

review performed by the MA 

organization or PDP sponsor. 

Consequently, we wish to clarify that 

CMS and the MEDICs will default to the 

current practice of requesting 

information held by FDRs via an initial 

request to the MA organization or PDP 

sponsor. However, we will use the 

‘‘direct access’’ route in circumstances 

where either (a) the results of data 

analytics, complaints, and/or 

investigations indicate a suspicion of 

fraud, waste, or abuse in the Medicare 

Part C or D programs or (b) in the case 

of an urgent law enforcement matter. 

We will publish sub-regulatory 

guidance on CMS’ standards for 

determining when direct requests of 

FDRs would be appropriate. We believe 

that this approach promotes CMS’ antifraud efforts by increasing fraud 

investigators’ access to critical Part C 

and D program information and will 

likely increase the speed with which 

investigators may get access to critical 

FDR information, but at the same time 

allows for continued MA organization 

and PDP sponsor control and review of 

information in appropriate 

circumstances. We also wish to provide 

assurance that CMS’ contractor, the 

MEDIC, would not be permitted to 

independently determine under what 

circumstances it would be appropriate 

to bypass the MA organization or PDP 

sponsor in favor of requesting 

information directly from the FDR; CMS 

would be directly involved in all such 

determinations. This approach also 

minimizes any loss of quality or 

potential for errors in the requested 

information as well as the placement of 

any additional burden on sponsors or 

FDRs. 

Comment: Several commenters 

requested that if CMS finalizes the 

provision, that we revise the regulatory 


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29914 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

language to state that CMS would notify 

the MA organization or PDP sponsor 

upon a direct request to one of its FDRs. 

Response: While we had previously 

stated in this final rule discussion that 

MA organizations and PDP sponsors 

would be notified when there is a direct 

request for information made of an FDR, 

we agree that it is reasonable for us to 

specify this commitment in regulation. 

As such, we have added at 

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

language stating that except in 

exceptional circumstances, CMS will 

provide notification to the MA 

organization or PDP sponsor that a 

direct request for information has been 

made to one of its FDRs. The 

exceptional circumstance exception is 

included to allow for the possibility that 

the MA organization or PDP sponsor 

could be one of the parties to the fraud 

investigation, in which case it may not 

be appropriate to provide such 

notification. 

Therefore, we are finalizing this 

provision with the modification that 

CMS will provide notification to the MA 

organization or PDP sponsor that a 

direct request for information has been 

made to one of its FDRs, except in 

exceptional circumstances. 

24. Eligibility of Enrollment for 

Incarcerated Individuals (§§ 417.1, 

417.460, 422.74, 423.44) 

Entitlement and enrollment in the 

Medicare program (Part A and Part B) is 

contingent on entitlement to Social 

Security retirement and disability 

benefits as outlined in sections 226 and 

226A of the Act, and enrollment in the 

Medicare program for individuals not 

receiving retirement or disability 

benefits is outlined in sections 1818 and 

1818A of the Act. These sections do not 

preclude entitlement to or enrollment in 

the Medicare program for individuals 

who are incarcerated in prisons or other 

penal facilities. However, section 

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

payment for services which are paid 

directly or indirectly by another 

government entity, including federal, 

state and local prisons, and penal 

facilities. Given that Medicare 

entitlement flows from entitlement to 

Social Security retirement and disability 

benefits, we established regulations at 

§ 411.4(b) and implemented section 

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

exclusion process in the FFS program, 

outlined in section 50 of Chapter 16 of 

the Medicare Benefit Policy Manual and 

section 10.4 of the Medicare Claims 

Payment Manual. 

The Medicare payment exclusion 

process includes the receipt of 

incarceration status for individuals via 

regular data transfers from the SSA to 

CMS. Once we receive the data, the 

incarceration status is noted on the 

individual’s record and is retained in 

the FFS claims processing systems. 

Upon receipt of submitted FFS claims, 

CMS denies payment of both Part A and 

Part B claims for individuals with 

records on which incarceration is 

denoted, subject to the narrow 

exception provided in § 411.4(b). The 

denial of claims continues until the 

individual is no longer incarcerated and 

that information is reported by SSA to 

CMS. Individuals who are entitled to 

premium-free Part A will maintain their 

entitlement and will remain enrolled in 

Part B as long as premiums are paid. 

Similarly, individuals who are enrolled 

in premium Part A and/or Part B 

maintain their enrollment as long as 

premiums are paid. Sections 

1851(a)(3)(B), 1860D–1(a)(3)(A), and 

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

eligibility requirements to enroll in MA, 

Part D, and Medicare Health 

Maintenance Organization/Competitive 

Medical Plans (cost plans). In all 

options, individuals must have active 

Medicare coverage. Specifically, to 

enroll in MA, an individual must be 

entitled to Part A and enrolled in Part 

B; to enroll in a PDP, an individual must 

be eligible for Part D by either being 

entitled to Part A and/or enrolled in Part 

B; to enroll in a Medicare cost plan, an 

individual must be enrolled in Part B 

but Part A is not required. 

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

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

Act provide that Medicare beneficiaries 

are eligible to enroll in an MA plan, 

PDP, or cost plan only if they reside in 

the geographic area served by the plan, 

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

noted earlier, an individual who is 

incarcerated still meets the eligibility 

requirements for Part A and Part B and 

is eligible generally to enroll in an MA 

plan, PDP, or cost plan. However, 

residence in a plan’s service area is also 

a condition for eligibility to enroll in an 

MA plan, PDP or cost plan. See 

§§ 422.50(a)(3)(i) for MA plans, 

423.30(a)(1)(ii) for PDPs, and 417.422(b) 

for cost plans. If a member no longer 

resides in the service area, plans must 

disenroll that individual per rules at 

§§ 422.74(a)(2)(i) and 422.74 (d)(4) for 

MA plans, 423.44(b)(2)(i) for PDPs, and 

417.460(b)(2)(i) for cost plans. 

a. Changes in Definition of Service Area 

for Cost Plans (§ 417.1) 

In order to implement the exclusion 

from Medicare coverage for incarcerated 

individuals under section 1862(a)(3) of 

the Act in the case of MA plans and 

PDPs, we explicitly excluded facilities 

in which individuals are incarcerated 

from an MA plan’s service area by 

including this exclusion in the 

definition of ‘‘service area’’ when those 

regulatory definitions were adopted (54 

FR 41734 and 72 FR 47410). 

Specifically, ‘‘service area,’’ under 

§§ 422.2 for MA plans and 423.4 for 

PDPs, is defined so that facilities in 

which individuals are incarcerated are 

considered outside of the service area. 

We did not include a similar service 

area exclusion in the case of cost plans. 

To the extent that cost plans do not 

incur costs for incarcerated enrollees 

because their health care costs are 

covered by the facility, there would be 

no costs claimed on the cost report, and 

therefore, no Medicare payment. 

Nonetheless, to ensure that no cost 

payments are made, we proposed to 

revise the definition of service area in 

§ 417.1 to specifically note that facilities 

in which individuals are incarcerated 

are not a part of the service area. This 

adjustment will ensure parity among the 

various Medicare plan coverage options 

and be the basis for ensuring that 

services are not paid by the Medicare 

Trust Funds for those who are not 

eligible for them. 

b. Involuntary Disenrollment for 

Incarcerated Individuals Enrolled in 

MA, PDP and Cost Plans (§§ 417.460, 

422.74, and 423.44) 

Sections 1860D–1(b)(1)(B)(i), 

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

Act provide that individuals whose 

permanent residence is outside the 

plan’s service area are ineligible to 

enroll in or to remain enrolled in the 

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

definition of service area established in 

§§ 422.2 and 423.4, this applied to 

individuals who were incarcerated as 

well. As such, individuals who became 

incarcerated while enrolled were 

ineligible to remain enrolled because 

they did not meet the eligibility 

criterion of residing in the MA plan or 

PDP’s service area. As noted previously, 

the regulations for cost plans currently 

do not exclude incarcerated individuals 

from enrolling or remaining enrolled in 

these plans. 

At the time of the implementation of 

Part D, the data regarding incarceration 

were not as robust as they are at the 

present time. To compensate, we 

provided instructions in sub-regulatory 

guidance that required MA plans and 

PDPs to investigate a notification from 

CMS of an individual’s incarcerated 

status. If a plan could not confirm an 

enrollee’s status, the plan would then 

apply the more-general policy for 

investigation of a possible out-of-area 

status, which would allow an 


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incarcerated individual to remain 

enrolled in the plan for up to 6 or 12 

months for MA plans or PDPs, 

respectively. Cost plans, on the other 

hand, are not currently subject to 

similar instructions. Therefore 

individuals are currently not 

disenrolled from cost plans solely 

because they are determined to be 

incarcerated. 

Given that the data CMS receives from 

SSA today regarding the incarceration 

status of Medicare beneficiaries are 

reliable enough for the purpose of 

involuntary disenrollment from MA, 

Part D, and cost plans, we proposed in 

the preamble of the January 2014 notice 

of proposed rulemaking to amend 

§§ 417.460(b)(2)(i), 417.460(f)(1)(i), 

422.74(d)(4)(i), 422.74(d)(4)(v) and add 

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

establish that MA organizations, PDPs, 

and cost plan organizations must 

disenroll individuals incarcerated for 30 

days or more upon notification of such 

status from CMS. Our proposal 

indicated that CMS, as a part of this 

change, would review the incarceration 

data provided by SSA and, where 

possible, involuntarily disenroll 

individuals who are incarcerated based 

on the data provided by SSA and notify 

the plan in which the individual is 

enrolled of this involuntary 

disenrollment. For all such 

disenrollments under our proposal, the 

effective date of disenrollment would be 

the first of the month after the 

incarceration start date, as reported by 

SSA. Such disenrolled individuals 

would maintain Medicare Part A and 

Part B coverage through FFS, provided 

they continue to pay premiums, as 

applicable, and payment of FFS claims 

would be based upon existing 

regulations outlined at 42 CFR 411.4(b). 

In connection with this change, we also 

proposed to deny enrollment requests 

for individuals if data received by CMS 

indicates an active incarceration status 

of at least 30 days. Based on the data 

received from SSA, if incarceration is 

denoted, we will deny that enrollment 

and notify the plan of the denial. This 

would replace the current process 

requiring plans to accept the enrollment 

and immediately begin the process to 

verify that the individual was out of the 

plan’s service area. We indicated our 

intent to provide operational 

instructions in subregulatory guidance. 

We received the following comments 

on our proposal: 

Comment: We received general 

support for our proposals. Specifically, 

commenters appreciated the 

clarification that individuals released 

from incarceration are eligible for a 

special election period (SEP) to enroll in 

an MA or Part D plan. 

Response: We appreciate the support 

expressed by the commenters. We note 

that the SEP related to release from 

incarceration (that is, change in 

residence) is not new or tied to this 

proposal. Details about this SEP can be 

found in section 30.4.1 of Chapter 2 of 

the Medicare Managed Care Manual and 

section 30.3.1 of Chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual. 

Comment: A few commenters had 

suggestions for how we should 

implement this proposal. Specifically, 

they suggested that we issue updated 

guidance and develop new model 

notices. They also suggested that the 

best vehicle for providing updates to 

incarcerated status on members would 

be through the MARx system or daily 

transaction reply reports (DTRRs). 

Response: We agree that manual and 

operational guidance will be necessary 

in order for MA, Part D and cost plans 

to implement this provision 

appropriately. We will evaluate whether 

new or revised model notices are 

needed and we will share these with 

plans as soon as possible. We also agree 

that transmission of data through MARx 

and DTRRs would make the most sense 

in terms of sharing incarcerated status 

with plans. 

Comment: A commenter requested 

that CMS notify MA organizations and 

Part D sponsors of involuntary 

disenrollments on the day of 

incarceration. This commenter also 

suggested that we consider permitting 

MA and Part D plans to disenroll 

members as of the incarceration start 

date (as opposed to the first day of the 

month following the incarceration start 

date) to be in line with rules governing 

Qualified Health Plans (QHPs). 

Response: Notification to plans and 

sponsors on the day that incarceration 

begins is not possible, since CMS 

receives the data from SSA once a 

month, and only after the correctional 

facility provides it to SSA. We would 

also note that plan enrollment and the 

corresponding payment to plans by 

CMS occurs in full calendar month 

increments. Even if we were able to 

provide plans with real time 

incarceration data, an involuntary 

disenrollment date other than the last 

day of the month is not possible. 

We understand that QHPs may have 

different disenrollment effective dates 

because they can disenroll on days other 

than the first of the month. However, as 

previously stated, MA, Part D and cost 

plan effective dates begin and end on a 

monthly basis (that is, the first day of 

the month). Therefore, we cannot use 

the date of incarceration as the 

disenrollment effective date. 

Comment: A commenter requested 

that we clarify if there will be an option 

for plans to disenroll a member if they 

receive information from the State 

Medicaid agency that an individual is 

incarcerated. 

Response: If a plan receives 

information from an entity other than 

CMS or receives from CMS, via existing 

MARx processes, an indication of 

possible out of area status due to 

incarceration, there is already a process 

outlined in sub-regulatory guidance for 

plans to determine whether an 

individual is residing outside of the 

service area, which is what 

incarceration is considered. For cases in 

which CMS does not receive data 

confirming the incarceration of the 

individual, the MA organization or Part 

D sponsor must establish that the 

individual is no longer residing in the 

plan’s service area due to incarceration 

as outlined in Section 50.2.1 in Chapter 

2 of the Medicare Managed Care Manual 

and Chapter 3 of the Medicare 

Prescription Drug Benefit Manual. 

In addition, as outlined in Section 

50.2.1 in Chapter 17, Subchapter D of 

the Medicare Managed Care Manual, 

cost plans must disenroll individuals 

who permanently move out of the 

service area based upon written 

statement from the beneficiary or other 

reasonable evidence that establishes the 

individual no longer resides in the 

plan’s service area. With the change in 

definition of service area for cost plans 

as reflected in the proposed change at 

§ 417.1, cost plans must establish that 

the individual is no longer residing in 

the plan’s service area if they receive 

information regarding incarceration 

from CMS or another entity. 

Comment: Two commenters suggested 

creating a Part B SEP to ease the 

transition for beneficiaries after they are 

released from incarceration to ensure 

access to Medicare Part B benefits as 

they re-enter the community. 

Oftentimes, the commenters cited, these 

beneficiaries lose their Medicare Part B 

coverage because they are unable to pay 

their premiums during their 

incarceration and are not eligible for a 

Part B SEP upon their release. As a 

result, if these individuals sign up for 

Part B at a later date, there is the 

likelihood that they will have to pay a 

late enrollment penalty. 

Response: This comment is outside 

the scope of this rulemaking. However, 

we would like to note that SEPs for Part 

B and premium Part A are outlined in 

statute and CMS does not have the 

authority to establish additional SEPs. 


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29916 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

1Ali Shirvani-Mahdavi, Ph.D. & Melissa Haeffner, 

Ph.D., Rewarding Wellness: The Science Behind 

Effective Wellness Incentive Programs (2014). 

After consideration of the public 

comments received, we are taking the 

following action on our proposals: 

• The definition of service area for 

cost plans at § 417.1 is finalized without 

modification. 

• To articulate that the geographic 

area is the HMO or CMP’s service area 

as defined in § 417.1, we are finalizing 

the language at § 417.460(b)(2)(i) with 

the minor modification of adding the 

word ‘‘service.’’ 

• To articulate that the basis of the 

disenrollment for incarceration is due to 

the individual not residing in the plan’s 

service area, the regulation text at 

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

and 422.74(d)(4)(v)) is finalized with 

modification. 

• Due to an inadvertent omission, the 

proposed regulatory text changes to 

§ 423.44(d)(5)(iii) and (iv) were not 

published in the proposed rule. Because 

our preamble was clear that our 

proposed changes were applicable to 

Part D, and the comments received 

demonstrated that readers understood 

our intent, we are adding and finalizing 

regulatory text changes at 

§ 423.44(d)(5)(iii) and (iv). 

• A proposed change to the definition 

of ‘‘service area’’ was inadvertently 

published in the January 2014 proposed 

rule at § 422.2. That revised definition is 

not being finalized. 

Finally, we recognize that in our 

discussion of the proposed rule we 

described our intent that ineligibility 

for—as well as involuntary 

disenrollment from—MA, Part D, and 

cost plans would be based on a period 

of incarceration of 30 days or more. As 

we will note in implementing guidance 

for these final rules, we will determine 

eligibility based on confirmed 

incarceration data from SSA, not a 30- 

day timeframe. 

25. Rewards and Incentives Program 

Regulations for Part C Enrollees 

(§ 422.134) 

Every year, CMS receives inquiries 

from MA organizations that wish to 

expand the scope of the rewards and 

incentives that currently may be offered 

to beneficiaries enrolled in their MA 

plans. In some cases, MA organizations 

wish to extend rewards and incentives 

already offered to their commercial 

members to their Medicare enrollees. 

There is some evidence to suggest that 

health-driven reward and incentive 

programs for currently enrolled 

members of health plans may lead to 

meaningful and sustained improvement 

to their health behaviors and health 

outcomes.1

CMS would like to enable MA 

organizations to offer health-driven 

rewards and incentives programs that 

may be applied to more health-related 

services and activities than are allowed 

under our current guidance. We 

proposed to amend our regulations to 

establish parameters for rewards and 

incentives programs offered to enrollees 

of MA plans. Because we are concerned 

about the possibility that such programs 

would be targeted only to healthier 

enrollees, and discourage sicker 

enrollees from participating in such 

incentives and in remaining enrolled in 

the plan, we also proposed to include 

specific requirements regarding rewards 

and incentives so as to ensure that such 

programs do not discriminate against 

beneficiaries on the basis of health 

status or disability, or other 

impermissible bases for discrimination. 

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

authority for the establishment of MA 

standards by regulation that are 

consistent with and carry out Part C, 

and section 1857(e)(1) of the Act 

provides authority to impose contract 

requirements that CMS finds ‘‘necessary 

and appropriate’’ and that are not 

inconsistent with Part C. Section 

1852(b)(1)(a) of the Act states that MA 

organizations may not discriminate 

against beneficiaries on the basis of 

health status and that CMS may not 

approve an MA plan if that offering is 

susceptible to discrimination based on 

an individual’s health status. 

Furthermore, section 1857(g)(1)(D) of 

the Act provides authority for taking 

intermediate sanction action against an 

MA organization which ‘‘engages in any 

practice that would reasonably be 

expected to have the effect of denying 

or discouraging enrollment by eligible 

individuals’’ as a result of their health 

status or history. We proposed to rely 

upon the aforementioned rulemaking 

and substantive authority to establish 

requirements for rewards and incentives 

programs offered by MA organizations 

to Medicare beneficiaries enrolled in 

their MA plans. 

Specifically, we proposed adding a 

new provision at § 422.134 that would 

authorize MA organizations to offer 

reward and incentive programs to their 

current Medicare enrollees to encourage 

their participation in activities that 

focus on promoting improved health, 

preventing injuries and illness, and 

promoting efficient use of health care 

resources. We proposed requiring that 

reward-eligible activities be designed so 

that all enrollees are able to earn 

rewards without discrimination based 

on race, gender, chronic disease, 

institutionalization, frailty, health 

status, and other impairments. This 

proposed requirement would not 

preclude MA organizations from 

offering rewards and incentives 

programs that target a specific disease, 

chronic condition or preventive service. 

Rather, the goal of having a nondiscrimination requirement is to prevent 

particularly vulnerable populations 

from being disproportionately 

underserved. MA organizations may not 

use this provision to ‘‘cherry pick’’ 

healthier enrollees. Therefore, any 

rewards and incentives program 

implemented by an MA organization 

under this proposal must accommodate 

otherwise qualified beneficiaries who 

receive services in an institutional 

setting or who need a modified 

approach to enable effective 

participation. 

To meet the proposed CMS 

requirements, a reward or incentive 

would have to be earned by completing 

the entire health-related service or 

activity and may not be offered for 

completion of less than all required 

components of the eligible service or 

activity. An MA organization would 

define what qualifies as an ‘‘entire 

service or activity’’ within its program 

design. This proposed requirement is 

tied to interpreting the value of the 

service provided as it relates to the 

value of the reward. Under this 

proposal, rewards and incentives would 

be subject to a monetary cap in an 

amount CMS determines could 

reasonably be expected to affect enrollee 

behavior while not exceeding the value 

of the health-related service or activity 

itself. As part of our proposal, we 

indicated the intent to provide guidance 

on this qualitative standard on a regular 

basis. 

In addition, our proposed regulation 

would require MA organizations that 

offer rewards and incentives programs 

to provide information about the 

effectiveness of such programs to CMS 

upon request. If CMS determines that 

the rewards and incentives programs are 

not in compliance with our regulatory 

standard, we proposed that we may 

require that the MA organization modify 

the basic parameters of the program. 

We received the following comments 

and our responses are as follows: 

Comment: We received several 

comments in support of this proposal, 

approving of our effort to allow MA 

organizations to make rewards and 

incentives programs more widely 

available to enrollees. Several 


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commenters noted that facilitating 

beneficiary engagement in health 

behaviors and practices will help to 

achieve better health outcomes. 

Response: We thank the commenters 

for their support. 

Comment: Several organizations 

expressed concern over the requirement 

that rewards and incentives programs be 

non-discriminatory and available to all 

enrollees. They requested clarification 

that such programs may target specific 

chronic conditions, diseases and other 

health care needs. 

Response: In response to comments, 

we have strengthened the regulation to 

ensure that rewards and incentives 

programs will not be discriminatory. As 

revised, the non-discrimination 

requirement of the provision is based on 

the substantive requirement of section 

1852(b)(1)(A) of the Act (which states 

that MA organizations may not 

discriminate against beneficiaries on the 

basis of health status) and expands upon 

it by identifying other impermissible 

bases for discrimination, including race, 

national origin, and gender. The 

regulation is meant to prevent rewards 

and incentives programs from being 

used to unfairly benefit healthier 

enrollees while excluding or 

disadvantaging enrollees who are less 

healthy or have a disability. MA 

organizations may establish rewards and 

incentives for specific chronic 

conditions, diseases, or other health 

care needs so long as the rewards and 

incentives program is not 

discriminatory. 

Comment: We received several 

comments stating that the requirement 

that a beneficiary must complete a 

whole service or activity is too narrow 

to permit effective program designs and 

requesting that CMS provide greater 

flexibility in this area. 

Response: We proposed to require 

that rewards and incentives be offered 

in connection with an entire service or 

activity so that CMS and MA 

organizations can interpret the value of 

a reward or incentive in relation to the 

service or activity for which it is being 

given. MA organizations may reasonably 

define the scope of the ‘‘entire service 

or activity’’ in their program design. For 

example, a MA organization may decide 

to offer rewards and incentives for 

participation in a smoking cessation 

program. The MA organization may 

decide to give smaller rewards for each 

class attended or give one larger reward 

for completing a set number of classes, 

as long as the value of the reward 

reflects the value of the service and 

adheres to the monetary cap designated 

by CMS. We are revising 

§ 422.134(c)(1)(i) to eliminate the phrase 

‘‘completion of’’ to make it possible for 

portions of a service or activity to be 

defined as the ‘‘entire service or 

activity.’’ We emphasize that the value 

limitation applies to each ‘‘entire 

service or activity’’ such that the value 

of the reward or incentive offered may 

not be greater than the value of the 

service or activity itself. 

Comment: Several commenters 

cautioned against rewards and incentive 

programs because they have the 

potential to disproportionately penalize 

low-income, minority beneficiaries, and 

beneficiaries with disabilities. 

Response: We understand the 

commenters’ concerns and consequently 

emphasize here (and elsewhere in this 

preamble) that all rewards and 

incentives programs must be nondiscriminatory and may not 

disproportionately penalize any groups, 

specifically the vulnerable. 

Additionally, as discussed in a previous 

response, we have revised the regulation 

text to strengthen the nondiscrimination language. 

Comment: Several commenters 

suggested that CMS solicit data from 

rewards and incentives programs on a 

regular basis rather than ‘‘on request.’’ 

Commenters are particularly interested 

in outcomes data. In addition, one 

commenter asked about CMS’ 

requirements for the format of that 

information. 

Response: We have noted these 

comments and will consider adopting a 

rewards and incentives program 

reporting cycle in the future. 

Comment: Several commenters do not 

support rewards and incentive program 

designs that include increased 

beneficiary cost-sharing as a penalty for 

not participating in such a program. 

Response: The provision as finalized 

only allows programs that will provide 

rewards and incentives to beneficiaries. 

It does not allow MA organizations to 

penalize beneficiaries for nonparticipation by any means, including 

through increased cost-sharing. We also 

note that § 422.134(c)(2)(i) prohibits 

rewards and incentives from being 

offered in the form of cash or monetary 

rebates; we would consider a discount 

on cost-sharing to be such a prohibited 

reward and incentive. Furthermore, 

CMS regulations requiring uniformity of 

benefits (42 CFR 422.100(d)(2)) preclude 

MA plans from charging enrollees of a 

plan different premiums or cost-sharing 

for the same service. 

Comment: A few commenters asked 

how this new provision will impact the 

rewards and incentives guidance that is 

currently located in the Medicare 

Marketing Guidelines. 

Response: This provision will 

supersede any previously issued 

rewards and incentives program 

guidance. Upon finalization of this rule, 

we will update our subregulatory 

guidance accordingly. 

Comment: A few commenters asked 

CMS to provide more specific 

information regarding rewards and 

incentives programs. They asked for 

guidance on calculating the value of the 

activities for which the plan would like 

to offer rewards and incentives, whether 

the rewards and incentives may be used 

to decrease cost-sharing or premiums 

and whether there is a limit on how 

often an MA organization may offer a 

reward or incentive. 

Response: The provision provides an 

MA organization with great flexibility in 

designing its own rewards and 

incentives program. At this time, we 

will rely on the MA Organizations to 

reasonably value the activities/services 

for which they offer rewards and 

incentives. In this final rule, we neither 

identify limits for how often rewards 

and incentives may be offered nor do we 

set a maximum monetary value for the 

rewards and incentives. However, if we 

determine such guidance is needed to 

apply the standard in § 422.134(c)(1)(iii) 

that the reward or incentive be expected 

to impact enrollee behavior without 

exceeding the value of the health-related 

service or activity itself, we will provide 

it through subregulatory guidance. 

Rewards and incentives may never be 

used to decrease cost-sharing or plan 

premiums. In addition to the 

prohibition at § 422.134(c)(2)(i), CMS 

regulations requiring uniformity of 

benefits (42 CFR 422.100(d)(2)) preclude 

MA plans from charging enrollees of a 

plan different premiums or cost-sharing 

for the same service. Thus, a MA plan 

may not offer lower cost-sharing or 

premiums for plan benefits, as a reward 

or incentive. 

Comment: Two commenters asked 

that we expand this provision to include 

Part D plans. 

Response: We have noted the 

comment. At this time, the rewards and 

incentives program provision only 

applies to Part C. 

Comment: One commenter requested 

that SNPs be allowed greater flexibility 

in rewards and incentives program 

design. 

Response: The current provision and 

the parameters set forth are applied to 

all types of MA plans, including SNPs. 

At this time, we do not intend to 

provide SNP-specific rewards and 

incentives program rules or guidance. 

Comment: Several commenters asked 

how rewards and incentives will be 

accounted for in plan bids and one 


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29918 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

commenter suggested that the costs 

should be identified as an 

administrative cost for care management 

services in the bid. 

Response: A rewards and incentives 

program would be included in the bid 

as a non-benefit expense and would not 

be entered in the PBP. Per CMS OACT 

Bidding Guidance, (available at: 

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

Bid-Forms-and-Instructions.html), 

‘‘non-benefit expenses are all of the bidlevel administrative and other nonmedical costs incurred in the operation 

of the MA plan.’’ We also wish to clarify 

that the costs of a rewards and 

incentives program would not 

necessarily be related only to care 

management services and that plans 

must comply with applicable bidding 

requirements. 

Comment: Several commenters 

requested that CMS clarify whether 

rewards and incentives programs would 

be offered as a benefit or otherwise. 

Response: Our policy has been, and 

continues to be, that rewards and 

incentives programs are not benefits. 

Comment: One commenter requested 

that CMS, in considering additional 

parameters for reward and incentive 

programs, consider shared decisionmaking and tiered networks. The same 

commenter also stated that our proposal 

removes a great deal of flexibility for 

plans to develop these programs and 

constrains employer group plans from 

providing these programs to the entire 

employer group. 

Response: We are not clear what is 

meant by the request that in our 

consideration of additional parameters 

we consider shared decision-making 

and tiered networks. We note that 

shared decision-making and tiering of 

medical benefits are strategies that MA 

organizations may use to influence 

enrolled beneficiaries’ health care 

decisions. Rewards and incentives are 

another tool CMS is making available to 

MA organizations to encourage 

enrollees to engage in activities/services 

that are intended to improve health and/ 

or decrease enrollee risk for illness. MA 

organizations have the flexibility to use 

these tools together or as separate 

programs designed to improve enrollees’ 

health. 

We are not aware of what flexibilities 

plans may be using currently in 

providing rewards and incentive 

programs to enrollees that the 

commenter believes CMS proposed to 

remove. We specifically solicited 

information on this topic from MA 

organizations in both the proposed rule 

and in the CY 2014 Call Letter and have 

received no information that would lead 

us to believe that our proposed rewards 

and incentives program would limit, 

rather than expand, current plan 

flexibilities. The current guidance on 

rewards and incentive programs that 

may be offered to plan enrollees, 

included in the Medicare Marketing 

Guidelines, allows a very limited use of 

rewards and incentives to promote 

enrollee use of Medicare-covered 

preventive services. Therefore, we do 

not see how our proposed rewards and 

incentives program framework could 

remove plans’ flexibilities rather than 

expand them. 

After consideration of the public 

comments received, we are finalizing 

the proposed Rewards and Incentives 

Program Regulations for Part C Enrollees 

rule with modifications to subparagraph 

(b)(1) to include ‘‘national origin, 

including limited English proficiency,’’ 

and ‘‘disability.’’ In subparagraph (b)(1) 

we are also changing the text from 

‘‘institutionalization’’ to ‘‘whether a 

person resides or receives services in an 

institutional setting’’ and from ‘‘other 

impairments’’ to ‘‘other prohibited 

basis.’’ These changes clarify the scope 

of the categories of beneficiaries 

included in the context of prohibited 

discrimination and address comments 

expressing concern about the possible 

disproportionate impact of rewards and 

incentives programs. 

Additionally, we are modifying 

paragraph (c)(1)(i) to eliminate the 

phrase ‘‘completion of’’ from the 

regulation text to make it possible for 

smaller increments of service or activity 

to be defined as the ‘‘entire service or 

activity.’’ However, we emphasize that 

the value of any reward must reflect the 

value of the service and adhere to any 

monetary cap that has been determined 

by CMS under § 422.134(c)(1)(iii). 

Finally, we note that we have made a 

technical change to delete the phrase 

‘‘all of the following’’ from the 

introductory language at paragraph (c). 

B. Improving Payment Accuracy 

1. Implementing Overpayment 

Provisions of Section 1128J(d) of the 

Social Security Act (§ 422.326 and 

423.360) 

This section of the final rule 

implements Section 6402 of the 

Affordable Care Act, which established 

new section 1128J(d) of the Social 

Security Act (‘‘the Act’’) entitled 

Reporting and Returning of 

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

the Act defines the term overpayment as 

any funds that a person receives or 

retains under title XVIII or XIX to which 

the person, after applicable 

reconciliation, is not entitled under 

such title. The definition of person at 

section 1128J(d)(4)(C) includes a 

Medicare Advantage organization (as 

defined in section 1859(a)(1) of the Act) 

and a Part D sponsor (as defined in 

section 1860D–41(a)(13) of the Act). The 

definition does not include a 

beneficiary. 

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

a person who has received an 

overpayment to report and return the 

overpayment to the Secretary, the state, 

an intermediary, a carrier, or a 

contractor, as appropriate, at the correct 

address, and to notify the Secretary, 

state, intermediary, carrier or contractor 

to whom the overpayment was returned 

in writing of the reason for the 

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

Act requires that an overpayment be 

reported and returned by the later of (1) 

the date which is 60 days after the date 

on which the overpayment was 

identified; or (2) the date any 

corresponding cost report is due, if 

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

Act specifies that any overpayment 

retained by a person after the deadline 

for reporting and returning an 

overpayment is an obligation (as defined 

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

31 U.S.C. 3729. 

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

Act defines ‘‘knowing’’ and 

‘‘knowingly’’ as those terms are defined 

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

terms ‘‘knowing’’ and ‘‘knowingly’’ 

‘‘mean that a person with respect to 

information: (1) Has actual knowledge 

of the information; (2) acts in deliberate 

ignorance of the truth or falsity of the 

information; or (3) acts in reckless 

disregard of the truth or falsity of the 

information.’’ There need not be ‘‘proof 

of specific intent to defraud.’’ 

To implement section 1128J(d) of the 

Act for the Part C Medicare Advantage 

program and the Part D Prescription 

Drug program, we proposed two new 

sections, §§ 422.326 and 423.360, 

respectively, both titled, ‘‘Reporting and 

Returning of Overpayments.’’ These 

sections proposed rules for MA 

organizations and Part D sponsors to 

report and return an identified 

overpayment to the Medicare program. 

We use the term Part D sponsor, as 

defined at § 423.4, to refer to the entities 

that offer prescription drug plans (PDPs) 

under part 423 and thus are subject to 

section 1128J(d) of the Act. 

We also proposed conforming 

amendments to §§ 422.1, 422.300, and 

423.1 that add a reference to section 

1128J(d) of the Act to the existing list of 

statutory authorities for the regulations 

governing the MA organizations and 

Part D sponsors. We also proposed to 

amend §§ 422.504(l) and 423.505(k) to 


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Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 29919 

incorporate a reference to the proposed 

§§ 422.326 and 423.360, respectively, in 

order to extend the existing data 

certification requirement to data that 

MA organizations and Part D sponsors 

submit to CMS as part of fulfilling their 

obligation to return an overpayment 

under section 1128J(d) of the Act. 

Section 422.504(l) refers to certification 

of data ‘‘as a condition for receiving a 

monthly payment’’ and § 423.505(k) 

refers to certification of data for 

enrollees ‘‘for whom the organization is 

requesting payment.’’ Thus, we 

proposed to add a requirement that 

applies after CMS has completed 

prospective monthly payments for a 

year, and organizations are no longer 

‘‘requesting payment’’ because 

applicable reconciliation has occurred. 

Applicable reconciliation, we stated, is 

the point when organizations submit 

their final data for the previous payment 

year. Accordingly, if an MA 

organization or Part D sponsor has 

identified an overpayment, there clearly 

is a different state of ‘‘best knowledge, 

information, and belief’’ than the state 

of knowledge, information, and belief 

that existed prior to applicable 

reconciliation. Thus, we proposed to 

require that the CEO, CFO, or COO must 

certify (based on best knowledge, 

information, and belief) that information 

the MA organization or Part D sponsor 

submits to CMS for purposes of 

reporting and returning of overpayments 

under §§ 422.326 and 423.360 is 

accurate, complete, and truthful. 

We reminded all stakeholders that 

even in the absence of a final regulation 

on these statutory provisions, MA 

organizations and Part D sponsors are 

subject to the statutory requirements 

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

could face potential False Claims Act 

liability, Civil Monetary Penalties (CMP) 

Law liability, and exclusion from 

Federal health care programs for failure 

to report and return an overpayment. 

Additionally, MA organizations and 

Part D sponsors continue to be obliged 

to comply with our current procedures 

for handling inaccurate payments. 

In response to the January 10, 2014 

proposed rule, we received 

approximately 30 pieces of 

correspondence from organizations and 

individuals. In this section of the final 

rule, we describe our proposals, respond 

to the public comments, and state our 

final policies. 

We did not receive any comments on 

our proposed amendments to 

§§ 422.504(l) and 423.505(k) to 

incorporate a reference to the proposed 

§§ 422.326 and 423.360, respectively, in 

order to extend the existing data 

certification requirement to data that 

MA organizations and Part D sponsors 

submit to CMS as part of fulfilling their 

obligation to return an overpayment 

under section 1128J(d) of the Act. We 

did not receive any comments on our 

conforming amendments to §§ 422.1, 

423.300, and 423.1. Therefore, we are 

finalizing these amendments as 

proposed. 

a. Terminology (§§ 422.326(a) and 

423.360(a)) 

We proposed definitions of 3 terms. 

First, we proposed to adopt the statutory 

definition of overpayment, where an 

overpayment exists when—after 

‘‘applicable reconciliation’’—an MA 

organization or Part D sponsor is not 

entitled to funds it has received and/or 

retained. In order to clarify the statutory 

definition of overpayment, we proposed 

definitions of 2 key terms at 

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

and ‘‘applicable reconciliation.’’ 

We proposed to define ‘‘funds’’ as 

payments an MA organization or Part D 

sponsor has received that are based on 

data that these organizations submitted 

to CMS for payment purposes. We also 

noted that MA organizations and Part D 

sponsors have responsibility for the 

accuracy, completeness, and 

truthfulness of data they submit under 

existing §§ 422.504(l) and 423.505(k). 

For Part C, the data submitted by the 

MA organization to CMS includes 

§§ 422.308(f) (enrollment data) and 

422.310 (risk adjustment data). For Part 

D, data submitted by the Part D sponsor 

to CMS includes data submitted under 

§§ 423.329(b)(3), 423.336(c)(1), 423.343, 

and data provided for purposes of 

supporting allowable costs as defined in 

§ 423.308 of this part which includes 

data submitted to CMS regarding direct 

or indirect remuneration (DIR). 

There are additional payment-related 

data CMS uses to calculate Part C and 

Part D payments that are submitted 

directly to CMS by other entities, such 

as the Social Security Administration 

(SSA), which is the authoritative source 

for data they submit to CMS. We believe 

that MAOs and Part D sponsors cannot 

be held accountable for the accuracy of 

data controlled and submitted to CMS 

by other entities. 

For example, the SSA is the 

authoritative source for date of death. 

An MA organization or Part D sponsor 

generally does not submit a date of 

death directly to CMS’ systems; it comes 

from the SSA data feed. When the SSA 

submits to CMS corrected data regarding 

a beneficiary’s date of death, CMS’ 

systems recalculate the payments made 

to the plan for that beneficiary and 

recoup the incorrect payment in a 

routine retroactive payment adjustment 

process. 

We stated that when CMS recoups an 

incorrect payment from an MA 

organization or Part D sponsor based on 

data corrections submitted by 

authoritative sources such as the SSA, 

CMS would not consider this 

recoupment to be the return of an 

overpayment by an MA organization or 

Part D sponsor under proposed 

§§ 422.326 and 423.360. Therefore, the 

proposed meaning of ‘‘funds’’ refers to 

a payment amount that an MA 

organization or Part D sponsor received 

from CMS that is based on data that the 

MA organization or Part D sponsor 

controls and submits to CMS. 

We stated that the term ‘‘applicable 

reconciliation’’ refers to an event or 

events after which an overpayment can 

exist under section 1128J(d) of the Act, 

and we proposed definitions of the term 

applicable reconciliation that are 

specific to Part C and Part D. 

For Part C, we proposed that 

applicable reconciliation occurs on the 

date that CMS announces as the final 

deadline for risk adjustment data 

submission. For each payment year, we 

apply three sets of risk scores to adjust 

payments: Initial and midyear risk 

scores during the payment year (both 

sets are based on incomplete diagnosis 

data from the data collection year); and 

final risk scores after the payment year 

using data MA organizations submit on 

or before the final deadline for risk 

adjustment data (which reflects 

complete data for the data collection 

year). We also stated that the final risk 

adjustment data submission deadline 

would function as the Part C applicable 

reconciliation date. 

For Part D sponsors, we proposed that 

applicable reconciliation is the later of 

either: The annual deadline for 

submitting prescription drug event 

(PDE) data for the annual Part D 

payment reconciliations referred to in 

§ 423.343 (c) and (d) or the annual 

deadline for submitting DIR data. The 

annual deadline for submitting PDE data 

is the last federal business day prior to 

June 30th of the year following the 

benefit year being reconciled. The 

annual deadline for submitting DIR data 

is announced annually through 

subregulatory guidance and generally 

occurs around the last business day in 

June the year following the benefit year 

being reconciled. We selected these 

events to define the Part D applicable 

reconciliation because these data are 

used for the purposes of determining 

final Part D payment reconciliation. We 

noted that MA organizations would still 

have to submit all final risk adjustment 


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diagnoses for Part D by the final risk 

adjustment data submission deadline. 

In summary, we proposed an 

approach to defining applicable 

reconciliation that establishes dates that 

differ for Part C and Part D. We asked 

for comment on this approach. 

We noted that payment errors 

identified as a result of any corrections 

to risk adjustment data submitted by 

MA organizations (and other 

organizations required to submit risk 

adjustment data to CMS) on or before 

the annual final risk adjustment data 

submission deadline are handled as part 

of the current annual process of risk 

adjustment payment reconciliation. 

Because these payment errors are prior 

to the date defined in this final rule as 

‘‘applicable reconciliation’’, we stated 

that we do not consider these errors to 

be overpayments for the purpose of 

§§ 422.326 and 423.360. That is, any 

deletions of risk adjustment data in the 

file submitted on or before the final risk 

adjustment data submission deadline for 

a payment year, would result in 

payment errors that are addressed with 

processes that have been in place prior 

to our codification of section 1128J(d) of 

the Act in proposed §§ 422.326 and 

423.360. 

Likewise, for Part D, any payment 

errors identified as a result of any 

corrections to PDE or DIR data 

submitted on or before the later of the 

annual deadline for submitted PDE and 

DIR data are handled as part of the 

current Part D reconciliation process, 

and we do not consider these errors to 

be overpayments for the purpose of 

§ 423.360. 

Finally, we stated our expectation that 

MA organizations and Part D sponsors 

must be continuously diligent regarding 

the accuracy and completeness of 

payment-related data they submit to 

CMS for a payment year, whether 

during or after that payment year, and 

whether before or after applicable 

reconciliation dates. This expectation is 

based on existing requirements at 

§§ 422.310, 422.504(l), 423.329(b)(3)(ii), 

and 423.505(k), and proposed 

amendments that clarify and strengthen 

these requirements. 

We did not receive any comments on 

the proposed definitions of the terms 

‘‘funds’’ or ‘‘overpayment.’’ (See the 

next section for comments and 

responses on the provision regarding 

‘‘identified overpayment’’.) We received 

the following comment on the term 

‘‘applicable reconciliation’’, and our 

response follows. 

Comment: Some commenters 

supported CMS’ proposal to have 

separate applicable reconciliation dates 

for the Part C and Part D programs, 

noting that this approach is simpler and 

more practical than the alternative CMS 

described (where there would be 2 

applicable reconciliation dates for the 

Part D program—one for risk adjustment 

and another for PDE and DIR data). 

Response: We appreciate the support. 

We will finalize our proposal that the 

Part C applicable reconciliation date 

will be the same as the final risk 

adjustment data submission deadline, 

and the Part D applicable reconciliation 

date will be the later of: The annual 

deadline for submitting prescription 

drug event (PDE) data for the annual 

Part D payment reconciliation referred 

to in § 423.343(c) and (d) or the annual 

deadline for submitting DIR data. 

We would like to note that the final 

risk adjustment data submission 

deadline will still apply to diagnosis 

data for both Part C and Part D risk 

scores for beneficiaries in MA–PD plans. 

After consideration of the public 

comments received, we are finalizing 

the provisions at §§ 422.326(a) and 

423.360(a) as proposed. 

b. General Rules for Overpayments 

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

through (c)) 

We proposed at §§ 422.326(b) and 

423.360(b) that if an MA organization or 

Part D sponsor has identified that it has 

received an overpayment, the MA 

organization or Part D sponsor must 

report and return that overpayment in 

the form and manner set forth in the 

section. In paragraphs §§ 422.326(c) and 

423.360(c), we proposed that the MA 

organization or Part D sponsor has 

identified an overpayment if it has 

actual knowledge of the existence of the 

overpayment or acts in reckless 

disregard or deliberate ignorance of the 

existence of the overpayment. We noted 

that the terms ‘‘reckless disregard’’ and 

‘‘deliberate ignorance’’ are part of the 

definitions of ‘‘knowing’’ and 

‘‘knowingly’’ in section 1128J of the Act, 

which provides that the terms 

‘‘knowing’’ and ‘‘knowingly’’ have the 

meaning given those terms in the False 

Claims Act (31 U.S.C. 3729(b)(3)). We 

stated that without such a proposal to 

include ‘‘reckless disregard’’ and 

‘‘deliberate ignorance’’, some MA 

organizations and Part D sponsors might 

avoid performing activities to determine 

whether an overpayment exists. We also 

provided that if an MA organization or 

Part D sponsor has received information 

that an overpayment may exist, the 

organization must exercise reasonable 

diligence to determine the accuracy of 

this information, that is, to determine if 

there is an identified overpayment. 

Finally, in paragraphs §§ 422.326(d) 

and 423.360(d), we proposed the 

requirements for reporting and returning 

an identified overpayment. An MA 

organization or Part D sponsor must 

report and return any identified 

overpayment it received no later than 60 

days after the date on which it 

identified it received an overpayment. 

The statute provides an alternative 

deadline: The date any corresponding 

cost report is due, if applicable. We 

proposed that this alternative deadline 

is not applicable to the Parts C or D 

programs because, in general, MA 

organizations and Part D sponsors are 

paid based on their bids, and not based 

on their actual incurred costs. 

The MA organization or Part D 

sponsor must notify CMS, using a 

notification process determined by 

CMS, of the amount and reason for the 

overpayment. Also within this 60-day 

time period, the organization must 

return identified overpayments to CMS 

in a manner specified by CMS, 

including the amount and reason for the 

overpayment. We proposed to codify at 

paragraph (3) the statutory requirement 

that any overpayment retained by an 

MA organization or Part D sponsor after 

the 60-day deadline for reporting and 

returning is an obligation under 31 

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

We also emphasized that an MA 

organization and Part D sponsor are 

deemed to have returned the 

overpayment when they have taken the 

actions that we will specify, in 

forthcoming operational guidance, to 

submit the corrected data that is the 

source of the overpayment. We will 

recover the returned overpayment 

through routine processing according to 

the systems schedule established in the 

annual operations budget. That is, 

payments are recovered through the 

established payment adjustment 

process, not on the 60-day schedule that 

applies to each MA organization or Part 

D sponsor that has identified an 

overpayment. Rerunning reconciliation 

each time an entity identifies an 

overpayment that triggers its 60-day 

clock is simply not feasible for CMS. 

Finally, we proposed that there will 

be circumstances when we may ask the 

MA organization or Part D sponsor to 

provide an auditable estimate of the 

overpayment amount, reason for 

overpayment, and make a payment to 

CMS. This may occur, for example, 

when an overpayment is identified after 

the final Part D reopening for a contract 

year has occurred but prior to the end 

of the look-back period or if an MA 

organization or Part D sponsor had a 

thoroughly-documented catastrophic 

loss of stored data. Information about 

the nature of such a request would be 


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detailed in forthcoming operational 

guidance. 

We received the following comments 

on general rules for overpayments and 

our responses follow. 

Comment: Several commenters 

requested that CMS clarify when the 60- 

day period begins. Specifically, does the 

period begin once the MA organization 

or Part D sponsor has identified that 

there is an overpayment or once the 

organization has determined the exact 

amount of the overpayment? A 

commenter expressed concern that the 

proposed rule does not appear to 

acknowledge that the amount of an 

overpayment must be quantified before 

it is ‘‘identified.’’ Another commenter 

requested that CMS address the 

situation where an MA organization or 

Part D sponsor becomes aware of an 

issue or error that may have resulted in 

one or more overpayments, but could 

not determine, with reasonable 

certainty, the amount of the 

overpayment(s) within a 60-day period. 

Response: It is important to 

understand the distinctions among 

identifying, reporting, and returning an 

overpayment in this rulemaking for the 

purposes of the MA and Part D 

programs. Once an organization has 

identified that it has received an 

overpayment, the 60-day period for 

reporting and returning the 

overpayment begins. Because of the 

nature of the Part C and Part D 

programs, we did not propose that 

‘‘identified’’ includes completion of the 

act of quantification of an overpayment 

amount. Rather, we proposed that 

identification of an overpayment means 

knowing that the MA organization or 

Part D sponsor has submitted erroneous 

data to CMS that caused CMS to 

overpay the organization. 

An organization can identify or assess 

that there is a problem with data 

submitted to CMS, and determine that it 

is incorrect data, prior to actually 

calculating what the payment impact is 

of that erroneous data. For the MA and 

Part D programs, the relevant factor is 

identifying that the data is incorrect and 

will result in an overpayment. For 

example, a risk adjustment diagnosis 

that has been submitted for payment but 

is found to be invalid because it does 

not have supporting medical record 

documentation would result in an 

overpayment. Under this provision, the 

day after the date on which the 

organization has confirmed an 

identified overpayment—because the 

organization knows that the diagnosis is 

not supported by documentation—is the 

first day of the 60-day period for 

reporting and returning the 

overpayment. As another example, an 

MA organization may find that data 

used to calculate Healthcare 

Effectiveness Data and Information Set 

(HEDIS) measures that the organization 

submitted to CMS are found to be 

invalid; when the organization has 

confirmed that it has identified invalid 

data leading to an overpayment, this is 

the first day of the 60-day period for 

reporting and returning the 

overpayment. 

Then, during the 2-month period for 

reporting and returning the 

overpayment, the organization must 

determine what data should be 

submitted to CMS to correct the 

identified overpayment, and then must 

engage in the reporting and returning 

process that we will describe in 

forthcoming guidance. This reporting 

and returning process will involve: (1) 

Notifying CMS that an overpayment 

exists, including notification of the 

reason and estimated amount for that 

overpayment; and (2) submitting the 

corrected data to CMS. 

In other words, we believe that the 

MA organization and Part D sponsor 

will discover through appropriate 

payment evaluation procedures when a 

60-day period would begin under the 

requirements of this provision, because 

‘‘day one’’ of the 60-day period is the 

day after the date on which organization 

has determined that it has identified the 

existence of an overpayment. Once the 

organization ‘‘starts the clock,’’ it has 60 

days to submit to CMS the corrected 

data that is the basis of the 

overpayment. It is the act of submitting 

the corrected data to CMS, along with a 

reason and an amount of the 

overpayment (which may be an 

estimate), that constitutes fulfillment of 

the requirement to report and return the 

overpayment. 

As we stated in the January 10, 2014 

proposed rule preamble (79 FR 1997), 

‘‘It also is important to note that the MA 

organization and Part D sponsor are 

deemed to have returned the 

overpayment when they have taken the 

actions that we will specify, in 

forthcoming operational guidance, to 

submit the corrected data that is the 

source of the overpayment’’. We will 

recover the returned overpayment 

through routine CMS payment 

processes. That is, payments will 

continue to be recovered through the 

established payment adjustment 

processes and schedules. As a result the 

payment recovery may not occur within 

the 60-day window triggered by 

identifying an overpayment. Rerunning 

payment reconciliations and conducting 

payment recovery within CMS payment 

systems each time an entity identifies an 

overpayment that triggers its 60-day 

clock is simply not feasible for CMS. 

We will release operational guidance 

on the process an organization will use 

for informing CMS that it has identified 

a Part C and/or Part D overpayment. 

This guidance will also address how an 

organization will be required to provide 

a reason for and the amount of the 

overpayment (which may be estimated). 

We seek to reduce burden and 

implement an efficient process for 

administering the reporting and return 

of overpayments, so we are considering 

making use of existing procedures for 

organizations to communicate payment 

data issues to CMS. For example, MA 

organizations and Part D sponsors have 

used the Remedy system for a number 

of years to inform CMS of payment 

issues and provide relevant information 

on that issue. 

In the forthcoming operational 

guidance, we will address the question 

of how to report the overpayment 

amount, including estimation of the 

overpayment amount and updates under 

certain scenarios. 

Comment: A commenter contended 

that, applying the principles adopted by 

CMS in the RADV audit context, an 

overpayment cannot exist for a 

particular MA contract unless CMS’ 

payments as a whole to the MA 

organization pursuant to the contract are 

inaccurate in light of an appropriate FFS 

Adjuster applied to the entire contract. 

Potential overpayments can be 

determined, therefore, based only on 

processes such as CMS’ RADV audits, 

which are designed to measure whether 

contract-level payments to an MA 

organization are accurate when 

compared to an appropriate FFS 

Adjuster. The commenter further 

contended that to the extent an MA 

organization develops processes 

intended to measure payment accuracy 

at the contract-level, the MA 

organization would be required to report 

and repay inaccuracies calculated after 

applying CMS’s FFS Adjuster, and 

consistent with prior CMS guidance, 

this is the sole instance in which an 

‘‘overpayment’’ can be determined for 

purposes of proposed § 422.326. 

Response: We disagree with the 

commenter. Our RADV methodology 

does not change our existing contractual 

requirement that MA organizations must 

certify (based on best knowledge, 

information, and belief) the accuracy, 

completeness, and truthfulness of the 

risk adjustment data they submit to 

CMS. Further, this decision does not 

change the long-standing risk 

adjustment data requirement that a 

diagnosis submitted to CMS by an MA 

organization for payment purposes must 


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be supported by medical record 

documentation. 

However, we are clarifying the link 

between the § 422.326 overpayment 

provisions and RADV audits under 

§ 422.311 by adding a condition to the 

requirement at § 422.326(d), as follows: 

an MA organization must report and 

return any overpayment it received no 

later than 60 days after the date on 

which it identified it received an 

overpayment. We are adding to 

paragraph (d) the provision ‘‘unless 

otherwise directed by CMS for the 

purpose of § 422.311.’’ Thus, when an 

MA organization has a contract selected 

for a RADV audit, during the audit the 

MA organization will not be allowed to 

report and return an overpayment under 

§ 422.326 that is due to errors in the 

data used to risk-adjust payments for the 

audited contract for the payment year 

that is the subject of the RADV audit. 

We will notify the MA organization 

about the timeline for reporting and 

returning any overpayments for a 

contract under a RADV audit. This new 

provision protects the integrity of the 

RADV audit process, including the 

sampling frame of beneficiaries in a 

selected MA plan, whose diagnoses will 

be audited. 

Comment: A commenter stated that 

there will be many circumstances and 

situations where entities receiving an 

overpayment will not have the ability to 

repay funds within the 60-day period 

without undue hardship. 

Response: MA organizations and Part 

D sponsors have an obligation to pay an 

overpayment owed under Section 

1128J(d). As noted previously, our 

recovery of overpayments will occur 

through routine payment processing 

cycles and schedules. In most 

circumstances, MA organizations and 

Part D sponsors will be submitting 

corrected data, which will be re-run by 

CMS and then CMS will recover the 

overpayment. 

Comment: A commenter noted that 60 

days is not a sufficient timeframe, as 

identifying and quantifying 

overpayments can be a very involved 

process. Another commenter stated that 

most overpayments are identified 

through analyses and studies, such as 

internal RADV studies; the commenter 

requested that the 60-day time period 

begin at the conclusion of the internal 

study, so that overpayments can be 

referred to CMS after all issues have 

been identified and confirmed. 

Response: We provide that the 60-day 

period is the time period for reporting 

and returning an identified 

overpayment, after the organization has 

conducted the activities needed to 

identify that it has received an 

overpayment. As explained previously, 

for the purposes of the MA and Part D 

programs, the MA organization or Part 

D sponsor must report and return the 

identified overpayment, which is due to 

incorrect data it has submitted to CMS, 

no later than 60 days after the date on 

which the organization identified it 

received the overpayment. Subsequently 

and within the 60-day period the MA 

organization or Part D sponsor is 

required to report and return the 

overpayment. Reporting the 

overpayment involves notifying CMS of 

the reason for and the amount of the 

overpayment. Returning the 

overpayment is deemed to have 

occurred through the act of correcting 

the erroneous data submitted to CMS, 

for example, by deleting incorrect PDEs 

or risk adjustment data. Note that if an 

organization identifies one set of 

erroneous data that has caused an 

overpayment, the organization must 

begin the 60-day clock on that date, and 

if subsequent overpayments are 

identified, the organization must begin 

subsequent 60-day reporting and 

returning periods. 

Comment: A commenter questioned 

whether CMS will be identifying criteria 

for organizations to use to determine an 

overpayment. 

Response: We have specified in this 

final rule the specific types of ‘‘funds’’ 

that are subject to the provisions under 

this section through the definition of 

‘‘funds’’. Funds are payments an 

organization has received that are based 

on data that the organization submitted 

to CMS for payment purposes. We will 

not provide additional criteria or a 

checklist. 

Comment: A commenter stated that 

logically, an MA organization or Part D 

sponsor cannot return an overpayment 

until it has calculated the exact amount 

that it must return. It might take a 

considerable amount of time for the MA 

organization or Part D sponsor to audit 

its records to determine the amount, 

whether there is an issue in previous 

years, and whether extrapolation, or 

case by case analysis, is appropriate. 

The commenter was concerned that 

while a plan sponsor might be able to 

report to CMS that it has identified an 

issue within 60 days, a plan sponsor 

may not have enough information after 

identification to be able to report the 

exact amount. Therefore, the commenter 

requested that CMS clarify that the 60 

days begins once the organization has 

identified the exact amount of the 

overpayment. The commenter 

suggested, as an alternative, that if the 

MA organization or Part D sponsor has 

notified CMS that it believes there is an 

overpayment, but it will take more than 

60 days to determine the exact amount, 

CMS consider allowing a ‘‘tolling’’ of 

the 60 days so that the organization may 

determine the amount it must return to 

CMS. Under this ‘‘tolling’’ process, the 

organization would be required to notify 

CMS within 60 days of identifying that 

an overpayment likely exists, but would 

be provided additional time by CMS to 

determine the exact amount. 

Response: We have not used the 

phrase ‘‘exact amount’’ in this rulemaking. For the MA and Part D 

programs, we define overpayment in the 

regulation as ‘‘funds’’ the organization 

has received to which it is not entitled, 

and then defines ‘‘funds’’ as any 

payment based on data submitted by an 

MA or Part D organization. Because of 

the nature of the Part C and Part D 

programs, the key focus in 

implementing these statutory provisions 

for the MA and Part D programs is thus 

correcting the incorrect data that the 

organization submitted to CMS that 

resulted in an overpayment. We will 

then run reconciliation on its routine 

operational schedule to recover 

overpayment amounts based on the 

corrected data. The purpose of the 60 

days is to provide the MA or Part D 

organization with sufficient time to 

correct the incorrect data submitted to 

CMS using established data correction 

processes. MA organizations and Part D 

sponsors are deemed to have returned 

the overpayment when they have taken 

the actions to submit the corrected data 

that is the source of the identified 

overpayment. Within the 60 days the 

MA organization and Part D sponsor 

must also report the overpayment 

amount (or estimated amount). If an 

estimated overpayment amount is 

reported, it may be higher or lower than 

the actual overpayment amount 

recovered because additional payment 

data submitted into the CMS payment 

system from other sources may be 

incorporated into the payment 

calculations. 

Comment: A commenter stated that it 

is unclear what may occur postreconciliation if both parties have been 

overpaid. For example, if CMS owes the 

Part D sponsor $10 million due to 

activity post-reconciliation and a $2 

million overpayment is discovered, the 

commenter questioned whether we will 

still require that the $2 million be 

refunded within 60 days or whether the 

sponsor will be allowed to offset 

amounts owed by CMS. The commenter 

recommended that if an overpayment 

would be reduced or fully covered by a 

reopening, that CMS allow sponsors to 

request a reopening and offset the 

reopening amount due from the 


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overpayment pending completion of the 

reopening. 

Response: For both the Part C and Part 

D programs, the provisions regarding 

reporting and returning identified 

overpayments become effective the day 

after the date of applicable 

reconciliation. As we have stated, MA 

organizations and Part D sponsors are 

deemed to have returned the 

overpayment when they have submitted 

corrected data that is the source of the 

overpayment. We will recover the 

overpayment amount through routine 

processing. For Part D, that means that 

if an overpayment is discovered after 

the initial reconciliation but prior to the 

reopening described at § 423.346, a Part 

D sponsor may request a reopening and 

submit the corrected data to fulfill its 

obligation to return the overpayment. 

The overpayment will be reconciled 

through the routine reopening process. 

Comment: A commenter stated that 

the onus on plans for the calculation of 

an overpayment amount creates a risk 

that CMS may be overpaid/underpaid in 

the monies returned. 

Response: As explained in proposed 

rule (79 FR 1997), we will recover 

overpayments through the correction of 

erroneous data and established payment 

adjustment processes. Therefore, we 

believe that the risk the commenter 

mentions does not exist because CMS’ 

systems will calculate the exact amount 

to be recovered. 

Comment: A few commenters 

objected to the fact that the proposed 

rule does not address situations in 

which a sponsor has overpaid CMS, and 

requested that this regulation also set 

forth rules by which CMS handles an 

organization’s overpayments to CMS. 

Response: This final rule is intended 

to implement section 1128J(d) of the 

Act, which pertains only to 

overpayments the government made to 

contracting MA organizations and Part 

D sponsors. 

Comment: A commenter requested 

that MA organizations and Part D 

sponsors be able to submit auditable 

estimates of an overpayment in lieu of 

determining which data is in error and 

submitting corrected data, given the fact 

that the administrative costs of 

determining a specific set of data deletes 

is significant relative to the size of the 

issue. The commenter recommended 

that CMS permit plans to proactively 

suggest the use of such tools to resolve 

potential overpayments. 

Response: The use of auditable 

estimates is intended only for a limited 

set of circumstances. This may occur, 

for example, when the Part D reopening 

occurs prior to the end of the look-back 

period or if an MA organization or Part 

D sponsor had a thoroughlydocumented catastrophic loss of stored 

data. Information about the nature of 

such a request would be detailed in 

forthcoming operational guidance. 

Therefore, we will not allow, on a 

routine basis, submission of auditable 

estimates in lieu of submission of 

corrected data. By recovering 

overpayments based on the corrected 

payment data, we will be more likely to 

ensure that the most accurate 

overpayment amounts are returned to 

the Medicare Trust Fund. 

Comment: A commenter expressed 

concern that this final rule could 

impose a boundless duty to troll 

medical records in search of unknown 

vulnerabilities, and requested that CMS 

make clear that Part C and Part D plans 

are not obliged to proactively search for 

an overpayment without reason to 

believe that a specific overpayment 

exists. 

Response: The focus of this final rule 

is on ensuring that MA and Part D 

organizations return an overpayment 

when it is identified. For many years 

organizations have been obliged to 

submit accurate, complete, and truthful 

payment-related data, as described at 

§§ 422.504(l) and 423.505(k). Further, 

CMS has required for many years that 

diagnoses that MA organizations submit 

for payment be supported by medical 

record documentation. Thus, we have 

always expected that MA organization 

or Part D sponsor implement, during the 

routine course of business, appropriate 

payment evaluation procedures in order 

to meet the requirement of certifying the 

data they submit to CMS for purposes of 

payment. Therefore, we do not believe 

that §§ 422.326 and 423.360 represent 

such a new requirement. 

Comment: A commenter requested 

that CMS confirm that the data 

submission requirement under this 

section is based on enrollment data and 

risk adjustment scores, and thus does 

not apply to direct overpayments from 

providers. 

Response: Once an overpayment is 

identified, the MA or Part D 

organization is responsible for 

correcting the data that caused the 

overpayment. This is data that is 

routinely submitted to CMS for payment 

purposes, such as, risk adjustment data. 

Comment: A commenter requested 

that CMS clarify if changes in a 

beneficiary’s low income subsidy (LIS) 

status could result in an overpayment 

under this provision. 

Response: As we stated in the 

proposed rule, we believe that MA 

organizations and Part D sponsors 

cannot be held accountable for the 

accuracy of the data controlled and 

submitted to CMS by other entities. (We 

emphasize here that the term ‘‘other 

entities’’ used to discuss these 

overpayment provisions does not 

include the following parties referenced 

in §§ 422.504(i) and 423.505(i): first tier, 

downstream, and related entities, 

contractors, or subcontractors to the MA 

organization or Part D sponsor.) It is the 

Social Security Administration and the 

states that notify CMS of individuals 

whom they have determined to be 

eligible for the Part D LIS. We in turn 

provide the subsidy information, 

including effective date and level of 

subsidy, to the Part D plan in which the 

beneficiary enrolls. Although, we will 

not consider an overpayment to have 

occurred strictly due to changes in a 

beneficiary’s LIS status, Part D sponsors 

are required to adjust prescription drug 

event (PDE) data to accurately reflect the 

beneficiary’s LIS status. 

Comment: A commenter supported 

our proposal for when overpayments 

have been identified. 

Response: We appreciate the 

commenter’s support for our proposal. 

Comment: A few commenters 

requested that CMS provide more clarity 

or an example of what is meant by ‘‘acts 

in reckless disregard or deliberate 

ignorance.’’ 

Response: We are revising our 

definition of an identified overpayment 

to state that an MA organization or Part 

D sponsor has identified an 

overpayment when it has determined, or 

should have determined through the 

exercise of reasonable diligence, that the 

MA organization or Part D sponsor has 

received an overpayment. 

As to the circumstances that give rise 

to a duty to exercise reasonable 

diligence, we are not able to anticipate 

all factual scenarios in this rulemaking. 

MA organizations and Part D sponsors 

are responsible for ensuring that 

payment data they submit to CMS are 

accurate, truthful, and complete (based 

on best knowledge, information, and 

belief), and are expected to have 

effective and appropriate payment 

evaluation procedures and effective 

compliance programs as a way to avoid 

receiving or retaining overpayments. 

Thus, at a minimum, reasonable 

diligence would include proactive 

compliance activities conducted in good 

faith by qualified individuals to monitor 

for the receipt of overpayments. 

However, conducting proactive 

compliance activities does not mean 

that the person has satisfied the 

reasonable diligence standard in all 

circumstances. In certain circumstances, 

for example, reasonable diligence might 

require an investigation conducted in 

good faith and in a timely manner by 


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qualified individuals in response to 

credible information of a potential 

overpayment. 

We note that in discussing the 

standard term ‘‘reasonable diligence’’ in 

the preamble, we are interpreting the 

obligation to ‘‘report and return the 

overpayment’’ which is contained in 

section 1128J(d) of the Social Security 

Act. We are not seeking to interpret the 

terms ‘‘knowing’’ and ‘‘knowingly’’, 

which are defined in the Civil False 

Claims Act and have been interpreted 

by a body of False Claims Act case law. 

Comment: Some commenters thought 

that we had an overly broad 

interpretation of the statute and that 

there was no statutory basis for CMS to 

interpret the term ‘‘identified’’ in 

section 6402 of the Affordable Care Act 

to include ‘‘reckless disregard or 

deliberate ignorance of the existence of 

the overpayment.’’ A commenter stated 

that the term ‘‘knowing’’ is not actually 

used in the overpayment standard set 

forth in section 6402(d) of the 

Affordable Care Act, so the mere 

existence of an errant reference to the 

False Claims Act definition of 

‘‘knowing’’ does not give CMS sufficient 

basis to apply the expansive False 

Claims Act knowledge standard to the 

definition of ‘‘identified’’ under section 

6402. This commenter noted that in an 

earlier version of the Affordable Care 

Act, H.R. 3962, used the False Claims 

Act knowledge standard in the section 

on reporting and returning of 

overpayments. The commenter also 

stated that the final version of the 

Affordable Care Act enacted by the 

Congress used the term ‘‘identified,’’ 

and not the word ‘‘knowledge.’’ This 

commenter believed that the Congress’s 

explicit rejection of the False Claims Act 

knowledge standard, and use of the term 

‘‘identified’’ in the final legislative 

language weighs against incorporating 

the False Claims Act knowledge 

standard into the regulatory provision. 

Response: We disagree with the 

commenters’ arguments. While we 

acknowledge that the terms ‘‘knowing’’ 

and ‘‘knowingly’’ are defined but not 

otherwise used in section 1128J(d), we 

believe that the Congress intended for 

section 1128J(d) to apply broadly. If the 

requirement to report and return 

overpayments applied only to situations 

where the MA organization or Part D 

sponsor has actual knowledge of the 

existence of an overpayment, then these 

entities could easily avoid returning 

improperly received payments and the 

purpose of the section would be 

defeated. Thus, we decline to read a 

narrow actual knowledge limitation into 

the law as suggested by commenters. 

Comment: Several commenters 

recommended that CMS remove the 

language relating to ‘‘reasonable 

diligence’’ from the proposed 

regulation. These commenters believed 

that an identified overpayment should 

be limited to actual knowledge of an 

overpayment. 

Response: For the reasons discussed 

previously, we decline to read a narrow 

actual knowledge limitation into the law 

as suggested by commenters. 

Comment: A few commenters were 

concerned that by adding a reasonable 

diligence requirement, CMS appears to 

be suggesting that a much lower level of 

sponsor behavior—a failure to act 

reasonably—could trigger potential 

False Claims Act liability. One 

commenter stated that the phrase 

‘‘reasonable diligence’’ is not a 

recognized or defined standard and is 

overly vague as to the obligations of 

plans to follow through on information 

received regarding a potential 

overpayment. The commenters have 

serious concerns about the implication 

of such a standard. 

Response: We understand the 

commenters’ concerns. However, we do 

not believe that it is inappropriate to 

expect that MA organizations and Part 

D sponsors act reasonably. We note that 

it is the statute that establishes liability 

under the False Claims Act for failure to 

report and return identified 

overpayments, pursuant to section 

1128J(d)(3). 

c. Look-Back Period for Reporting and 

Returning Overpayments 

We proposed at §§ 422.326(e) and 

423.360(e) to codify a look-back period 

for MA organizations and Part D 

sponsors. MA organizations and Part D 

sponsors would be required to report 

and return any overpayment that they 

identify within the 6 most recent 

completed payment years. The statute of 

limitations related to the False Claims 

Act is 6 years from the date of the 

violation or 3 years from the date the 

relevant government official learns of 

the situation, but in no case more than 

10 years from the date of the violation. 

CMS proposed 6 years as the look-back 

period because we believe this best 

balances government’s interest in 

having overpayments returned with 

entities’ interest in finality. Six years 

also is consistent with the CMP 

provisions, and maintenance of records 

requirements under the contracts. We 

also proposed that overpayments 

resulting from fraud would not be 

subject to this limitation of a look-back 

period. 

We received the following comments 

on the look-back period, and our 

responses follow. 

Comment: We received a few 

comments recommending that we 

shorten the 6-year look-back period. A 

commenter noted that permitting greater 

finality in overpayment reporting and 

recovery will decrease administrative 

costs and free up resources to focus on 

benefits. This commenter also stated 

that an organization would have to 

retain a significant amount of 

documentation to fully support and 

justify payments, more than what they 

would retain under CMS’s 10-year 

record retention requirement. Several 

commenters recommended that the 

look-back period be 3 years to align with 

the RAC look-back period. A commenter 

noted that the 3-year period would also 

be consistent with the federal 

government’s treatment of government 

contractors that are subject to the 

Federal Acquisition Regulation. A 

couple of commenters recommended 

that we implement a 4-year look-back 

period to align with the 4-year period 

that Medicare Administrative 

Contractors can reopen Medicare feefor-service payment determinations. 

Response: We disagree with the 

commenters’ recommendations to 

shorten the look-back period. We note 

that section 1128J(d) of the Act has no 

time limit to the obligation to report and 

return overpayments received by a 

provider or supplier. However, as we 

stated in the preamble to our proposed 

rule and again in this preamble to our 

final rule, we proposed 6 years as the 

look-back period because we believe 

this best balances government’s interest 

in having overpayments returned with 

entities’ interest in finality. Six years is 

consistent with the CMP provisions, and 

maintenance of records requirements 

under the contracts. It is also consistent 

with the False Claims Act in that the 

statute of limitations related to the False 

Claims Act is 6 years from the date of 

the violation or 3 years from the date the 

relevant government official learns of 

the situation, but in no case more than 

10 years from the date of the violation. 

We believe that our final rule does not 

create additional recordkeeping burden 

or cost. Under § 422.504(d) and 

§ 423.505(d), MA organizations and Part 

D sponsors are required to maintain for 

10 years books, records, documents, and 

other evidence of accounting procedures 

and practices related to costs, financial 

statements, cash flow, etc. 

Comment: A commenter requested 

that CMS clarify the parameters of the 

6-year look-back provision. 

Response: As we stated in the 

preamble to the proposed rule and this 


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final rule and again in §§ 422.326(e) and 

423.360(e), MA organizations and Part D 

sponsors are required to report and 

return any overpayment that they 

identify within the 6 most recent 

completed payment years. That would 

mean, for example, after the initial 

reconciliation that takes place for Part D 

payments (that is, the determination on 

the final amount of direct subsidy 

described in § 423.329(a)(1), final 

reinsurance payments described in 

§ 423.329(c), the final amount of the low 

income subsidy described in 

§ 423.329(d), or final risk corridor 

payments as described in § 423.336) for 

contract year 2015 (which will take 

place at the end of 2016), Part D 

sponsors are obligated to report and 

return overpayments under § 423.360 

for contract years 2010 through 2015. 

Comment: A few commenters 

recommended that CMS impose the 

same limitation on the look-back period 

for all overpayments, even those relating 

to fraud. A commenter noted that under 

the statutory scheme set forth in section 

6402 of the Affordable Care Act, the 

existence of an overpayment does not 

depend on, or otherwise reflect, the 

existence of fraud. Commenters also 

requested clarification from CMS 

whether MA organizations and Part D 

sponsors that become aware of an 

overpayment prior to the look-back 

period have an obligation to investigate 

and determine whether that 

overpayment resulted from fraud. These 

commenters were concerned that MA 

organizations and Part D sponsors 

would have to investigate potential 

overpayments indefinitely, no matter 

how far in the past they may have 

occurred, because these organizations 

would have to determine whether there 

was any fraud in connection with the 

potential overpayment in order to 

determine whether a reporting 

obligation exists. 

Response: Upon further review, we 

agree with the commenters’ suggestion 

that CMS impose the same limitation on 

the look-back period for all 

overpayments. Six years is consistent 

with the more commonly applicable 

FCA statute of limitations as well as the 

statute of limitations under section 

1128A of the Act. Therefore, we have 

elected to establish a 6-year look-back 

period regardless of the nature of the 

overpayment, and we have amended the 

regulation text at §§ 422.326(e) and 

423.360(e) accordingly. We note that the 

government may have other avenues for 

pursuing the return of overpayments 

due to false and fraudulent claims 

outside of these provisions. 

Finally, we note that an MA 

organization’s and Part D sponsor’s 

obligation to investigate and identify 

false and fraudulent claims is outside 

the scope of this final rule. 

After consideration of the public 

comments received on the overpayment 

provisions, we are finalizing as 

proposed the following provisions: 

§§ 422.1, 422.300, 422.504(l), 423.1, and 

423.505(k). We are finalizing the 

provisions at § 422.326, with the 

following modifications. First, we add at 

the end of paragraph (d) the phrase 

‘‘unless otherwise directed by CMS for 

the purpose of § 422.311.’’ Second, we 

strike the following sentence in the 

proposed paragraph on the six-year 

look-back period: ‘‘Overpayments 

resulting from fraud are not subject to 

this limitation of the lookback period.’’ 

To increase clarity we also revise 

paragraph (c) regarding identified 

overpayments. We also are making a 

technical correction by redesignating 

proposed paragraph (d)(3) on 

enforcement as paragraph (e), and 

redesignating proposed paragraph (e) on 

the six-year look-back period as 

paragraph (f), and revising new 

paragraph (e) on enforcement to say 

‘‘Any overpayment retained by an MA 

organization is an obligation under 31 

U.S.C. 3729(b)(3) if not reported and 

returned in accordance with paragraph 

(d) above.’’ 

Finally, we are finalizing the 

provisions at § 423.360 with the 

following modifications. We strike the 

following sentence in the proposed 

paragraph on the six-year look-back 

period: ‘‘Overpayments resulting from 

fraud are not subject to this limitation 

of the lookback period.’’ To increase 

clarity we also revise paragraph (c) 

regarding identified overpayments. We 

also are making a technical correction 

by redesignating proposed paragraph 

(d)(3) on enforcement as paragraph (e), 

and redesignating proposed paragraph 

(e) on the six-year look-back period as 

paragraph (f), and revising new 

paragraph (e) on enforcement to say 

‘‘Any overpayment retained by a Part D 

sponsor is an obligation under 31 U.S.C. 

3729(b)(3) if not reported and returned 

in accordance with paragraph (d).’’ 

2. Risk Adjustment Data Requirements 

(§ 422.310) 

We proposed several amendments to 

§ 422.310 to strengthen existing 

regulations related to the accuracy of 

risk adjustment data. We proposed to 

renumber existing paragraph 

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

new paragraph (e)(1), which would 

require that any medical record reviews 

conducted by an MA organization must 

be designed to determine the accuracy 

of diagnoses submitted under 

§§ 422.308(c)(1) and 422.310(g)(2). 

Under our proposal, medical record 

reviews conducted by an MA 

organization could not be designed only 

to identify diagnoses that would trigger 

additional payments by CMS to the MA 

organization; medical record review 

methodologies would have to be 

designed to identify errors in diagnoses 

submitted to CMS as risk adjustment 

data, regardless of whether the data 

errors would result in positive or 

negative payment adjustments. 

We also proposed to amend 

§ 422.310(g) regarding deadlines for 

submission of risk adjustment data; our 

proposal was to restructure and revise 

subparagraph (g)(2) and add 

subparagraph (g)(3). Our current 

procedures generally permit submission 

of risk adjustment data after the final 

risk adjustment submission deadline 

only to correct overpayments. Thus, we 

proposed, at § 422.310(g)(2)(ii) to 

explicitly permit late submissions only 

to correct overpayments but not to 

submit diagnoses for additional 

payment so that the regulation text 

would be consistent with our 

procedures. 

Finally, we proposed to make two 

additional changes in paragraph (g). 

First, we proposed the deletion of the 

January 31 deadline in paragraph (2) 

and replacing it with the statement that 

CMS will announce the deadline by 

which final risk adjustment data must 

be submitted to CMS or its contractor. 

We noted that the risk adjustment data 

submission deadline would also 

function as the Part C applicable 

reconciliation date for purposes of 

proposed § 422.326 on overpayment 

rules, also discussed in this final rule. 

Second, we proposed adding paragraph 

(3) to § 422.310(g). Proposed paragraph 

(3) cites § 422.326 as the source of rules 

for submission of corrected risk 

adjustment data after the final risk 

adjustment data submission deadline, 

that is, after applicable reconciliation as 

defined at § 422.326(a). 

In response to the January 10, 2014 

proposed rule, we received 

approximately 25 pieces of 

correspondence from organizations and 

individuals regarding these proposals. 

We received the following public 

comments and our responses follow. 

Comment: Many commenters 

expressed concern about the vagueness 

and overly broad statement of CMS’ 

proposal to amend § 422.310(e) to 

require that medical record reviews 

conducted by MA organizations be 

designed to determine the accuracy of 

diagnoses they submitted to CMS. Some 

commenters thought this implied a 

requirement to verify every diagnosis 


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submitted by every provider, while 

others thought this implied a restriction 

on the ability of plans to identify what 

medical records to review. Other 

commenters believed the proposed 

amendment limited plans’ ability to 

review medical records for operational 

purposes other than risk-adjusted 

payment, such as focusing on only a 

portion of a medical record for a subset 

of beneficiaries in order to enhance 

HEDIS scores, conduct contract 

compliance reviews, and validate claims 

processing and billing. 

Finally, a few commenters argued that 

CMS should offset the payment impact 

of diagnoses an MA organization 

submitted to CMS that were later found 

through medical record reviews to not 

be supported by medical record 

documentation by adjusting the amount 

of CMS’ overpayment to the MA 

organization for the level of error in 

equivalent diagnoses in FFS claims 

data. Specifically, the commenters 

argued that CMS should give MA 

organizations a credit for erroneous 

diagnoses they submitted from their 

providers’ claims up to the rate 

identified by CMS as the applicable FFS 

Adjustor in the RADV program. The 

commenters also argued that there is no 

reason to require that both MA and FFS 

diagnosis data be scrutinized for error 

rates when determining retroactive 

payment adjustments, while not 

engaging in a similar adjustment process 

when paying plans prospectively. 

Response: We thank the commenters 

for their input. We are not finalizing the 

proposed amendment to § 410.322(e). 

However, we emphasize that our 

decision to not finalize this regulatory 

proposal does not change CMS’ existing 

contractual requirement that MA 

organizations must certify (based on 

best knowledge, information, and belief) 

the accuracy, completeness, and 

truthfulness of the risk adjustment data 

they submit to CMS. Further, this 

decision does not change the longstanding risk adjustment data 

requirement that a diagnosis submitted 

to CMS by an MA organization for 

payment purposes must be supported by 

medical record documentation. 

Comment: A few commenters 

supported CMS’ proposal to remove the 

current date of January 31 as the annual 

final risk adjustment data submission 

deadline and replace it with the 

provision that CMS will announce the 

deadline annually, with the proviso that 

CMS’ timing of this annual deadline 

always allows sufficient opportunity for 

organizations to make final data 

submissions. Several other commenters 

stated their concern about this proposed 

change in deadline, including a concern 

that CMS might announce a deadline 

earlier than January 31 in some years. 

These commenters requested that CMS 

clarify that the annual deadline would 

never be before January 31, and a few 

commenters suggested that the 

regulation state that the deadline is 

January 31 but may be extended. 

Finally, a few commenters requested 

that CMS not change the January 31 date 

to a floating date, in order to allow 

operational stability. 

Response: We are not finalizing this 

proposal at this time. 

Comment: Many commenters 

disagreed with CMS’ proposal under 

§ 410.322(g)(2) that, after the final risk 

adjustment data submission deadline, 

CMS would permit submission of data 

to correct overpayments but not permit 

late submission of diagnosis data that 

would result in additional payment, 

asserting that this asymmetrical 

approach does not promote CMS’ stated 

goal of improving payment accuracy. 

The commenters maintained that an MA 

organization should be allowed to 

submit additional diagnoses after the 

final risk adjustment data submission 

deadline to correct not only an 

overpayment to the MA organization, 

but also an underpayment. A 

commenter recommended that, after the 

final deadline, MA organizations should 

be able to submit paired deletionsadditions of diagnoses as long as the 

result is not an increased payment to the 

organization but a smaller reduction in 

payment than would otherwise occur if 

only the deletion were submitted; for 

example, an MA organization may want 

to delete the diagnosis code for diabetes 

with acute complications and replace it 

with the code for diabetes without 

complications so that it loses only some 

of the payment. Finally, a commenter 

requested that CMS allow exceptions to 

the general rule that no new diagnoses 

may be submitted after the final risk 

adjustment data submission deadline for 

special circumstances such as system 

failures, file formatting issues, and other 

technical problems. 

Response: For a given payment year 

(which is a calendar year), CMS applies 

diagnoses from the previous year (the 

data collection year) to calculate 

beneficiary risk scores used to riskadjust payments to MA organizations in 

the payment year. MA organizations 

must finalize any corrections and new 

submissions of diagnosis data for a data 

collection year by January 31 of the year 

after the payment year. That is, we 

allow 13 months after the end of the 

diagnosis year for MA organizations to 

identify errors in data they have 

submitted (that is, deleting diagnoses 

from CMS’ systems) and to identify and 

submit additional diagnoses that were 

not submitted during the diagnosis year. 

We believe that is a very reasonable 

period of time to finalize risk 

adjustment data for a diagnosis year. 

These risk adjustment processes have 

been in place for many years, and we 

believe it is the responsibility of MA 

organizations to have internal audit 

processes in place allowing them to 

finalize their risk adjustment data for a 

payment year by the conclusion of this 

13-month period. Therefore, we are 

finalizing, as proposed, the provision 

codified at § 422.310(g)(2)(ii) that, after 

the final deadline, an MA organization 

may submit risk adjustment data to 

correct overpayments but not to add 

payments. 

Comment: A commenter supported 

CMS’ proposal to limit post-deadline 

modifications to deletions of incorrect 

diagnoses but requested that CMS offer 

one additional opportunity to eliminate 

unsupported diagnosis codes in advance 

of a RADV audit. 

Response: When we are preparing to 

initiate a RADV audit cycle, all MA 

organizations are notified that they 

should eliminate unsupported 

diagnoses from CMS’ systems by a date 

specified in the notice. Subsequently, 

we inform the contracts that have been 

selected for RADV. 

In summary, after consideration of the 

public comments received, we are not 

finalizing the proposed amendment to 

§ 410.322(e). Also, we are not finalizing 

at this time our proposal at 

§ 422.310(g)(2)(ii) to remove the current 

date of January 31 as the annual final 

risk adjustment data submission 

deadline and replace it with the 

provision that CMS will announce the 

deadline annually. We are finalizing as 

proposed the restructuring of 

§§ 422.310(g)(2) and the 422.310(g)(2)(ii) 

provision to prohibit submission of 

diagnoses for additional payment after 

the final risk adjustment data 

submission deadline. We did not 

receive any comments on subparagraph 

(g)(3) and are finalizing it as proposed. 

3. RADV Appeals 

a. Background 

We published final Risk Adjustment 

Data Validation (RADV) appeals 

regulations in the April 15 2010 Federal 

Register (75 FR 19677). These rules 

were proposed and finalized under our 

authority to establish Medicare 

Advantage (MA) program standards at 

section 1856(b)(1) of the Act and are 

found at § 422.311 et seq. Since 

finalizing these rules in 2010, we 

conducted additional RADV audits and 

determined that some of the appeals 


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provisions finalized in the 2010 RADV 

Appeals final rule should be modified to 

strengthen and streamline the RADV 

appeals process and to prevent 

confusion. Therefore, we proposed 

revisions to the RADV appeals 

regulations on January 10, 2014. These 

proposed RADV provisions will apply 

to any RADV determinations issued on 

or after the effective date of this 

regulation. 

We proposed changing certain RADV 

definitions at § 422.2. Specifically, we 

proposed removing the definition Initial 

Validation Contractor (IVC); removing 

the definition of RADV payment error 

calculation appeal process; and 

removing the definition of ‘‘One Best 

Medical Record for the purposes of 

Medicare Advantage Risk Adjustment 

Data Validation (RADV)’’. In addition, 

we proposed adding one new definition 

by specifically defining the RADV 

appeals process. We also proposed 

revising the definitions of ‘‘Risk 

Adjustment Data Validation (RADV)’’ 

and ‘‘attestation process’’ within the 

RADV appeals context. Furthermore, we 

proposed amending RADV definitions at 

§ 422.2 to specify that the Secretary, 

along with CMS, could conduct RADV 

audits. 

At § 422.311, we proposed to update 

select RADV appeals terminology. We 

proposed amending the RADV 

regulations by adopting one common 

term to refer to RADV audit reports: 

‘‘RADV Audit Report’’. As mentioned 

earlier, we proposed removing from the 

RADV regulations the term—‘‘Initial 

Validation Contractor, or IVC,’’ since 

RADV medical record review process no 

longer utilizes ‘‘initial’’ and 

‘‘secondary’’ validation contractors to 

conduct medical record review under 

RADV. Instead, we now utilize medical 

record reviewers to code medical 

records who may be employed by the 

same or different medical record review 

contractors. 

At § 422.311(c)(1), we proposed to 

simplify the RADV appeals process by 

combining the two existing RADV 

appeal procedures—one for medical 

record review and one for payment error 

calculation—into one set of 

requirements and one process 

comprised of three administrative steps: 

Reconsideration, hearing officer review, 

and CMS Administrator-level review. 

Combining these existing RADV 

medical record review determination 

and payment error calculation appeals 

policies and processes improves the 

overall appeals process by simplifying 

the overall RADV appeals process and 

reducing burden on all parties involved 

in the RADV appeals process. We also 

believed that doing so improves overall 

RADV appeals procedures by providing 

clarity that leads to greater efficiencies 

in adjudicating RADV appeals. Within 

this overall framework, we also 

proposed defining issues that would be 

eligible for RADV appeal at 

§ 422.311(c)(2) and issues that would 

not be eligible for RADV appeals under 

this combined-appeal process at 

§ 422.311(c)(3). We further proposed 

defining the manner and timing of a 

request for RADV appeal at 

§ 422.311(c)(2)(iii), a reconsideration 

process at § 422.311(c)(6), a hearing 

process at § 422.311(c)(7)(iv), and an 

Administrator-level review at 

§ 422.311(c)(8). 

At § 422.311(a), we proposed that the 

Secretary, along with CMS, be permitted 

to conduct RADV audits beginning with 

the effective date of this regulation. 

Because of the absence of a clearlydefined burden of proof standard for 

RADV medical record review 

determination appeals, at § 422.311(c)(4) 

we proposed adoption of a burden of 

proof standard for all RADV 

determinations—be they payment error 

calculation or RADV medical record 

review determinations—whereby the 

burden would be on MA organizations 

to prove, based on a preponderance of 

the evidence, that CMS’s 

determination(s) was (were) erroneous. 

At § 422.311(b)(2) we proposed 

changing the compliance date for 

meeting RADV audit requirements for 

the validation of risk adjustment data to 

the due date when MA organizations 

selected for RADV audit must submit 

medical records to the Secretary—and 

not only CMS. 

We received comments from health 

plans, managed care industry trade 

associations, providers, provider trade 

associations and other interested 

parties. These comments have resulted 

in changes to the previously described 

proposals, as discussed later in this 

section. Some of the comments we 

received did not apply to the proposed 

RADV appeals processes. However, 

because some of these comments apply 

to underlying RADV audit process, we 

are responding to certain comments 

because they appear to be relevant to the 

RADV appeals process. Other comments 

were clearly outside the scope of our 

proposed rule, so we have not included 

responses to those comments. 

b. RADV Definitions 

We proposed to amend the RADV 

definitions at § 422.2 as follows: 

• Removing the following definitions: 

++ ‘‘Initial Validation Contractor 

(IVC)’’ means the first level of medical 

record review under the RADV audit 

process. 

++ ‘‘RADV payment error calculation 

appeal process’’ means an 

administrative process that enables MA 

organizations that have undergone 

RADV audit to appeal the CMS 

calculation of an MA organization’s 

RADV payment error. 

++ ‘‘The one best medical record for 

the purposes of Medicare Advantage 

Risk Adjustment Validation (RADV)’’ 

means the clinical documentation for a 

single encounter for care (that is, a 

physician office visit, an inpatient 

hospital stay, or an outpatient hospital 

visit) that occurred for one patient 

during the data collection period. The 

single encounter for care must be based 

on a face-to-face encounter with a 

provider deemed acceptable for risk 

adjustment and documentation of this 

encounter must be reflected in the 

medical record. 

• Adding the following definition: 

++ ‘‘RADV appeal process’’ means an 

administrative process that enables MA 

organizations that have undergone 

RADV audit to appeal the Secretary’s 

medical record review determinations 

and the Secretary’s calculation of an MA 

organization’s RADV payment error. 

• Revising the following definitions: 

++ Risk adjustment data validation 

(RADV) audit means a payment audit of 

a Medicare Advantage (MA) 

organization administered by CMS or 

the Secretary that ensures the integrity 

and accuracy of risk adjustment 

payment data. 

++ ‘‘Attestation process’’ means a 

CMS-developed RADV process that 

enables MA organizations undergoing 

RADV audit to submit CMS-generated 

attestations for eligible medical records 

with missing or illegible signatures or 

credentials. The purpose of the CMSgenerated attestations is to cure 

signature and credential issues for 

eligible medical records. CMS-generated 

attestations do not provide an 

opportunity for a provider or supplier to 

replace a medical record or for a 

provider or supplier to attest that a 

beneficiary has the medical condition. 

We received no comments specifically 

recommending modifications to the 

proposed definitions as stated, though 

we did receive comments regarding the 

policy behind some of these definition 

changes. The policy comments will be 

addressed later in this rule, though we 

are finalizing the specific definitions 

without modification. 

c. Publication of RADV Methodology 

In the October 22, 2009 proposed rule, 

and as reinforced in the April 15, 2010 

final rule, we indicated that we would, 

‘‘publish its RADV methodology in 

some type of public document—most 


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likely, a Medicare Manual, so that the 

public can review and provide comment 

as it deems necessary’’. We also 

indicated that we would provide an 

annual notice of RADV audit 

methodology. Our last RADV-related 

notice of methodology was published in 

February 2012. We will continue to 

publish a notice of the methodology 

employed, but will do so only if there 

is a change in the RADV methodology 

that would require publication. We note 

that these notices of RADV audit 

methodology updated information 

provided on RADV audit methodology 

provided in the October 22, 2009 

proposed rule and April 15, 2010 final 

rule. 

In addition, we provided in the 

October 22, 2009 proposed rule 

preamble that we would provide an 

expanded explanation of methodology 

and payment error calculation factors as 

a part of each audit report of findings 

that we send to MA organizations that 

undergo RADV audit. Such explanation 

and factors have been and will continue 

to be part of the RADV audit report(s) 

that CMS provides health plans that 

have undergone RADV audits. 

d. Proposal To Update RADV Appeals 

Terminology (§ 422.311) 

Current RADV regulations utilize the 

following terms for the CMS-issued 

RADV audit report: Audit report post 

medical record review; RADV audit 

report; IVC-level RADV audit report; 

and RADV audit report of finding. This 

use of multiple terms to refer to what is 

the same audit report (the RADV audit 

report that CMS issues following 

conclusion of the medical record review 

portion of the audit) is potentially 

confusing. Therefore, we proposed 

amending the RADV regulations 

throughout to adopt one common term 

to refer to RADV audit reports: ‘‘RADV 

Audit Report’’. By standardizing 

terminology throughout the RADV 

regulations, the proposed amendment 

provides clarity which may lead to 

increased efficiency. 

As mentioned earlier in the 

description of RADV-related definitions 

that have changed, we have revised 

certain RADV-related definitions to 

accommodate changes to both the RADV 

audit process and the RADV appeals 

process. One definition that we have 

removed from the RADV regulations is 

Initial Validation Contractor, or IVC. 

The RADV medical record review 

process no longer utilizes ‘‘initial’’ and 

‘‘secondary’’ validation contractors to 

conduct medical record review under 

RADV. Instead we now utilize medical 

record reviewers to code medical 

records undergoing RADV review. 

These reviewers may be employed by 

the same or different medical record 

review contractors. Therefore, the term 

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

audit process. As a result, we proposed 

to remove this term from the RADV 

regulations at the following citations: 

§ 422.311(c)(2)(i)(B) through (D); 

§ 422.311(c)(2)(ii)(B), 

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

(vi), § 422.311(c)(3)(ii)(A), and 

§ 422.311(c)(3)(iii)(A) and (B). We 

invited comment on this proposal. 

Comment: A commenter requested 

that CMS verify that the medical record 

review error determination standard, 

which presently requires multiple 

review determinations by independent 

coders to confirm a CMS–HCC coding 

error, remains in effect and is not 

altered by this proposed rule. 

Response: While we did not propose 

RADV coding changes, we believe the 

question merits a response. We believe 

that our proposal to remove the 

definition of ‘‘Initial Validation 

Contractor’’ (IVC) may have led some to 

believe that we were abandoning RADV 

audit processes that require multiple 

levels of independent medical record 

review (coding) by independent 

reviewers before we will confirm a 

CMS–HCC coding error. This standard 

has not changed, notwithstanding the 

removal of the term IVC from the RADV 

appeals rules. We continue to utilize 

medical record reviewers to code 

medical records undergoing RADV 

review, though these reviewers may 

now be employed by the same or 

different medical record review 

contractors. The principle of 

independent review and multiple 

confirmations of an identified CMS– 

HCC remain in effect. 

e. Proposal To Simplify the RADV 

Appeals Process 

Currently, there are two types of 

RADV-related appeals processes 

described in our regulations at 

§ 422.311: Medical record reviewdetermination appeals and RADV 

payment error calculation appeals. 

RADV medical record reviewdetermination appeal requirements and 

procedures are discussed at 

§ 422.311(b)(3) and § 422.311(c)(2). 

Medical record review determination 

appeal is a two-stage administrative 

appeal process—the first step is a 

hearing by a hearing officer, followed by 

a CMS Administrator—level review. 

This appeal procedure provides MA 

organizations with an opportunity to 

appeal RADV medical record review 

determinations that are made by coders 

reviewing the medical record 

documentation submitted by MA 

organizations undergoing RADV audit. 

The second type of RADV appeal, 

payment error calculation appeal, is 

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

error calculation appeal is a threepronged appeal process: 

reconsideration, followed by a hearing 

officer review, followed by CMS 

Administrator—level review. This 

appeal process was specifically 

designed to afford MA organizations the 

opportunity to appeal CMS’s contractlevel RADV payment error calculation. 

We proposed that the administrative 

appeals language described at 

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

RADV medical record review 

determination appeals and 

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

calculation appeals be replaced with 

new regulatory language proposed 

§ 422.311(c)(1), that combines the two 

existing RADV appeal policies and 

procedures into one set of requirements 

and one process. We proposed to 

combine the two RADV appeals 

processes into one combined RADV 

appeals process that is comprised of 

three administrative steps: 

Reconsideration, hearing officer review, 

and CMS Administrator-level review. A 

three-step administrative appeals 

process comprising reconsideration, 

hearing officer review, and 

Administrator-levels of review is a 

common administrative appeals model 

used elsewhere within the Medicare 

managed care program, such as in 

appealing contract award 

determinations and intermediate 

sanctions. The combined RADV appeal 

process that we proposed at new 

§ 422.311(c)(1), also has the benefit of 

simplifying what is today a complex 

two-track appeal process into one 

process. While both CMS and the MA 

industry will benefit from simplifying 

this process, MA organizations also 

obtain an additional level of review 

under the combined approach since MA 

organizations will be afforded a 

reconsideration appeal step for medical 

record review determinations that is 

today—not part of the existing RADV 

appeal process. Shortening the existing 

two-track appeal process should also 

reduce the resources and level of effort 

needed from both MA organizations and 

CMS in participating in a RADV appeal 

proceeding. Under this proposal, MA 

organizations can simply request to 

appeal their RADV audit findings one 

time and specify whether they want to 

appeal either their medical record 

review determination(s), payment error 

calculation, or both. The specific details 

regarding this proposed process follow. 

We proposed these changes based upon 


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our experience with RADV appeals and 

because we hope to reduce the burden 

associated with undertaking RADV 

appeals on both MA organizations and 

CMS. The details of the proposed policy 

and procedure follow. 

(1) Issues Eligible for RADV Appeal 

Current regulations at §§ 422.311(c)(2) 

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

RADV-related medical record review 

and payment error calculation 

documents and issues eligible for the 

medical record review determination 

and payment error calculation appeal 

processes. We proposed to amend the 

policies and procedures around issues 

eligible for RADV appeals at 

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

combining proposed policies and 

procedures for the existing two-pronged 

appeal approach into one set of policies 

and procedures for RADV appeals at the 

new § part 422.311(c)(2)(iv). At 

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

general rule, MA organizations may 

appeal RADV medical record review 

determinations and RADV payment 

error calculation, though in order to be 

eligible to pursue these appeals, we 

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

and (B) that MA organizations must 

adhere to established RADV audit 

procedures and requirements and 

adhere to RADV appeals procedures and 

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

proposed that failure to follow RADV 

audit procedures and requirements and 

RADV appeals procedures and 

requirements will render the MA 

organization’s request for RADV appeal 

invalid. Furthermore, at proposed 

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

MA organization’s written request for 

medical record review determination 

appeal must specify the audited HCC(s) 

that have been identified pursuant to 

RADV audit as being in error, and 

further specify that MA organizations 

must provide a justification in support 

of the audited HCC(s) that the MA 

organization elects to appeal. At 

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

for each audited HCC, MA organizations 

may appeal one medical record that has 

undergone RADV medical record review 

and that if an attestation was submitted 

to cure a signature or credential issue, 

that attestation may likewise be 

included in the HCC appeal. For 

example, if an MA organization 

submitted a medical record that did not 

contain a signature and/or credential— 

and the MA organization submitted an 

attestation to cure the error that CMS 

subsequently failed to accept—the MA 

organization could choose to appeal 

CMS’s determination to not accept the 

submitted attestation. We reiterate that 

the purpose of CMS-generated 

attestations is to cure signature and 

credential errors associated with an 

eligible submitted medical record and 

not to provide an opportunity for a 

provider or supplier to attest that a 

beneficiary has a certain medical 

condition. Evidence for the existence of 

the medical condition is found in a 

medical record. 

We proposed to modify our language 

at § 422.311(c)(2)(i)(v) to clarify existing 

RADV appeals provisions which 

stipulate that MA organizations must 

adhere to the ‘‘one best medical record’’ 

policy. Under changes to the RADV 

audit methodology announced by CMS 

in February 2012, we now allow MA 

organizations to submit more than one 

medical record (that is, more than the 

‘‘one best medical record’’) during the 

RADV audit process to validate an 

audited CMS–HCC. However, for 

purposes of appealing a CMS medical 

record review determination, we will 

not permit organizations to appeal 

multiple medical records but will 

instead—require that MA organizations 

identify a record from amongst those 

records submitted, and to submit that 

record for appeal. For each audited 

HCC, MA organizations may appeal 

only one medical record that has 

undergone RADV review. This policy 

was published in the February 2012 

White Paper and is not included in this 

final rule. 

At § 422.311(c)(2)(vi) we proposed 

that a written request for RADV 

payment error calculation appeal must 

clearly specify the MA organization’s 

own RADV payment error calculation 

and must also specify where the 

payment error calculation was 

erroneous. 

(2) Issues Not Eligible for RADV 

Appeals 

At § 422.311(c)(3) we proposed 

documents and issues that are ineligible 

for RADV appeals. Consistent with the 

overall approach of combining into one 

RADV appeals process what was 

heretofore two separate RADV appeals 

processes—by way of this new proposed 

section, we propose to amend existing 

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

§ 422.311(c)(3), we proposed that MA 

organizations’ request for appeal may 

not include HCCs, medical records or 

other documents beyond the audited 

HCC, selected medical record and any 

accompanying attestation that the MA 

organization chooses to appeal. We 

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

organizations may not appeal CMS’s 

medical record review determination 

methodology or CMS’s payment error 

calculation methodology. This is a 

clarification to existing RADV 

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

specifies that MA organizations may not 

appeal CMS’s payment error calculation 

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

specify that MA organizations may not 

appeal RADV medical record reviewrelated errors when appealing RADV 

error-calculation issues since medical 

record review determination issues 

must be resolved before we can 

calculate RADV payment errors. And at 

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

errors that result from an MA 

organization’s failure to submit a 

medical record are not eligible for 

appeal. 

(3) Manner and Timing of a Request for 

RADV Appeal 

We proposed to replace existing 

RADV regulations at § 422.311(c)(2)(iii) 

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

regarding the manner and timing of a 

request for RADV appeals. Again, at 

§ 422.311(c)(5), we proposed to combine 

the formerly two separate sets of 

requirements and procedures into one 

RADV appeals process addressing the 

request for RADV appeal. At 

§ 422.311(c)(5)(i) we proposed that at 

the time the Secretary issues her RADV 

audit report, the Secretary notifies 

audited MA organizations that they may 

appeal RADV HCC errors that are 

eligible for medical record review 

determination appeal and may appeal 

the Secretary’s RADV payment error 

calculation. At § 422.311(c)(5)(ii) we 

specify that MA organizations have 30 

days from the date of CMS’s issuance of 

the RADV audit report to file a written 

request with CMS for RADV appeal. 

This request for RADV appeal must 

specify whether the MA organization 

requests medical record review 

determination appeal, whether the MA 

organization requests RADV payment 

error calculation appeal, or whether the 

MA organization requests both medical 

record review determination appeal and 

RADV payment error calculation 

appeal—and in each instance—the 

issues with which the MA organization 

disagrees, and the reasons for the 

disagreements. See proposed regulations 

at § 422.311(c)(6). 

In proposed § 422.311(c)(5)(ii), we 

specify that while MA organizations 

may now elect to appeal either medical 

record review determination, payment 

error calculation, or both—they must 

notify CMS which issues they will 

appeal at the same time. This new 

provision replaces existing RADV 

appeals requirements regarding 

notification at § 422.311(c)(2)(iii) and 

§ 422.311(c)(3)(iii)(C). 


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For MA organizations that elect both 

medical record review determination 

appeal and RADV payment error 

calculation appeal, we specify at 

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

Secretary will adjudicate the request for 

RADV payment error calculation 

following conclusion of reconsideration 

of the MA organization’s request for 

medical record review determination 

appeal. This is necessary because RADV 

payment error calculations are based 

upon the outcomes of medical record 

review determinations. For example, for 

an MA organization that appeals both 

medical record review determinations 

and payment error calculations, the 

reconsideration official would first 

adjudicate and rule on the medical 

record review determinations and then 

proceed to recalculate the RADV 

payment error. 

(4) Reconsideration Stage 

Under current RADV appeals 

procedures, only the RADV payment 

error calculation appeal process 

contains a reconsideration step. We 

proposed to amend existing regulations 

at § 422.311(c)(3)(iii)(C) and 

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

proposing a new reconsideration stage 

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

seq. Reconsideration is the first stage of 

the new RADV appeals process and will 

apply to both medical record review 

determinations and error calculation 

issues being appealed. Therefore, MA 

organizations that elect to appeal RADV 

audit findings de facto begin the appeal 

process with the reconsideration step. 

At proposed § 422.311(c)(6)(i) we 

specify that a MA organization’s written 

request for medical record review 

determination reconsideration must 

specify the audited HCC identified as 

being in error that the MA organization 

wishes to appeal; and to provide a 

justification in support of the audited 

HCC chosen for appeal. At proposed 

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

MA organizations’ written request for 

payment error calculation 

reconsideration must include the MA 

organization’s own RADV payment error 

calculation that clearly indicates where 

the RADV payment error calculation 

was erroneous. The request for payment 

error calculation reconsideration may 

also include additional documentary 

evidence pertaining to the calculation of 

the error that the MA organization 

wishes the reconsideration official to 

consider. 

At proposed § 422.311(c)(6)(iii) we 

describe the conduct of the 

reconsideration process that is being 

proposed. We specify that for medical 

record review determination 

reconsideration, a medical record 

review professional who was not 

involved in the initial medical record 

review determination of the disputed 

HCC reviews the medical record and 

accompanying dispute justification; and 

reconsiders the initial audited HCC 

medical record review determination. 

For payment error calculation 

reconsideration, we ensure that a third 

party not involved in the initial RADV 

payment error calculation reviews the 

RADV payment error calculation, 

reviews the MA organization’s own 

RADV payment error calculation, and 

recalculates the payment error in 

accordance with CMS’s RADV payment 

error calculation procedures. 

At proposed § 422.311(c)(6)(iv), we 

specify that the reconsideration official 

issues a written reconsideration 

decision to the MA organization, and 

that the reconsideration official’s 

decision is final unless the MA 

organization disagrees with the 

reconsideration official’s decision. If the 

MA organization disagrees with the 

reconsideration official’s decision, it 

may request a hearing. 

(5) Hearing Stage 

Existing regulations at 

§ 422.311(c)(2)(iv) through (ix) and 

§ 422.311(C)(4) et seq., specify the 

procedures under which CMS conducts 

hearings under the RADV appeals 

process for medical record review and 

payment error calculation. We proposed 

to replace these provisions with new 

hearing requirements and procedures at 

§ 422.311(c)(7)(iv). 

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

at the time the RADV appeals 

reconsideration official issues his/her 

reconsideration determination to the 

MA organization, the reconsideration 

official notifies the MA organization of 

any RADV audited HCC errors and or 

payment error calculations that are 

eligible for RADV hearing. At 

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

organization that requests a hearing 

officer review must do so in writing in 

accordance with procedures established 

by CMS. At § 422.311(c)(7)(iii), we 

specify that a written request for a 

hearing must be filed with the Hearing 

Officer within 30 days of the date the 

MA organization receives the 

reconsideration officer’s written 

reconsideration decision. If the MA 

organization appeals the medical record 

review reconsideration determination, 

the written request for RADV hearing 

must include a copy of the written 

decision of the reconsideration official; 

must specify the audited HCCs that the 

reconsideration official confirmed as 

being in error; and must specify a 

justification as to why the MA 

organization disputes the 

reconsideration official’s determination. 

If the MA organization appeals the 

RADV payment error calculation, the 

written request for RADV hearing must 

include a copy of the written decision 

of the reconsideration official and must 

include the MA organization’s own 

RADV payment error calculation that 

clearly specifies where the CMS’s 

payment error calculation was 

erroneous. 

At § 422.311(c)(7)(iv), we proposed 

that a CMS hearing officer conduct the 

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

specify terms and conditions under 

which a hearing officer may be 

disqualified. A hearing officer may not 

conduct a hearing in a case in which he 

or she is prejudiced or partial to any 

party or has any interest in the matter 

pending for decision. A party to the 

hearing who objects to the assigned 

hearing officer must notify that officer 

in writing at the earliest opportunity. 

The hearing officer must consider the 

objections, and may, at his or her 

discretion, either proceed with the 

hearing or withdraw. If the hearing 

officer withdraws, another hearing 

officer will conduct the hearing. If the 

hearing officer does not withdraw, the 

objecting party may, after the hearing, 

present objections and request that the 

officer’s decision be revised or a new 

hearing be held before another hearing 

officer. The objections must be 

submitted in writing to CMS. 

At § 422.311(c)(7)(vi), we proposed 

that the hearing officer reviews the 

medical record and any accompanying 

attestation that the MA organization 

selected for review, the reconsideration 

official’s payment error calculation (if 

appealed), the reconsideration official’s 

written determination, and the written 

justification submitted by the MA 

organization and CMS in response to the 

reconsideration official’s determination. 

At § 422.311(c)(7)(vii), we proposed 

RADV appeal hearing procedures. We 

proposed that the hearing officer has 

full power to make rules and establish 

procedures, consistent with the law, 

regulations, and rulings. These powers 

include the authority to dismiss the 

appeal with prejudice and take any 

other action which the hearing officer 

considers appropriate, including for 

failure to comply with RADV audit and 

appeals rules and procedures. We 

proposed that the hearing be altogether 

on the record unless the hearing officer, 

at his or her full discretion, approves a 

parties request for a live or telephonic 

hearing regarding some or all of the 

medical records in dispute, or if the 

hearing office schedules a live or 


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telephonic hearing on its own motion. 

The hearing officer’s review will be 

solely limited to the record. The record 

is comprised of the RADV reviewed 

medical record and any accompanying 

attestation that the MA organization 

selected for review, the reconsideration 

official’s payment error calculation (if 

appealed), the reconsideration official’s 

written determination, the written 

justification submitted by the MA 

organization in response to the 

reconsideration official’s determination, 

and written briefs from the MA 

organization explaining why they 

believe the reconsideration official’s 

determination was incorrect. In 

addition, the record will be comprised 

of a brief from CMS that responds to the 

MA organization’s brief. 

In terms of specifying the conduct of 

the hearing, we proposed at 

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

officer neither receives testimony nor 

accepts any new evidence that is not 

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

we proposed that the hearing officer be 

given the authority to decide whether to 

uphold or overturn the reconsideration 

official’s decision, and pursuant to this 

decision—to send a written 

determination to CMS and the MA 

organization, explaining the basis for 

the decision. 

At § 422.311(c)(7)(ix), we proposed 

that in accordance with the hearing 

officer’s decision, a third party not 

involved in the initial RADV payment 

error calculation recalculate the MA 

organization’s RADV payment error and 

issue a new RADV audit report to the 

appellant MA organization and CMS. 

For MA organizations appealing the 

RADV payment error calculation only, 

we proposed that a third party not 

involved in the initial RADV payment 

error calculation recalculate the MA 

organization’s RADV payment error and 

issue a new RADV audit report to the 

appellant MA organization and CMS. 

At§ 422.311(c)(7)(x) we proposed that 

the hearing officer’s decision be final 

unless the decision is reversed or 

modified by the CMS Administrator. 

(6) CMS Administrator Review Stage 

Existing regulations at 

§ 422.311(c)(2)(x) et seq., and 

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

CMS Administrator-level review 

procedures that CMS adheres to under 

the current RADV appeals process for 

medical record review determinations 

and payment error calculation. We 

proposed to replace these regulations 

with new RADV appeal-related CMS 

Administrator review requirements and 

procedures at § 422.311(c)(8). 

At § 422.311(c)(8)(i) and (ii), we 

proposed that a request for CMS 

Administrator review must be made in 

writing within 30 days of receipt of the 

hearing officer’s decision; and must be 

filed with the CMS Administrator by 

CMS or an MA organization. At 

§ 422.311(c)(8)(iii), we proposed that 

after receiving a request for review, the 

CMS Administrator has the discretion to 

elect to review the hearing officer’s 

decision or to decline to review the 

hearing officer’s decision. At 

§ 422.311(c)(8)(iv) we proposed that if 

the CMS Administrator elects to review 

the hearing decision—the Administrator 

acknowledges the decision to review the 

hearing decision in writing and notifies 

CMS and the MA organization of their 

right to submit comments within 15 

days of the date of the notification. At 

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

the CMS Administrator be limited to the 

review of the record and that the record 

be comprised of the hearing record, and 

written arguments from the MA 

organization and/or CMS explaining 

why either or both parties believe the 

hearing officer’s determination was 

correct or incorrect. 

Regarding Administrator-level review 

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

proposed that the Administrator reviews 

the record and determines whether the 

hearing officer’s determination should 

be upheld, reversed, or modified. At 

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

Administrator render his or her final 

decision in writing to the parties within 

60 days of acknowledging his or her 

decision to review the hearing officer’s 

decision. At § 422.311(c)(8)(vi), we 

proposed that the decision of the 

hearing officer become final if the 

Administrator declines to review the 

hearing officer’s decision or does not 

make a decision within 60 days. 

Combining these existing RADV 

medical record review determination 

and payment error calculation appeals 

policies and processes improves the 

overall appeals process by strengthening 

the depth and integrity of these 

procedures. We also believe that doing 

so improves overall RADV appeals 

procedures by providing clarity that 

leads to greater efficiencies in 

adjudicating RADV appeals. We 

welcomed comments on these 

proposals. 

We received the following comments 

and our response follows: 

Comment: Several commenters agreed 

that combining the RADV medical 

record review determination and 

payment error calculation appeals 

policies and processes into one 

combined appeals process strengthens 

the overall appeals process and should 

reduce administrative burden. A 

commenter disagreed with this 

assessment. Another commenter 

indicated that appealing both a medical 

record review determination and the 

payment error calculation concurrently 

within a 30-day timeframe would be 

problematic. 

Response: We continue to believe the 

combining two RADV appeals processes 

into one combined appeals process will 

improve efficiency and reduce 

administrative burden. Previously, MA 

organizations wishing to appeal both 

medical record review determinations 

and a RADV payment error calculation 

would have been required to participate 

in two hearings and two Administratorlevel reviews. Under our proposal, these 

same organizations need only 

participate in one hearing and one 

Administrator review. Regarding the 

notion that appealing both a medical 

record review determination and the 

payment error calculation concurrently 

within a 30-day timeframe would be 

problematic, we believe the commenter 

misunderstood how the proposed 

process is intended to work. The 

proposed provision at 

§ 422.311(c)(5)(ii)(c) states that for MA 

organizations that appeal both medical 

record review determination appeal and 

RADV payment error calculation 

appeal—the Secretary adjudicates the 

request for RADV payment error 

calculation appeal following conclusion 

of reconsideration of the MA 

organization’s request for medical 

record review determination appeal and 

not concurrently as the commenter 

asserted. However, to provide additional 

clarity to the provision, we have 

amended § 422.311(c)(5)(iii)(B) to state 

that MA organization’s request for 

appeal of their RADV payment error 

calculation will not be adjudicated until 

appeals of RADV medical record review 

determinations filed by the MA 

organization have been completed and 

the decisions are final for that stage of 

appeal. We trust this clarifies this 

provision and CMS therefore finalizes 

this proposal. 

Comment: A commenter objected to 

the proposed provision at 

§ 422.311(c)(2)(ii) that failure to follow 

RADV audit procedures and 

requirements and RADV appeals 

procedures and requirements will 

render the MA organization’s request for 

RADV appeal invalid. This commenter 

stated procedural issues should not 

render an appeal invalid unless they 

undermine the integrity of the audit 

results or are otherwise significantly 

prejudicial. 

Response: We disagree. RADV is an 

inherently complex administrative 


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process and the appeals procedures we 

have proposed are likewise detailed and 

comprehensive. Failure by MA 

organizations to follow RADV audit 

procedures could compromise the 

integrity of the administrative record 

that will serve as the foundational 

document that will be considered 

during any appeals process. Moreover, if 

we were to make subjective case-by-case 

determinations regarding what defines 

‘‘undermining the integrity of the audit 

process,’’ then we would compromise 

our ability to establish objective review 

standards upon which to base appeals 

determinations. Therefore, we are 

finalizing this provision as proposed. 

Comment: Several commenters 

requested that CMS allow MA 

organizations to appeal determinations 

made on ‘‘additional’’ CMS–HCCs 

abstracted during the medical record 

review process. Some commenters 

asserted that these additional CMS– 

HCCs are underpayments for which they 

are entitled payment. These commenters 

also asserted that MA organizations that 

do not receive credit for what they 

believe to be additional CMS–HCCs 

present in a submitted medical record 

should be entitled to appeal the fact that 

they did not receive credit. 

Response: We disagree. We note that 

an additional CMS–HCC is a CMS–HCC 

that CMS uncovers during the review of 

the MA organization’s submitted 

medical record(s) for which it had not 

received payment. We acknowledge that 

in certain circumstances when CMS 

uncovers these additional CMS–HCCs, 

the MA organization can in fact receive 

credit for these newly-discovered 

diagnoses codes to offset the 

overpayment findings resulting from the 

medical record review of the audited 

CMS–HCC. The RADV process 

addresses additional CMS–HCCs, or 

‘‘additionals,’’ as they are termed, 

through the application of rules for 

crediting a sampled enrollee with 

additional CMS–HCCs that are 

identified incidentally, during medical 

record review. We emphasize that these 

‘‘additional’’ diagnoses were not 

submitted for payment by MA 

organizations during the data collection 

period for enrollees selected in the 

sample, and yet in certain instances we 

provide audited MA organizations 

credit through our RADV medical 

record review process. At its core, 

RADV is an audit process that is 

intended to validate the CMS–HCCs that 

were submitted voluntarily by MA 

organizations in order to determine 

whether the risk adjustment portion of 

payment were properly made. We 

would note that the data collection 

period for any given payment year 

provides a substantial amount of time 

for MA organizations to submit and/or 

correct enrollee diagnoses data to reflect 

an enrollee’s health status. The RADV 

audit process is not intended to serve as 

a de facto mechanism for extending the 

data collection deadlines under which 

MA organizations operate. For these 

reasons, MA organizations will not be 

permitted to appeal additional CMS– 

HCC determinations found under the 

RADV audit for which MA 

organizations did not receive credit. 

Comment: At § 422.311(c)(2)(i), CMS 

proposed that for each audited CMS– 

HCC, MA organizations may appeal one 

medical record that has undergone 

RADV medical record review and that if 

an attestation was submitted to cure a 

signature or credential issue, that 

attestation may likewise be included in 

the CMS–HCC appeal. In response to 

this proposal, a commenter requested 

that CMS allow MA organizations to use 

an attestation to replace a medical 

record. Another commenter 

recommended that CMS change the 

attestation process embedded in the 

existing RADV audit procedures so that 

when CMS notifies an MA organization 

that an audited CMS–HCC was not 

validated due to lack of signature or 

credential, CMS would likewise allow, 

after medical record review, submission 

of an attestation to cure the identified 

RADV error. 

Response: The purpose of the CMSgenerated attestations is to provide MA 

organizations with an opportunity to 

cure signature and credential CMS–HCC 

validation errors for eligible medical 

records. CMS-generated attestations are 

not intended to provide an opportunity 

for a MA organizations, provider or 

supplier to replace a medical record; or 

for a provider or supplier to attest that 

a beneficiary has the medical condition 

reflected in the CMS–HCC at issue. Risk 

adjustment rules require that allowable 

diagnoses be verified in a medical 

record, not attestation. Regarding the 

recommendation that CMS notifies an 

MA organization that an audited CMS– 

HCC was not validated due to lack of 

signature or credential pursuant to 

RADV medical record review, we 

believe MA organizations bear the 

responsibility for identifying records 

that do not contain signature or 

credentials, and should do so at the 

same time they submit medical records 

to CMS for RADV medical record 

review. 

Comment: At § 422.311(c)(2)(iv), CMS 

proposed a provision which stipulates 

that notwithstanding these changes, for 

purposes of appealing a CMS medical 

record review determination, we will 

not permit MA organizations to appeal 

multiple medical records but will 

instead require MA organizations to 

identify one medical record from 

amongst the records submitted, and 

submit that record for appeal. For each 

audited CMS–HCC, MA organizations 

may appeal only one medical record 

that has undergone RADV review. 

Several commenters objected to CMS’s 

proposal that RADV appeals be limited 

to one medical record selected by the 

MA organization. These commenters 

believe CMS should not require MA 

organizations to select one medical 

record to appeal, but should rather 

permit MA organizations to appeal 

multiple medical records as part of the 

proposed RADV appeal process. 

Response: We believe these comments 

are in part responding to information 

that we provided in February 2012 

regarding changes in RADV 

methodology. At that time, we 

announced that CMS would allow MA 

organizations to submit more than one 

medical record for CMS–HCC validation 

during the RADV medical record review 

stage of the RADV audit process. While 

we now permit MA organizations to 

submit more than one medical record 

during the RADV audit process to 

validate an audited CMS–HCC, only one 

medical record is required and 

ultimately utilized by CMS to validate 

an audited CMS–HCC or conversely, to 

make a determination that the audited 

CMS–HCC is not present in the 

submitted medical record. Since one 

medical record is sufficient to validate 

an audited CMS–HCC, we believe it is 

reasonable to limit MA organizations to 

selecting one medical record for 

purposes of RADV appeal. Guidelines 

set forth in the International 

Classification of Diseases, Ninth Clinical 

Revision (ICD–9) specify that the 

information necessary to abstract a code 

be contained in entirety in 

documentation for one encounter (either 

inpatient or outpatient). Multiple 

records cannot be combined to obtain 

sufficient documentation for a 

diagnosis. Furthermore, risk adjustment 

rules specify that only one diagnosis 

submission throughout the entire data 

collection period initiates a risk score 

adjustment. Given this, multiple 

medical record support is not required 

to confirm the diagnosis. Therefore, the 

appeal record should be carefully 

selected to ensure payment is validated. 

Therefore, we do not accept this 

recommendation. 

Comment: Several commenters 

objected to CMS’s proposal at 

§ 422.311(c)(3) to not permit MA 

organizations to appeal either medical 

record review determination or payment 

error calculation methodology. A 


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commenter stated that MA organizations 

should be allowed to identify and 

explain their objections to audit and 

appeals procedures and requirements 

without losing their ability to pursue the 

administrative appeals process. 

Response: At § 422.311(c)(3)(ii), we 

proposed that MA organizations would 

not be permitted to appeal CMS’s 

medical record review determination 

methodology or CMS’s payment error 

calculation methodology. We proposed 

this requirement for the same reason 

that we finalized the RADV appeals 

requirement in 2010 that MA 

organizations could not appeal the 

RADV payment error calculation 

methodology. The payment error 

calculation methodology would be 

known to audited MA organizations 

before their RADV audit began. MA 

organizations that questioned or did not 

otherwise understand the methodology 

would have an opportunity to seek 

clarification from CMS regarding the 

methodology at that time. 

In December 2010, in response to 

questions from the MA industry 

regarding our RADV payment error 

calculation methodology, we published 

a white paper describing our RADV 

payment error calculation 

methodologies, and invited public 

comment. In response to comments 

received in February 2012, we 

published a RADV-related notice of 

methodology specifying the RADV 

payment error calculation methodology 

that the agency would utilize on a 

moving-forward basis. 

This same principle applies to the 

way we conduct medical record review 

within the RADV audit context. We 

have long adhered to the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification, or ICD– 

9–CM, system to classify and assign 

codes to health conditions abstracted 

from medical records that MA 

organizations submit to validate audited 

CMS–HCCs. ICD–9–CM standards are 

widely available to the public and will 

be available to MA organizations before 

RADV audits are initiated. We 

anticipate continuing to adhere to these 

standards until such time as new coding 

standards (for example, ICD–10) are 

universally adhered to in the United 

States. We continue to believe that it is 

essential that CMS adhere to a 

universally accepted coding 

classification system that is widely 

available in the public domain when 

conducting RADV audits. 

We disagree that MA organizations 

lose their ability to pursue the 

administrative appeals process 

described at § 422.311 when they 

identify and explain objections to audit 

and appeals procedures. MA 

organizations can fully execute their 

rights to RADV administrative appeals 

as described at § 422.311 by following 

applicable regulations. Those rules 

clearly specify issues that are eligible for 

RADV appeal at § 422.311(c)(2) and 

§ 422.311(c)(3); and issues that are 

ineligible for RADV appeal at 

§ 422.311(c)(3). To the extent an MA 

organization appeals RADV issues that 

are eligible for RADV appeal that 

request for appeal will go forward. To 

the extent an MA organization appeals 

issues that are ineligible for RADV 

appeal; we will not act upon that 

request for RADV appeal. The act of 

identifying and explaining objections to 

audit and appeals procedures will not in 

and of itself nullify an MA 

organization’s request to appeal issues 

that are eligible for RADV appeal. 

Comment: At § 422.311(c)(5)(ii) we 

proposed that MA organizations have 30 

days from the date of CMS’s issuance of 

the RADV audit report to file a written 

request with CMS for RADV appeal. At 

§ 422.311(c)(7)(iii), we proposed that a 

written request for a hearing must be 

filed with the Hearing Officer within 30 

days of the date the MA organization 

receives the reconsideration officer’s 

written reconsideration decision. At 

§ 422.311(c)(8)(i) and (ii), we proposed 

that a request for CMS Administrator 

review must be made in writing within 

30 days of receipt of the hearing officer’s 

decision. Several commenters requested 

that CMS consider providing MA 

organizations additional time at each of 

these steps within the RADV appeals 

process to elect to pursue further 

appeals activity. In most instances, 

these commenters requested CMS 

provide a 60-day response time instead 

of the proposed 30-day response time. 

Response: We agree with the 

commenters’ recommendations and will 

change the proposed response times 

from 30 days to 60 days at 

§ 422.311(c)(5)(ii), § 422.311(c)(7)(iii), 

and § 422.311(c)(8)(i) and (ii). 

Comment: A commenter 

recommended that CMS correct a crossreference error between preamble 

language and regulation text. The error 

pertains to language at 

§ 422.311(c)(6)(iv)(C) which references 

the hearing process in accordance with 

paragraph (c)(8). As stated in the 

preamble, we believe this should be a 

reference to (c)(7), which sets forth the 

rules for requesting a hearing. Paragraph 

(c)(8) relates to review by the CMS 

administrator. 

Response: We agree with commenter’s 

recommended edit and have changed 

the regulation text to specify paragraph 

(c)(7) and not (c)(8). 

Comment: A commenter 

recommended that CMS clarify the 

provision at § 422.311(c)(7)(vii)(B)(2)(i) 

that states that either party be allowed 

to request a live or telephonic hearing, 

still subject to the hearing officer’s 

discretion. The commenter 

recommended that both CMS and the 

MA organization be allowed to request 

a live or telephonic hearing, still subject 

to the hearing officer’s discretion. 

Response: Proposed 

§ 422.311(7)(vii)(B)(2)(i) specifies that 

‘‘the parties may request a live or 

telephonic hearing . . .’’ The term ‘‘the 

parties’’ in this instance means CMS or 

the MA organization, and not either 

CMS or the hearing officer. Therefore, 

either organization that is a party of the 

hearing process may request a live or 

telephonic hearing. This clarification 

notwithstanding, the CMS 

Administrator nevertheless maintains 

the independent discretion to elect to 

review the hearing officer’s decision or 

to decline to review the hearing officer’s 

decision. See § 422.311(7)(vii)(B)(2)(iii). 

Comment: In proposed 

§ 422.311(c)(8)(i) and (ii), CMS requires 

that a request for CMS Administrator— 

level review be filed with the CMS 

Administrator by either CMS or an MA 

organization. A commenter 

recommended that CMS accept adverse 

decisions by its hearing officers and not 

be permitted to appeal them to the CMS 

Administrator. Another requested 

clarification whether an MA 

organization would be given a 

‘‘meaningful opportunity’’ to appeal a 

hearing officer’s decision that is 

favorable to CMS (and not to the MA 

organization) if CMS’ inaction allows 

the hearing officer’s decision to become 

finalized. 

Response: We disagree that only MA 

organizations should be provided an 

opportunity to appeal a hearing officer’s 

adverse determination to the 

Administrator. Doing so would provide 

MA organizations with a level of due 

process not available to CMS, thus 

weighing the appeals process in favor of 

MA organizations. Consequently, we 

believe that both parties should be able 

to appeal a hearing officer’s unfavorable 

decision to the Administrator level of 

review. Regarding the question of 

whether an MA organization would be 

given a meaningful opportunity to 

appeal a hearing officer’s decision that 

is favorable to CMS if CMS’ inaction 

allows the hearing officer’s decision to 

become finalized, we reiterate that a 

decision that is favorable to CMS would 

inherently be unfavorable to the MA 

organization rendering them eligible to 

request review by the CMS 

Administrator so long as other appealsVerDate Mar<15>2010 19:14 May 22, 2014 Jkt 232001 PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 E:\FR\FM\23MYR2.SGM 23MYR2

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pre-requisites (for example, following of 

applicable rules, etc.) have been met. At 

proposed § 422.311(c)(8)(ii) we specify 

that an MA organization that has 

received a hearing officer’s decision 

may request review by the CMS 

Administrator. 

Comment: Several commenters 

objected to CMS’s proposed RADV 

appeals-related documentation 

standards. A commenter requested that 

CMS reconsider its position that the 

medical record that they designate for 

RADV appeal be selected from one of 

the medical records that they originally 

submitted for medical record review 

under RADV audit. Another commenter 

requested that CMS reconsider its 

position that errors resulting from an 

outright failure by an MA organization 

to submit a medical record are not 

eligible for RADV appeal by the MA 

organization. 

Response: Both of these 

recommendations suggest that CMS 

should extend, not have or otherwise 

not adhere to a medical record 

submission deadline when conducting 

RADV audits. It is our position that 

establishing realistic medical record 

submission deadlines is essential for 

conducting RADV audits timely. 

Conducting any type of audit activity 

absent the establishment of realistic 

documentation submission standards 

increases the burden and costs 

associated with completing the audit 

tasks on all parties involved. In fact, in 

response to industry concerns that we 

were not providing sufficient time for 

MA organizations to obtain and submit 

the medical records necessary to 

validate CMS–HCCs, we earlier 

extended the RADV audit medical 

record submission window from 3 

months to 5 months. We believe 5 

months is sufficient time for MA 

organizations to locate and submit 

medical records necessary to validate an 

audited CMS–HCC. Therefore, we 

reaffirm that the medical record that an 

MA organization selects to support its 

appeal of an adverse CMS–HCC 

determination must come from records 

that the MA organizations submitted to 

CMS for audit. 

Comment: Several commenters 

objected to what they contend is a 

burden that RADV audits impose upon 

the physicians and physician practices 

that must produce medical records 

necessary to conduct audits. A providerbased trade association requests that 

MA organizations requesting medical 

records for a RADV audit be required to 

provide documentation on the scope of 

the audit from CMS, as providers 

believe there have been abuses in terms 

of the amount of requests and data 

demands which exceed the actual 

requirements. By requiring MA 

organizations to provide documentation 

of the CMS RADV audit request and the 

specific medical records required, this 

commenter contended that CMS will 

ensure it receives all necessary 

documentation, while also ensuring MA 

organizations are not using the RADV 

audit to unduly burden providers. We 

note that outside of the proposed rule, 

CMS has also received letters arguing 

that the burden associated with RADV 

audits is not limited to the CMS’ audits 

but also extends to internal audit 

activity undertaken by MA 

organizations that mimic the RADV 

audits that we undertake for Medicare 

payment validation. These commenters 

raised concerns that MA organizations 

were misrepresenting their internal 

audit activity as official CMS RADV 

audits. 

Response: In an effort to minimize the 

burden associated with this activity, we 

have developed best practices that we 

encourage MA organizations to employ 

in their efforts to gather medical records 

from providers and hospitals. To the 

extent MA organizations employ these 

practices; it is our belief that the impact 

of RADV audits on providers can be 

minimized. We also understand the 

increasing need for providers to be able 

to distinguish when they are being 

asked for medical records in association 

with an MA organization’s own audit or 

in accordance with an official Medicare 

program RADV audit which is subject to 

statutory requirements. Therefore, we 

issue letters on our letterhead that MA 

organizations must use when requesting 

medical records from providers when 

the request is specifically related to an 

official CMS RADV audit. Providers 

may rely upon these letters as an 

indicator that a given medical record 

request is for CMS’ RADV audit process, 

and providers may request this 

authorizing letter before responding to 

requests by an MA organization. 

f. Proposal To Expand Scope of RADV 

Audits 

Federal regulations at § 422.311(a) 

specify that RADV audits are conducted 

by CMS. We proposed to amend this 

regulation at § 422.311(a) by specifying 

that the Secretary of the Department of 

Health and Human Services, along with 

CMS, may conduct RADV audits 

beginning with the effective date of this 

regulation. We also proposed to amend 

RADV definitions at § 422.2 to specify 

that The Secretary of the Department of 

Health and Human Services, along with 

CMS, may conduct RADV audits. We 

welcomed comment on this proposal. 

We received the following comments 

and our response follows: 

Comment: Many commenters objected 

to proposed § 422.311(a) which specifies 

that the Secretary, along with CMS, 

could conduct RADV audits beginning 

with the date when CMS’ proposed 

RADV appeals rule change became 

effective. Some of these commenters 

also objected to CMS’s proposal to 

amend RADV definitions at § 422.2 to 

specify that the Secretary, along with 

CMS, could conduct RADV audits. 

Another commenter requested 

clarification for the rationale and 

mechanics of allowing HHS to conduct 

RADV audits, citing concerns about 

maintaining consistency in the audit 

process. 

Response: We conduct RADV audits 

to help ensure the integrity of the 

Medicare program though activities 

aimed at determining whether certain 

payments should have been made by 

Medicare. The Secretary (including the 

Office of Inspector General (OIG)— 

pursuant to OIG’s authority under the 

Inspector General Act of 1978, 5 U.S.C. 

App.) clearly has the authority to 

conduct RADV audit activity. Our 

proposing this provision and the related 

change in definition simply clarifies 

what is already an existing statutory 

authority. In response to the 

commenters requested clarification on 

the mechanics of how the Secretary 

would conduct RADV audits, we would 

note that the Secretary or OIG, will 

provide instructions regarding its RADV 

audit at the time the Secretary or OIG 

notifies selected organizations of 

pending RADV audit activity. 

g. Proposal To Clarify the RADV 

Medical Record Review Determination 

Appeal Burden of Proof Standard 

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

specify that for RADV payment error 

calculation appeals, MA organizations 

bear the burden of proving that CMS 

failed to follow its stated RADV 

payment error calculation methodology. 

However, RADV regulations do not 

specify a burden of proof standard for 

the RADV medical record review 

determination appeal process. The 

absence of a clearly-defined burden of 

proof standard for RADV medical record 

review determination appeals creates an 

appeal environment where MA 

organizations, CMS and RADV appellate 

officials are free to interpret and apply 

different burden of proof standards 

when arguing or reviewing appeals 

cases. We proposed to amend the rule 

with new § 422.311(c)(4) which 

specifies that the burden of proof for all 

RADV determinations—be they 

payment error calculation or RADV 


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medical record review determinations— 

is on MA organizations to prove, based 

on a preponderance of the evidence, 

that CMS’s determination was 

erroneous. 

This approach would stand in 

contrast to a burden of proof standard in 

which the MA organization were to 

prove that a valid diagnoses exists on 

the record, and that therefore, the 

audited HCC has been validated. This 

proposed amendment to the rule 

provides the medical record review 

determination process a clear burden of 

proof standard which more aligns with 

the existing RADV payment error 

calculation appeals burden of proof 

standard. Doing so also improves the 

overall RADV appeals procedures by 

providing clarity that leads to greater 

efficiencies in adjudicating RADV 

appeals. We invited comment on this 

proposal. 

We received the following comments 

and our response follows: 

Comment: Several commenters 

objected to proposed § 422.311(c)(4) 

which specifies that the burden of proof 

for all RADV determinations—be they 

payment error calculation or medical 

record review determinations—resides 

with the MA organizations, based on a 

preponderance of the evidence 

standard, that CMS’s RADV audit 

determination(s) was erroneous. These 

commenters recommended revising the 

regulation to place the burden of 

supporting an affirmative finding that a 

payment error has been made, on CMS. 

A commenter also requested that CMS 

more clearly define how a 

‘‘preponderance of the evidence’’ 

burden of proof standard would be 

applied. 

Response: In developing this 

proposal, we reviewed other types of 

burdens of persuasion, such as the 

burden to establish by ‘‘clear and 

convincing’’ evidence that a fact exists 

or does not exist. First, we based our 

decision to propose a preponderance of 

the evidence standard on CMS 

precedence in other appeals processes. 

Second, we determined that it may not 

seem fair to the MA organizations to set 

a high expectation for persuasion, 

especially for those MA organizations 

which have not gone through a RADV 

appeals process before. We determined 

that it would not set as high a standard 

as ‘‘clear and convincing’’ or ‘‘beyond a 

reasonable doubt’’ for these cases at this 

time. Proof that evidence as a whole is 

of a degree which is more probable than 

not is sufficient to overturn a CMS 

determination. 

h. Proposal To Change RADV Audit 

Compliance Date 

Currently, the compliance date for 

RADV audits is the due date when MA 

organizations selected for RADV audit 

must submit medical records to CMS or 

its contractors. We proposed to change 

the compliance date for meeting RADV 

audit requirements for the validation of 

risk adjustment data to the due date 

when MA organizations selected for 

RADV audit must submit medical 

records to the Secretary—and not only 

to CMS. See proposed regulation 

language at § 422.311(b)(2). 

We received no comments on this 

proposal and therefore are finalizing 

this provision without modification. 

B. Improving Payment Accuracy 

4. Recovery Audit Contractor (RAC) 

Determination Appeals (Proposed Part 

422 Subpart Z and Part 423 Subpart Z) 

a. Background 

Section 306 of the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (MMA) 

required the Secretary to conduct a 

demonstration to determine whether 

recovery auditors could be used 

effectively to identify improper 

payments paid under Medicare Part A 

and Part B claims. We conducted the 

demonstration from March 2005 to 

March 2008 in six states. The Recovery 

Audit demonstration established 

recovery auditors as a successful tool in 

the identification and prevention of 

improper Medicare payments. 

In December 2006, the Tax Relief and 

Health Care Act of 2006 (TRHCA) (Pub. 

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

of the TRHCA created a permanent 

Medicare Recovery Audit Contractor 

(RAC) program and added a new 

paragraph (h) to section 1893 of the Act 

that required us to establish a national 

recovery audit program for Medicare 

Part A and Part B. The national 

Medicare Fee-For-Service (FFS) 

Recovery Audit program was 

established on January 1, 2010. 

Section 6411(b) of the Affordable Care 

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

Act by requiring the establishment of 

recovery audit programs for Medicare 

Parts C and D, in addition to the RAC 

program already in place for Medicare A 

and B. 

On December 27, 2010, we published 

a notice in the Federal Register (75 FR 

81278) requesting comments on how to 

best implement the RAC program for 

Parts C and D. Analysis of the comments 

received assisted us with 

implementation of the Part C and D 

RACs. 

In January 2011, we entered into a 

recovery audit contract for Part D. The 

Part D RAC began recouping identified 

overpayments in 2012. On December 7, 

2012, we published a Request for 

Quotation (RFQ) via the General 

Services Administration’s (GSA) eBuy 

seeking quotations on the 

implementation of a Medicare Part C 

RAC. We anticipate the award of a Part 

C RAC contract in FY 2014. 

Given that we began recouping 

overpayments determined by the Part D 

RAC in 2012, and we anticipate 

recouping overpayments in Part C after 

awarding a Part C RAC contract in FY 

2014, it is appropriate to provide a 

codified administrative appeals process 

to allow for plans to challenge the 

overpayment findings generated by the 

RACs just as we provide for challenges 

to overpayment determinations 

elsewhere in the Medicare program. In 

crafting our proposed appeals process 

for Parts C and D RAC determinations, 

we reviewed existing appeals processes 

in other areas, including Parts A and B 

RAC determinations, Part C RADV 

Audits, Part D payments, etc. 

b. Proposed RAC Appeals Process 

After reviewing the agency’s existing 

appeal processes, we determined that 

the general mechanisms set forth in 

§ 422.311 and § 423.350 offered the most 

appropriate models for the Part C and D 

RAC appeals process. 

The Part D RAC currently reviews 

PDE data to identify overpayments and 

underpayments that are paid back to the 

plans. When overpayments are 

identified, Part D plans are notified and 

funds are recovered. If a plan disagrees 

with the calculated overpayment 

amounts or whether the overpayments 

are proper, the plan may appeal the Part 

D RAC’s determination directly to the 

CMS Center for Program Integrity. 

A multilevel independent appeals 

process is an important component of 

the Part C and Part D RAC program as 

it allows plans to appeal determinations 

they contend are made in error. The 

administrative appeals mechanisms in 

this final rule would apply to all Part C 

and Part D RAC determinations. As we 

implement the Part C RAC, we would 

determine if additional changes to the 

proposed appeals process are necessary. 

Based on the foregoing, we proposed 

to add a new subpart Z in Parts 422 and 

423, respectively that would include the 

proposed provisions discussed in this 

section. In accordance with CMS 

direction and criteria, the Part C or Part 

D RAC would conduct an issue specific 

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

independent validation of all Part C and 

Part D RAC-identified improper 


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payments would be conducted. If both 

the Part C or Part D RAC and the 

independent validation determine that 

an improper payment was made, the 

Part C or Part D RAC would send a 

notice of improper payment to the plan. 

If the Part C or Part D RAC determines 

an overpayment was made to the plan, 

it would send a demand letter 

requesting repayment. The demand 

letter would: (1) Explain the reason for 

the overpayment determination; (2) 

explain our recoupment process; and (3) 

contain instructions on how the plan 

may appeal the Part C or Part D RAC’s 

finding. There would be no minimum 

monetary threshold for an appeal at any 

level. 

The following 3-level process sets 

forth our proposed administrative 

appeals process for overpayment 

determinations by the Part C and Part D 

RACs. Please note that the appeals 

process set forth applies to both 

§ 422.2600 and § 423.2600. Because the 

sections largely mirror one another, 

discussions in this preamble would 

apply to both programs, unless 

otherwise noted. (1) Reconsiderations 

(§ 422.2605 and § 423.2605) 

At § 422.2605 and § 423.2605, we 

proposed that if the plan believes the 

part C or Part D RAC did not apply 

CMS’ stated payment methodology 

correctly, a plan may appeal the 

determination to an independent 

reviewer. CMS’ payment methodology 

itself, however, is not subject to appeal. 

That is, while miscalculations and 

factual or data errors may be appealed, 

the plan may not appeal the substantive 

basis for the overpayment 

determination. This is consistent with 

the approach to Part D reconciliation 

appeals at § 423.350(a)(1), which states 

that the Part D plan may appeal ‘‘if CMS 

did not apply its stated payment 

methodology correctly.’’ The Part D 

reconciliation appeals process does not 

permit the underlying payment 

methodology to be appealed. 

Examples of appealable issues would 

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

Part C or Part D RAC determination that 

a plan provider/pharmacy was excluded 

from Medicare when the service was 

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

determination that a payment was a 

duplicate payment; or (3) whether the 

Part C or Part D RAC miscalculated an 

overpayment. 

In paragraph (a), we proposed that the 

plan’s request for reconsideration must 

be filed with the independent reviewer 

within 60 calendar days from the date 

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

we proposed that the request for 

reconsideration must be in writing and 

must provide evidence or reasons or 

both to substantiate the request. In 

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

plan must include with its request all 

supporting documentation, evidence, 

and substantiation it wants the 

independent reviewer to consider. This 

material must be submitted in the 

format requested by CMS. 

Documentation, evidence, or 

substantiation submitted after the filing 

of the reconsideration request would not 

be considered. 

In paragraph (c), we proposed that 

CMS may file a rebuttal to the plan’s 

reconsideration request. The rebuttal 

must be submitted to the independent 

reviewer within 30 calendar days of the 

independent reviewer’s notification to 

CMS that it has received the plan’s 

reconsideration request. We would 

notify and send its rebuttal to the plan 

at the same time it is submitted to the 

independent reviewer. In paragraph (d), 

we proposed that the independent 

reviewer would conduct the 

reconsideration. Specifically, the 

independent reviewer would review the 

notification of improper payment, the 

evidence, and findings upon which it 

was based, and any evidence that the 

plan or CMS submitted in accordance 

with regulations. In paragraph (e), we 

proposed that the independent reviewer 

would inform CMS and the plan of its 

decision in writing. In paragraph (f), we 

proposed that a reconsideration 

decision would be final and binding 

unless the plan requests a hearing in 

accordance with § 422.2605 and 

§ 423.2605. Finally, in paragraph (g), we 

proposed that a plan that is dissatisfied 

with the independent reviewer’s 

reconsideration decision would be 

entitled to a review by a hearing official 

as provided in § 422.2610 and 

§ 423.2610. 

(2) Hearing Official Determinations 

(§ 422.2610 and § 423.2610) 

In proposed § 422.2610 and 

§ 423.2610, we outline the process for 

requesting review of the record by a 

CMS hearing official. In paragraph (a), 

we proposed that a request for review 

must be filed with CMS within 15 days 

from the date of the independent 

reviewer’s issuance of a determination. 

The request must be in writing and must 

provide a basis for the request. In 

paragraph (b), we proposed that the plan 

must submit with its request all 

supporting documentation, evidence, 

and substantiation that it wants to be 

considered. Documentation, evidence, 

or substantiation submitted after the 

filing of the request would not be 

considered. 

In paragraph (c), we proposed that a 

CMS-designated hearing official would 

conduct the review. A hearing would 

not be conducted, either live or via 

telephone, unless the hearing official, in 

his or her sole discretion, chooses such 

a mechanism. In all cases, the hearing 

official’s review would be limited to 

information that: (1) The Part C or Part 

D RAC used in making its 

determinations; (2) the independent 

reviewer used in making its 

determinations; (3) the plan submits 

with its hearing request; and (4) CMS 

submits per paragraph (d). Neither the 

plan nor CMS would be allowed to 

submit new evidence. 

In paragraph (d), we proposed that 

CMS may file a rebuttal to the plan’s 

hearing request. The rebuttal must be 

submitted within 30 calendar days of 

the plan’s submission of its hearing 

request. CMS would send its rebuttal to 

the plan at the same time it is submitted 

to the hearing official. In paragraph (e), 

we proposed that the CMS hearing 

official would decide the case within 60 

days and send a written decision to the 

plan and CMS, explaining the basis for 

the decision. In paragraph (f), we 

proposed that the hearing official’s 

decision would be final and binding, 

unless the decision was reversed or 

modified by the CMS Administrator in 

accordance with § 422.2615 and 

§ 423.2615. 

(3) Administrator Review (§ 422.2615 

and § 423.2615) 

In proposed § 422.2615 and 

§ 423.2615, we discuss the 

Administrator review process. In 

paragraph (a), we proposed that if a plan 

is dissatisfied with the hearing official’s 

decision, the plan may request that the 

CMS Administrator review the decision. 

The request must be filed with the CMS 

Administrator within 15 calendar days 

of the date of the hearing official’s 

decision. The request must provide 

evidence or reasons or both to 

substantiate the request. In paragraph 

(b), we proposed that the plan must 

submit with its request all supporting 

documentation, evidence, and 

substantiation that it wants to be 

considered. Neither the plan nor CMS 

would be allowed to submit new 

evidence. Documentation, evidence or 

substantiation submitted after the filing 

of the request would not be considered. 

In paragraph (c), we proposed that 

after receiving a request for review, the 

Administrator would have the 

discretion to review the hearing 

official’s decision in accordance with 

paragraph (e) or to decline to review 

said decision. 

In paragraph (d), we proposed that the 

Administrator would notify the plan of 

whether he or she intends to review the 


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hearing official’s decision. If the 

Administrator declines to review the 

hearing official’s decision, the hearing 

official’s decision is final and binding. 

If the Administrator agrees to review the 

hearing official’s decision, CMS may file 

a rebuttal statement within 30 days of 

the Administrator’s notice to the plan 

that the request for review has been 

accepted. CMS would send its rebuttal 

statement to the plan at the same time 

it is submitted to the Administrator. In 

paragraph (e), we proposed that if the 

Administrator agrees to review the 

hearing official’s decision, the 

Administrator would determine, based 

upon this decision, the hearing official 

record, and any arguments submitted by 

the plan or CMS in accordance with this 

section, whether the determination 

should be upheld, reversed, or 

modified. The Administrator would 

furnish a written decision to the plan 

and to CMS. The Administrator’s 

decision would be final and binding. 

We received the following comments 

and our responses follow: 

Comment: Several commenters 

expressed concern over the proposed 

15-day timeframe for plan sponsors to 

request review by a Hearing Official and 

also the proposed 15-day timeframe to 

request review by the Administrator. 

Commenters believe that a 15-day 

timeframe for requesting additional 

review may result in unnecessary 

appeals and that 30 days is a more 

appropriate timeframe for plan sponsors 

to evaluate if additional appeals for 

review are appropriate. Commenters 

pointed out that a 30-day timeframe is 

typical among other similar CMS 

appeals processes. 

Response: We agree with commenters 

that a 15-day timeframe for requesting 

additional review by a Hearing Official 

or the Administrator may not provide 

enough time for plan sponsors to make 

an appropriate decision regarding 

additional appeals for review and we 

are finalizing this rule with a 30-day 

timeframe for such requests. This 

timeframe will also make the Parts C 

and D RAC Appeals process more 

structurally similar to existing appeals 

processes such as the RADV Appeals 

process. 

Comment: A commenter requested 

that CMS clarify the distinction between 

‘‘payment methodology’’ and ‘‘findings 

of the applied methodology’’ given that 

CMS proposed that ‘‘payment 

methodology’’ is not subject to appeal. 

This commenter believes that this 

distinction is critical to providing 

meaningful appeal rights to plan 

sponsors. The commenter provided an 

example such as when the RAC 

determines that a payment received by 

the Part D sponsor should have been 

treated as Direct and Indirect 

Remuneration (DIR). 

Response: We agree with the 

commenter that this distinction is 

critical to providing a meaningful 

appeals process to plan sponsors. In the 

proposed rule, we indicated that 

miscalculations and factual or data 

errors may be appealed as ‘‘findings of 

the applied methodology’’. If a plan 

sponsor believes that a Part D RAC 

incorrectly classified a payment as DIR, 

for example, this would be a question of 

fact regarding the findings of the 

applied methodology that the plan 

sponsor is entitled to appeal. 

Comment: A commenter questioned 

why new evidence could not be 

submitted at subsequent levels of appeal 

after the first level reconsideration and 

requested that CMS allow new evidence 

to be submitted at each level of appeal. 

Response: We disagree with the 

commenter. We do not believe it is 

common for evidence relevant to a RAC 

determination to be unavailable to a 

plan sponsor 60 days after a Notice of 

Improper Payment is received by the 

plan sponsor. This is the relevant 

timeframe for requesting a 

reconsideration and submitting relevant 

evidence and documentation to the 

independent reviewer. Also, we do not 

believe it is generally appropriate for 

plan sponsors to withhold relevant 

evidence from the independent reviewer 

at the Reconsideration stage of appeal 

and we want to safeguard the program 

from this type of activity. We have 

modeled our proposed process after 

existing CMS appeals processes that do 

not allow the submission of new 

evidence at higher levels of appeal, such 

as the CMS RADV appeals process. We 

also note that in addition to the plan 

sponsor not being permitted to submit 

new evidence at subsequent levels of 

appeal, we are also precluded from 

submitting new evidence at subsequent 

levels of appeal. 

Comment: A commenter questioned 

why CMS did not define ‘‘designated 

independent reviewer’’ and suggested 

that in order to ensure that the first level 

appeals reviewer is both qualified and 

independent of the RAC, the regulation 

should specify the necessary 

qualifications for this position. The 

commenter further suggested that the 

regulation contain a specific conflict of 

interest provision that would disallow 

any financial or other relationship 

between the RAC and the independent 

reviewer. 

Response: We agree with the 

commenter that the integrity of the 

proposed appeals process is imperative 

and that the designated independent 

reviewer be both qualified and 

independent of the RAC. We decline to 

specify the necessary qualifications for 

this position in the regulation and we 

decline to add a specific conflict of 

interest provision in the regulation. We 

believe that the independence of the 

reviewer will be self-evident as the 

reviewer will not be affiliated with the 

RAC and we have no incentive to select 

independent reviewers who are lacking 

the qualifications to fulfill this task. 

Comment: A commenter requested 

that CMS make clear that the Part D 

sponsor is not required to make any 

payment with respect to a RAC finding 

until the sponsor has exhausted the 

administrative appeals process. The 

commenter also requested that CMS 

clarify that any final and binding 

decision by the Administrator does not 

preclude judicial review. 

Response: We agree that final Part D 

payment adjustments based on RAC 

findings will not be made until all 

administrative appeal rights are 

exhausted. This is our current practice 

under the existing appeals process and 

will continue to be the practice under 

the formal three-level appeals process 

being implemented in this final rule. We 

also agree with the commenter that any 

final and binding decision by the 

Administrator under this rule does not 

preclude judicial review. 

After review of the public comments 

received on these proposals, we are 

finalizing our proposals with one 

modification. In §§ 422.2610(a) and 

422.2615(a) and § 423.2610(a) and 

§ 423.2615(a), we are revising the 

timeframe for MA organizations and 

Part D plan sponsors, respectively, to 

request review by a Hearing Official or 

the Administrator from 15 days to 30 

days. 

C. Implementing Other Technical 

Changes 

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

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

a covered Part D drug as a drug that may 

be dispensed only upon a prescription 

and that is described in paragraph (A)(i), 

(A)(ii), or (A)(iii) of section 1927(k)(2) of 

the Act; or a biological product 

described in clauses (i) through (iii) of 

paragraph (B) of such section, or insulin 

described in paragraph (C) of such 

section and medical supplies associated 

with the injection of insulin (as defined 

in regulations of the Secretary), and 

such term includes a vaccine licensed 

under section 351 of the Public Health 

Service Act (and, for vaccinations 

administered on or after January 1, 

2008, its administration), and any use of 

a covered Part D drug for a medically 


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accepted indication (as defined in 

paragraph (4)). We codified this 

definition in § 423.100. 

a. Combination Products 

The FDA approves and regulates 

many products that include drug-drug 

and drug-device combinations. 

However, for the purposes of the Part D 

program, only combination products 

approved and regulated by the FDA as 

drugs, vaccines, or biologics are 

potentially eligible for Part D coverage, 

in line with the Part D drug definition. 

We proposed to address this issue in 

regulation to codify and clarify policy 

we previously addressed through 

guidance. 

We proposed to add paragraph (vii) 

under the definition of a Part D drug to 

further clarify that only those 

combination products approved and 

regulated in their combination form by 

the FDA as a drug, vaccine, insulin, or 

biologic, as described in paragraph (i), 

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

definition, may be eligible for Part D 

coverage. Our proposal would make it 

clear that the definition of a Part D drug 

excludes products where a combination 

of items are bundled or packaged 

together for convenience (such as one 

box packaging together multiple 

products, each in separate bottles), 

where the bundle has not been 

evaluated and approved by the FDA. 

This proposal would not affect products 

where multiple active ingredients 

(including at least one Part D eligible 

prescription-only ingredient) are 

incorporated into a single pill or single 

injection, as such products would have 

had to go through FDA approval in this 

combined form, meeting the Part D 

requirement. Combination products that 

are FDA approved would then be 

treated like other Part D drugs, eligible 

for coverage only when being used for 

a medically accepted indication and not 

otherwise excluded from Part D 

coverage (for example, because it is 

covered as prescribed and dispensed or 

administered under Medicare Part B). 

This proposed policy is intended to 

clarify that a combination product 

containing at least one constituent 

ingredient that would, if dispensed 

separately, meet the definition of a Part 

D drug is eligible for Part D coverage 

only if it has received FDA approval in 

its combined form. Combination 

products not FDA approved as drugs 

under the Federal Food, Drug, and 

Cosmetics Act would not satisfy section 

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

covered outpatient drugs as those 

approved for safety and effectiveness as 

a prescription drug. Combination 

vaccines not licensed as a vaccine under 

section 351 of the Public Health Service 

Act similarly would not satisfy the 

definition of a Part D drug as defined in 

section 1860D–2(e)(1) of the Act. 

Our proposal would not require that 

all constituent ingredients of a 

combination product be FDA-approved 

prescription drugs. An example would 

be an FDA-approved prescription drug 

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

product combining a Part D drug with 

a medical food, dietary supplement, or 

another Part D drug, where the 

combined product has not received FDA 

approval as a prescription drug, vaccine, 

or biologic would not be eligible for Part 

D coverage. 

Comment: A commenter noted it 

supported the proposed policy 

regarding combination products. 

Response: We appreciate the support 

for our proposal. 

Comment: A commenter requested 

that CMS provide clarification on what 

constitutes a vitamin versus what 

constitutes a dietary supplement. 

Response: In the preamble, we 

provided an example of a Part D drug 

combined with a vitamin that would be 

eligible for coverage, if FDA approved in 

the combined form. We also provided 

an example of a Part D drug combined 

with a dietary supplement that would 

not be eligible for coverage because the 

FDA had not approved that 

combination. We did not mean to imply 

that only approved combinations 

involving vitamins would be eligible, 

nor did we mean to distinguish between 

vitamins as opposed to dietary 

supplements in that paragraph. Our 

intent was to distinguish their eligibility 

for coverage by the fact that one of these 

combined products was approved as a 

combination drug product by the FDA 

and the other was not. 

After consideration of the public 

comments we received, we are 

finalizing this provision with a 

technical modification to improve the 

clarity of the provision. 

b. Barbiturates and Benzodiazepines 

We also proposed to amend the 

definition of a Part D drug to address 

certain exclusions by revising paragraph 

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

in 2006, all uses of barbiturates and 

benzodiazepines were excluded from 

coverage by statute. In 2008, section 175 

of the MIPPA amended section 1860D– 

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

for barbiturates when used in the 

treatment of epilepsy, cancer, or a 

chronic mental health disorder and for 

benzodiazepines when used for any 

medically accepted indication, effective 

January 1, 2013. In 2010, section 2502 

of the Affordable Care Act amended 

section 1927(d) of the Act, to remove 

barbiturates and benzodiazepines from 

the list of drugs subject to exclusion 

from coverage, effective for services 

provided on or after January 1, 2014. 

Thus, this subsequent statutory change 

effectively includes barbiturates as a 

Part D drug for all medically accepted 

indications. The proposed revision to 

§ 423.100 would conform our definition 

of Part D drug to the new statutory 

requirement by removing from 

paragraph (2)(ii) the clause ‘‘barbiturates 

when used to treat epilepsy, cancer, or 

a chronic mental health disorder; and 

benzodiazepines.’’ 

We did not receive any comments 

regarding this proposal. 

We note that an error appeared in the 

corresponding regulations text of the 

January 10, 2014 proposed rule. In the 

regulations text (79 FR 2062), we made 

a typographical error in an amendatory 

instruction and inadvertently did not 

remove the previously noted clause 

from the definition of ‘‘Part D drug’’ at 

§ 423.100(2)(ii). Therefore, we are 

making the required corrections in the 

regulations text of this final rule. 

c. Medical Foods 

We proposed to add paragraph (2)(iii) 

to the list of exclusions from the 

definition of Part D drug to specify that 

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

360ee, are not Part D drugs. Medical 

foods are not described in paragraphs 

A(i), A(ii) or A(iii) of section 1927(k)(2) 

of the Act, and therefore, do not meet 

the statutory definition of a covered Part 

D drug, nor do they fall under other 

categories eligible for Part D coverage 

listed in the Part D drug definition, such 

as biologics, vaccines, and insulin. 

Moreover, as described previously in 

the section on combination products, a 

product with relevant components 

including some or all ingredients 

meeting the definition of a Part D drug 

would not be eligible for Part D coverage 

unless the combined product has also 

been approved by the FDA as a drug, 

vaccine, or biologic. 

The proposed clarifications involving 

coverage for approved combination 

products and non-coverage of medical 

foods would not affect current policies 

surrounding Part D coverage of 

parenteral nutrition. (See the Part D 

manual guidance, Chapter 30.7 

regarding the payment for parenteral 

and enteral nutrition items and 

services.) Extemporaneously 

compounded prescription drug products 

(addressed separately in Chapter 6 of 

the Part D manual and in § 423.120) also 

would not be affected by the proposed 

changes. Part D coverage for 


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extemporaneously compounded 

prescriptions is available for the 

ingredients that independently meet the 

definition of a Part D drug when the 

product needed is one requested by the 

provider to meet a specific medical 

need, where there is no commercially 

available alternative. The convenience 

packaging of unapproved combination 

products for broad distribution does not 

meet the criteria set out specifically for 

extemporaneously compounded 

prescriptions. 

Comment: A commenter that strongly 

disagreed with the proposal stated that 

there are medically indicated nutritional 

supplements such as food thickeners, 

caloric supplements, and probiotics 

which should be covered if prescribed 

by a physician. 

Response: The definition of a 

‘‘covered Part D drug’’ found in section 

1860D–2(e)(1) of the Act does not allow 

us to cover food thickeners, caloric 

supplements, and probiotics even if 

prescribed by a prescription. These 

items do not meet any of the 

requirements of that section. 

After consideration of the public 

comment we received, we are finalizing 

this provision without modification. 

2. Special Part D Access Rules During 

Disasters or Emergencies (§ 423.126) 

Section 1860D–4(b) of the Act 

requires us to ensure beneficiaries have 

access to covered Part D drugs. When a 

disaster strikes or is imminent, 

beneficiaries may find they have trouble 

accessing drugs through normal 

channels or must move to safer 

locations far away from their regular 

pharmacies. In order to ensure that 

beneficiaries do not run out of their 

medications during or as a result of a 

disaster or emergency, we issued 

guidance on December 18, 2009, 

identifying when, in the course of a 

disaster, Part D sponsors would be 

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

edits. We proposed to codify a revised 

version of that policy. Proposed 

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

sponsors to relax RTS edits in the event 

of any imminent or occurring disaster or 

emergency that would hinder an 

enrollee’s access to covered Part D 

drugs. By this we mean that there is an 

anticipated or actual disaster or 

emergency, as evidenced by a 

declaration of a disaster or emergency 

issued by an appropriate federal, state or 

local official, and it is reasonable to 

conclude that such disaster or 

emergency or preparation therefore 

would make it difficult for beneficiaries 

to obtain refills of their medications 

because the disaster or emergency or 

anticipation thereof has affected, or will 

affect, their ability to have timely access 

to their usual pharmacies. For example, 

if federal, state or local authorities issue 

mandatory evacuation orders to 

populations or segments of the 

population in a geographic area, it 

would be reasonable to conclude that 

the evacuation would hinder an LTC 

resident’s ability to get a refill after he 

or she is evacuated from the facility. In 

such an instance, then, Part D sponsors 

with enrollees in the affected area 

would be required to relax RTS edits so 

that the LTC pharmacies could provide 

beneficiaries with refills to take with 

them to the location to which they are 

being evacuated. 

Our proposed requirement would 

apply to one refill for each drug the 

beneficiary is taking for refills sought 

within 30 days of the date the plan 

sponsor began relaxing RTS edits. We 

believe this timeframe would be 

sufficient to ensure that beneficiaries 

who are unable to obtain refills during 

the emergency or disaster will be able to 

do so as soon as they can safely access 

a network pharmacy. We solicited 

comment as to whether 30 days after the 

date of the triggering declaration 

provides an appropriate amount of time 

to ensure that beneficiaries do not run 

out of their medications. In particular, 

we would be interested in learning 

about any situations in which a 

beneficiary affected by an actual or 

impending disaster or emergency would 

be likely to go to a pharmacy more than 

30 days after the triggering declaration 

such that the resumption of RTS edits 

after 30 days would be problematic. We 

also solicited comment as to how it 

would be feasible for Part D sponsors to 

identify pharmacies or beneficiaries 

located in affected areas for which they 

would be required to relax edits and, 

how long it might then take to program 

the necessary changes. 

Although we believed our proposal 

provides a general framework for when 

RTS edits must be relaxed, we solicited 

comment on whether we should impose 

more particular requirements in cases 

where a disaster or emergency could 

result in a voluntary or mandatory 

evacuation of an LTC facility. We are 

also concerned that if a disaster strikes 

the area in which an LTC facility is 

located but not the area in which its 

servicing LTC pharmacy is located, the 

appropriate edits may not be relaxed. 

Accordingly, we solicited comment as 

to whether it would be more feasible to 

establish beneficiary specific edits 

limited to residents of LTC facilities in 

affected areas given that evacuation 

decision-making is rarely a 

straightforward, linear process (for 

example, not just based on the 

declaration of a disaster or emergency), 

but rather, often involves myriad 

facility-specific factors. In particular, we 

solicited comment on the practicality of 

requiring Part D sponsors to relax RTS 

edits for residents of a particular LTC 

facility after that facility decides on its 

own initiative to evacuate through use 

of National Council on Prescription 

Drug Programs (NCPDP) Submission 

Clarification Code (SCC) code 13, which 

conveys that there is an emergency. We 

solicited comment as to whether use of 

this code number, 13, is specific enough 

to signal that sponsors need to loosen 

RTS edits and whether it would be 

practical for LTC facilities to request 

that their LTC pharmacies enter the SCC 

code 13. Lastly, we stated we would be 

interested in any other ideas on how to 

structure workable edits or institute 

manual procedures to best target only 

enrollees who live in LTC facilities 

located in areas affected by a disaster. 

We also stated that we would be 

interested in hearing from any 

commenters who would recommend 

any other triggering events that would 

require Part D sponsors to relax RTS 

edits. In particular, we solicited 

comment as to whether it would be 

feasible to require sponsors to relax 

edits after the issuance by the National 

Weather Service (NWS) of a Hurricane 

or Tropical Storm watch or warning. 

The NWS typically issues watches 36 

hours in advance of adverse weather 

conditions possibly hitting an area, 

while the NWS issues watches 48 hours 

(2 days) in advance of those conditions 

possibly hitting an area. All watches/

warnings are posted on the NWS Web 

site immediately after their issuance. 

We solicited comment as to whether 

watch/warnings would require RTS 

overrides in the whole state, or just 

areas under the watch or warning. We 

also stated that we were interested in 

comments regarding the time generally 

needed to move residents of LTC 

facilities with their medication supplies 

to safety. 

Lastly, we believe that sponsors are in 

the best position to determine how to 

relax the specific RTS edits when 

required under our proposal. However, 

we also wish to ensure that all sponsors 

relax RTS edits in a consistent manner 

in order that enrollees have the same 

critical access to drugs when disasters 

and emergencies are imminent or have 

occurred—regardless of the specific 

plan in which they are enrolled. 

Accordingly, we solicited comments on 

the types of situations that might arise 

and the extent to which sponsors should 

be allowed to exercise some discretion 

in complying with this proposed 

requirement. 


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And, as has been the case under our 

current guidance, Part D sponsors may 

consider extending the implementation 

of the RTS edits but are not required to 

do so. However, if sponsors choose to 

reinstate the RTS edits, they need to 

work closely with enrollees who 

indicate that they are still displaced or 

otherwise impacted by the disaster or 

emergency. 

Comment: Several commenters 

supported CMS’s proposal. A 

commenter commended CMS’s efforts to 

ensuring access to critical and other 

drugs during times of crises. 

Response: We thank the commenters 

for the support. 

Comment: Several commenters were 

concerned that the policy was not clear 

enough to ensure that Part D sponsors 

would apply it consistently. A 

commenter suggested that requiring 

sponsors to ‘‘reasonably conclude’’ 

whether a beneficiary would have 

difficulty obtaining refills would result 

in an inconsistent relaxation of edits 

and suggested instead that CMS provide 

clear direction by exercising its section 

1135 waiver authority. Another 

commenter requested that CMS issue 

HPMS alerts to advise Part D sponsors 

on when to relax edits every time a 

trigger event occurred not only because 

of the subjective nature of the sponsor 

assessment but because it also depended 

on whether a sponsor knew that about 

a declaration. A commenter requested 

that we make it clear sponsors would 

only be obligated to relax edits when 

operationally possible. 

Response: We appreciate the 

suggestions and will consider them in 

the future. 

Comment: A commenter suggested 

that CMS allow beneficiaries enrolled in 

mail order pharmacy programs to use 

local retail or hospital pharmacies 

during emergencies when disasters or 

other emergencies interfere with their 

receipt of drugs through the mail. 

Response: While we appreciate the 

concerns, we did not propose any 

changes with respect to mail order 

during disasters and emergencies and 

we are not adopting this 

recommendation at this time. 

Comment: Several commenters 

responded to our request for comment 

by agreeing that it was appropriate to 

limit the window for relaxed edits to 30 

days after the date of declaration. 

Another commenter suggested that the 

30 day period should start running 

when the emergency actually occurred 

because declarations often do not take 

place until later—in which case the 

proposed timeframe might actually 

exceed 30 days. 

Response: We appreciate the 

comments, and will use them to inform 

possible future rulemaking. 

Comment: Several commenters 

believed use of the NCPDP submission 

code appropriate, while another 

concluded it would not work because it 

was beneficiary specific and not specific 

to LTC facilities. A commenter stated it 

was difficult to operationalize RTS 

overrides by areas and that it was 

typically done by state. Comments on 

the feasibility of relying on NWS 

watches and warnings ranged from 

several commenters who thought it 

inappropriate to ever relax edits on 

account of such warnings because they 

might never occur, to a commenter who 

thought it appropriate to limit such 

application solely to hurricane and 

tropical storm warnings, to another 

commenter who thought both types of 

warnings appropriate triggers and 

suggested that CMS also rely on 

advisories from NWS. However, not all 

commenters discussed warnings and 

watches in the context of LTC facilities 

and, in fact, a commenter questioned 

whether our proposal even applied to 

non-LTC situations. 

Response: We appreciate the 

comments and will use them to inform 

possible future rulemaking. 

Comment: A few commenters 

requested that we broaden our policy by 

allowing sponsors to relax edits more 

often than proposed. A commenter 

suggested we allow sponsors make 

determinations regarding whether to 

relax edits ‘‘well before’’ declarations 

were issued rather than wait for their 

issuance, and other commenters 

identified specific situations that they 

felt should prompt such a determination 

such as local challenges and severe 

weather (such as tornadoes) and 

accompanying difficulties (such as 

power outages extending for multiple 

days). Another commenter requested 

that CMS automatically grant special 

access rules when a state of emergency 

is declared in a state or region thereof 

rather than leave the discretion to apply 

those rules to sponsors. 

In contrast, several commenters 

requested that we revise the regulation 

so that sponsors would be able to relax 

edits less often than proposed. 

Observing that many anticipated snow 

storms that did not actually take place 

last winter, a commenter requested that 

CMS not allow Part D sponsors to relax 

edits for government declarations that 

merely announced the possibility, rather 

than the occurrence, of disasters or 

emergencies. Another commenter 

suggested that we limit application of 

the policy to declarations only from 

federal and state authorities because it 

was difficult for Part D sponsors with 

large service areas to track declarations 

by local authorities. 

Another commenter recommended 

that we retain the current guidance. 

Response: As a result of the comments 

we received on this issue, we are not 

finalizing this proposal. We have 

concluded that we need to carefully 

consider our options and consequently 

have decided to leave in place current 

guidance. There was simply not a 

consensus regarding any aspect of the 

proposed regulation to sufficiently 

inform a decision to finalize. For 

instance, a number of commenters 

expressed opposing views: Some 

requested that we broaden our policy by 

allowing sponsors to relax edits more 

often than proposed, while others 

suggested that we curtail the 

circumstances under which sponsors 

would be permitted to relax edits. Some 

contractors liked the discretionary 

aspects of the proposal and the existing 

guidance while others sought bright line 

indicators—although sometimes just to 

trigger the times when discretion might 

be applied. Several commenters appear 

to have misunderstood our proposal. 

We believe it is important to ensure 

that beneficiaries receive drugs in the 

event of disasters or anticipated 

disasters that might hinder their access 

to such drugs for a period of time. But 

we are concerned that if sponsors do not 

uniformly relax edits under similar 

circumstances, beneficiaries in different 

plans will be treated disparately. We 

hope to prevent situations in which, for 

instance, two beneficiaries living in the 

same area are affected by the same 

disaster, but one beneficiary is able refill 

a prescription that otherwise would 

been subject by RTS edits, while the 

other, who is enrolled in a different 

plan, is not. The variety of comments 

and responses suggests that resolving 

these issues may require more focused 

inquiry. In the meantime, the current 

guidance will remain in place (found in 

Prescription Drug Benefit Manual, 

Chapter 5, Benefits and Beneficiary 

Protections, Section 50.12). We again 

thank all the commenters including 

those that took the time to respond to 

our specific solicitations. We will keep 

their suggestions in mind as we 

carefully consider our options for the 

future, including whether to address our 

regulatory proposals in future 

rulemaking. 

3. Termination of a Contract Under Parts 

C and D (§§ 422.510 and 423.509) 

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

Section 1857(h)(1)(B) and 1860D– 

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


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2We note that although the preamble accurately 

reflected this proposal, the regulation text for 

§ 423.756(a)(2), (79 FR 2070), erroneously did not 

reflect the proposed grammatical correction. 

3 In the preamble to our proposal, we mistakenly 

referred to the language as being deleted by using 

‘‘and’’ instead of ‘‘through’’. 

procedures for termination for both Part 

C and Part D plan sponsors respectively. 

We codified organizations’ appeal rights 

under subpart N of parts 422 and 423. 

Under the Part C § 422.510(d), a 

reference to the appeal rights ‘‘in 

accordance with subpart N’’ is made. 

However, in the corresponding section 

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

the reference to the appeal rights reads 

‘‘in accordance with § 423.642.’’ The 

Part C and Part D references should be 

the same. 

We proposed to align the Part C and 

Part D appeal rights language under 

§§ 422.510(d) and 423.509(d) by 

replacing the inconsistent language at 

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

with subpart N of this part.’’ 

b. Terminology Changes (§§ 422.510 and 

423.509) 

Sections 1857(c) and 1860D– 

12(b)(3)(B) of the Act authorize CMS to 

terminate contracts with MA 

organizations and Part D plan sponsors 

respectively. In the current termination 

regulations at §§ 422.510 and 423.509, 

there is inconsistent use of the terms 

‘‘days’’ and ‘‘calendar days’’. Therefore, 

we proposed to replace the word ‘‘days’’ 

with ‘‘calendar days’’ in both §§ 422.510 

and 423.509. 

c. Technical Change To Align Paragraph 

Headings (§ 422.510(b)(2)) 

Sections 1857(c)(2) and 1860D– 

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

the authority to terminate contracts, for 

Part C and Part D sponsors respectively. 

The Part C paragraph heading at 

§ 422.510(b)(2) incorrectly reads 

‘‘Expedited termination of contract by 

CMS.’’ Therefore, we proposed to revise 

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

to read ‘‘Immediate termination of 

contract by CMS’’. This change will also 

make it consistent with the 

corresponding heading for Part D, in 

§ 423.509(b)(2). 

d. Terminology Change 

(§ 423.509(b)(2)(C)(ii)) 

Sections 1857(c)(2) and 1860D– 

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

the authority to terminate contracts, for 

Part C and Part D sponsors respectively. 

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

incorrectly references ‘‘MA 

organization.’’ This section concerns 

Part D, so the correct reference is ‘‘Part 

D Plan Sponsor’’. Therefore, we 

proposed to change § 423.509(b)(2)(C)(ii) 

to appropriately reference Part D plan 

sponsor; not MA organization, as it 

currently states. 

We received no comments on these 

proposals and are therefore finalizing 

these provisions without modification. 

4. Technical Changes Regarding 

Intermediate Sanctions and Civil Money 

Penalties 

Sections 1857(g) and 1860D– 

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

the authority to impose intermediate 

sanctions (sanctions) and CMPs on Part 

C and Part D sponsors, respectively. 

a. Technical Changes to Intermediate 

Sanctions Notice Receipt Provisions 

(§§ 422.756(a)(2) and 423.756(a)(2)) 

Under §§ 422.756(a)(2) and 

423.756(a)(2) the current language states 

that written requests for rebuttal by the 

MA organization or Part D plan sponsor 

must be received within ‘‘10 calendar 

days from the receipt of notice’’. The 

language in other sections of this 

subpart refers to receipt of a notice as 

‘‘days after receipt of this notice.’’ All 

sections should be consistent. 

Therefore, we proposed to modify the 

language at §§ 422.756(a)(2) and 

423.756(a)(2) to state ‘‘10 calendar days 

after receipt of the notice’’. In addition, 

we proposed to correct grammatical 

errors in current §§ 422.756(a)(2) and 

423.756(a)(2) by revising the language in 

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

to add the word ‘‘the’’ before notice; as 

proposed, the second sentence in each 

paragraph (a)(2) would read ‘‘CMS 

considers receipt of the notice as the 

day after the notice is sent by fax, email, 

or submitted for overnight mail.’’ 

b. Cross-Reference Changes 

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

Under § 422.756(b)(4) and 

§ 423.756(b)(4), we reference the 

procedures MA organizations and Part D 

plan sponsors must follow for 

requesting a hearing to appeal the 

imposition of intermediate sanctions 

and civil money penalties. MA 

organizations and Part D sponsors must 

adhere to hearing procedures 

promulgated within subpart N of the 

regulations, not just §§ 422.660 through 

422.684 and §§ 423.650 through 

423.662, respectively, as currently cited 

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

Therefore, we proposed to modify the 

language at §§ 422.756(b)(4) and 

423.756(b)(4) so that it would read that 

MA organizations and Part D sponsors 

‘‘must follow the right to a hearing 

procedures as specified in subpart N’’. 

c. Technical Changes (§§ 422.756(d) and 

423.756(d)) 

In §§ 422.756(d) and 423.756(d) we 

provide alternatives to sanctions, 

including non-renewal or termination of 

the organizations contract. However, the 

paragraph heading of both §§ 422.756(d) 

and 423.756(d) only refers to 

terminations by CMS. Therefore, we 

proposed to revise the paragraph 

heading to ‘‘Non-renewal or termination 

by CMS’’ in both sections to reflect the 

content specified within the provision. 

Within §§ 422.756(d) and 423.756(d), 

we state that we may decline to 

authorize the renewal of an 

organization’s contract in accordance 

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

organizations and in accordance with 

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

sponsors. However, all of paragraph (b) 

in §§ 422.506 and 423.507 applies to 

§§ 422.756(d) and 423.756(d), 

respectively. Therefore, we proposed to 

change both provisions §§ 422.756(d) 

and 423.756(d) to read ‘‘§ 422.506(b)’’ 

and ‘‘§ 423.507(b)’’, respectively.3

Within §§ 422.756(d) and423.756(d), 

we refer to the ‘‘sanctions described in 

paragraph (c)’’ but in each section, 

paragraph (c) refers to the effective date 

and duration of sanctions, rather than 

sanctions which are actually described 

in §§ 422.750 and 423.750, respectively. 

Therefore, we proposed to change the 

current language at § 422.756(d) to read 

‘‘In addition to or as an alternative to 

the sanctions described in § 422.750 

. . .’’ and change the language at 

§ 423.756(d) to read ‘‘In addition to or 

as an alternative to the sanctions 

described in § 423.750.’’ to correct this 

mistake. 

d. Technical Changes To Align the Civil 

Money Penalty Provision With the 

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

and 423.760(a)(3)) 

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

423.760(a)(3) state, ‘‘the harm which 

resulted or could have resulted from 

conduct of an MA organization’’ and 

‘‘the harm which resulted or could have 

resulted from conduct of a Part D plan 

sponsor’’, respectively. However, this 

language is not consistent with the 

authorizing statutory provisions, nor is 

it consistent with other provisions in 

corresponding sections. 

Therefore, we proposed to align the 

language with that used in paragraphs 

(b)(1) and (2) from that same section in 

both §§ 422.760(a)(3) and 423.760(a)(3). 

The language would be revised to state 

‘‘The adverse effect to enrollees which 

resulted or could have resulted . . .’’ in 

both §§ 422.760(a)(3) and 423.760(a)(3) 

to track the statutory language. 


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e. Technical Changes To Align the Civil 

Money Penalty Hearing Notice Receipt 

Provisions (§§ 422.1020(a)(2), 

423.1020(a)(2), 422.1016(b)(1), and 

423.1016(b)(1)) 

Sections 1857(g)(4) and 1860D– 

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

the authority to impose civil money 

penalties on MA organizations and Part 

D plan sponsors, respectively. Under 

§§ 422.1020(a)(2) and 423.1020(a)(2), we 

discuss our procedures for requesting an 

appeal of a CMP. The current language 

in both sections state written requests 

for appeal ‘‘must be filed within 60 

calendar days from the receipt of notice 

of initial determination.’’ However, this 

language does not align with the appeal 

language in subpart N for requesting a 

hearing. 

Therefore, we proposed to change the 

language at §§ 422.1020(a)(2) and 

§ 423.1020(a)(2) to align it with the 

language within subpart N for appeals. 

Specifically, we proposed to change the 

language in both §§ 422.1020(a)(2) and 

423.1020(a)(2) to read ‘‘after receipt’’ 

instead of ‘‘from the receipt’’, so it reads 

‘‘within 60 calendar days after receipt of 

the notice of initial determination’’. 

In addition, under §§ 422.1016 and 

423.1016, we furnish our procedures for 

filing briefs with the Administrative 

Law Judge or Departmental Appeals 

Board, and opportunity for rebuttal. The 

provisions at §§ 422.1016(b)(1) and 

423.1016(b)(1) state, ‘‘the other party 

will have 20 days from the date of 

mailing or personal service to submit 

any rebuttal statement or additional 

evidence’’. However, this language is 

not consistent with provisions in other 

corresponding sections. Therefore, we 

proposed to revise the language at 

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

state ‘‘The other party will have 20 days 

from the date of mailing or in person 

filing . . .’’ to maintain consistency. 

We received no comments on these 

proposals and therefore are finalizing 

these provisions without modification. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We solicited public comment on each 

of these issues for the following sections 

of this document that contain 

information collection requirements 

(ICRs). 

A. ICRs Related to Improper Prescribing 

Practices and Patterns 

Our additions of §§ 424.530(a)(11), 

424.535(a)(13), and 424.535(a)(14) will 

likely result in an increase in denials, 

revocations, and associated appeals. 

However, we are unable to estimate the 

number of denials, revocations, and 

appeals. We do not have data available 

that can be used to make such 

projections, as each situation would 

have to be carefully reviewed and 

addressed on a case-by-case basis. 

Therefore, we cannot estimate the 

potential concomitant increase in the 

ICR burden, though, as we stated in the 

proposed rule, we believe any such 

increase will be minimal. 

We received no comments on the 

potential ICR burden of 

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

424.535(a)(14). 

B. ICRs Related to Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part 

D Functions (§ 423.504(b)(8)(i) Through 

(iii)) 

Proposed § 423.504(b)(8)(i) through 

(iii) would require that Part D 

organizations seeking a new Medicare 

contract must have arrangements in 

place such that either the applicant or 

a contracted entity that will be 

performing certain key Part D functions 

has at least 1 full benefit year of 

experience providing the function or 

providing the function for another Part 

D plan sponsor. The burden associated 

with this requirement is the time and 

effort put forth by Part D applicants to 

answer questions about such experience 

as part of the Part D application process. 

For entities that hold an existing Part D 

contract, or whose parent or another 

subsidiary of that parent has already 

held a Part D sponsor contract for at 

least a year, it is estimated that it will 

take each Part D applicant for a new 

contract 2 minutes to provide 1 or 2 new 

sentences in the organizational history 

section of the application, and 1 minute 

to respond to yes-no questions about 

experience with the 3 functions for 

which experience is required, for a total 

of 3 minutes per applicant. For entities 

new to Part D, it is estimated that it will 

take each Part D applicant for a new 

contract 2 minutes to provide 1 or 2 new 

sentences in the organizational history 

section of the application, 1 minute to 

respond to yes-no questions about 

experience with the 3 functions for 

which experience is required, and 1 

additional minute to provide at least 1 

contract number of an existing or recent 

Part D sponsor under which the entity 

to provide the key function obtained its 

experience, for a total of 4 minutes. 

Based on the number of Part D 

applications we receive each year, we 

would anticipate no more than 60 Part 

D applications for a new contract, of 

which no more than 15 would be 

entities new to Part D. Thus, the burden 

for the 45 existing entities at 3 minutes 

each, plus the burden for the 15 new 

entities at 4 minutes each, brings the 

total burden hours to approximately 

3.25 hours. If approved, the new 

application questions would be 

addressed under currently approved 

OMB control number (OCN) 0938–0936. 

We received no comments on this 

proposal and therefore are finalizing 

this provision without modification. 

C. ICRs Related to Eligibility of 

Enrollment for Incarcerated Individuals 

(§ § 417.460, 422.734, and 423.44) 

We proposed to amend 

§§ 417.460(b)(2)(i), 417.460(f)(1)(i), 

422.74(d)(4)(i)(A), 422.74(d)(4)(v), and 

423.44(d)(5) to clarify the eligibility 

requirement for residing in the plan’s 

service area related to incarceration for 

the purposes of enrolling into and 

remaining enrolled in MA, Part D, and 

Medicare cost plans. To implement 

these regulations, we would relay data 

to plans regarding an individual’s 

incarceration through the MARx system 

so that the plans would be aware of the 

individual’s eligibility when requesting 

enrollment and notify the plans of loss 

of eligibility for current members. This 

data is already available to us. Thus no 

new data would be collected, and there 

is no new information collection or 

burden on organizations. 

We received no comments on the ICRs 

for this proposal and therefore are 

finalizing the ICR assessment without 

modification. 

D. ICRs Related to Rewards and 

Incentives Program Regulations for Part 

C Enrollees (§ 422.134) 

This requirement does not impose any 

new information collection 


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requirements. This is an existing 

recordkeeping requirement in which 

MA organizations must retain 

information pertaining to any rewards 

and incentives programs in accordance 

with our regulations at 42 CFR 422.118. 

We believe the burden associated with 

this requirement is exempt from the 

PRA under 5 CFR 1320.3(b)(2) as we 

believe this is a usual and customary 

business practice. Furthermore, any 

requests to furnish the information in a 

form and manner we designate are 

unique, that is, non-standardized and 

specific to each individual MA 

organization. 

We received no comments on the ICR 

assessment for this proposal and 

therefore are finalizing this assessment 

without modification. 

E. ICR Related To Recovery Audit 

Contractor Determinations (Part 422, 

Subpart Z and Part 423, Subpart Z) 

The information collection burden 

associated with our proposed 

requirements consists of the submission 

of requests for: (1) Reconsiderations; (2) 

CMS hearing official determinations; 

and (3) CMS Administrator reviews. 

Based on existing Part D appeals data, 

we estimate that plans will file the 

following numbers of requests on an 

annual basis: 

TABLE 4—ESTIMATED NUMBER OF

PART C & D RAC APPEAL REQUESTS

Type of request 

Number of 

requests per 

year 

Reconsideration .................... 104 

CMS Hearing Official ............ 10 

Administrator Review ............ 2 

Total ............................... 116 

The reasons for the decrease in 

requests at higher appeal levels are that: 

(1) The plan may succeed in its appeal 

and thus have no need to appeal to the 

next level; and (2) the plan may simply 

wish to forgo further appeals. We stress 

that the figures in Table 4 are mere 

projections, though, again, they are 

based on the number of Part D appeals 

that have been submitted to date. 

We estimate that it would take a plan 

5 hours to prepare and file an appeal 

request. In terms of cost, it has been our 

experience that most appeals have been 

prepared by high-level officials of the 

plan. According to the most recent wage 

data provided by the Bureau of Labor 

Statistics (BLS) for May 2012, the mean 

hourly wage for the category of ‘‘General 

and Operations Managers’’—which we 

believe, considering the variety of 

officials who have submitted appeals, is 

the most appropriate category—is 

$55.22. With fringe benefits and 

overhead, the per hour rate is $83.35. 

Multiplying this figure by 580 hours (or 

116 submissions × 5 hours) results in a 

projected annual cost burden of 

$48,343, as outlined in Table 5. 

TABLE 5—ESTIMATED ANNUAL REPORTING/RECORDKEEPING BURDEN

Regulation section(s) OMB control 

No. 

Respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

Hourly labor 

cost of 

reporting 

($) 

Total labor 

cost of 

reporting 

($) 

Total 

capital/ 

maintenance costs 

($) 

Total cost 

($) 

§ 422.2605 ................................. N/A 52 52 5 260 83.35 83.35 0 21,671.00 

§ 422.2610 ................................. N/A 5 5 5 25 83.35 83.35 0 2083.75 

§ 422.2615 ................................. N/A 1 1 5 5 83.35 83.35 0 416.75 

§ 423.2605 ................................. N/A 52 52 5 260 83.35 83.35 0 21,671.00 

§ 423.2610 ................................. N/A 5 5 5 25 83.35 83.35 0 2083.75 

§ 423.2615 ................................. N/A 1 1 5 5 83.35 83.35 0 416.75 

Total ................................... N/A 116 116 N/A 580 .................... .................... 0 48,343 

We received no comments on the ICR 

assessment for this proposal and 

therefore are finalizing this assessment 

without modification. 

V. Regulatory Impact Analysis 

A. Statement of Need 

The purpose of this final rule is to 

make revisions to the MA program (Part 

C) and Prescription Drug Benefit 

Program (Part D), implement provisions 

specified in the Affordable Care Act, 

and make other changes to the 

regulations based on our continued 

experience in the administration of the 

Part C and Part D programs. This final 

rule makes changes that are necessary 

to: Clarify various program participation 

requirements and make other 

clarifications and technical changes. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). This 

final rule has been designated an 

‘‘economically significant’’ rule under 

section 3(f)(1) of Executive Order 12866. 

Accordingly, we have prepared a 

regulatory impact analysis that details 

the anticipated effects (costs, savings, 

and expected benefits), and alternatives 

considered. Finally, in accordance with 

the provision of the Executive Order 

12866, this final rule was reviewed by 

the Office of Management and Budget. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to 

$35.5 million in any 1 year). Individuals 


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and states are not included in the 

definition of a small entity. This final 

rule primarily affects the federal 

government, Medicare Advantage plans, 

and Part D Sponsors. 

Part D sponsors and MA plans, 

entities that will be affected by the 

provisions of this rule, are not generally 

considered small business entities. We 

determined that there were very few MA 

plans and Part D sponsors that fell 

below the size thresholds for ‘‘small’’ 

businesses established by the Small 

Business Administration (SBA). 

Currently, the SBA size threshold is 

$35.5 million in total annual receipts for 

health insurers (North American 

Industry Classification System, or 

NAICS, Code 524114) and we have 

confirmed that most Part D sponsors 

have Part D receipts above the $35.5 

million threshold. 

While a very small rural plan could 

fall below the threshold, we do not 

believe that there are more than a 

handful of such plans. A fraction of MA 

organizations and sponsors are 

considered small businesses because of 

their non-profit status. HHS uses as its 

measure of significant economic impact 

on a substantial number of small 

entities, a change in revenue of more 

than 3 to 5 percent. Consequently, we 

do not believe that this threshold will be 

reached by the requirements in this final 

rule because this final rule will have 

minimal impact on small entities. 

Therefore, an analysis for the RFA will 

not be prepared because the Secretary 

has determined that this final rule will 

not have a significant impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare an analysis if a 

rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 604 of the RFA. For purposes of 

section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is 

located outside of a metropolitan 

statistical area and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

the Secretary has determined that this 

final rule will not have a significant 

impact on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year by state, 

local, or tribal governments, in the 

aggregate, or by the private sector of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2014, that 

threshold is approximately $141 

million. This final rule is not expected 

to reach this spending threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule that imposes substantial direct 

requirement costs on state and local 

governments, preempts state law, or 

otherwise has federalism implications. 

Based on CMS Office of the Actuary 

estimates, we do not believe that this 

final rule imposes substantial direct 

requirement costs on state and local 

governments, preempts state law, or 

otherwise has federalism implications. 

Table 10 details the final rule’s 

impacts by entity, including the federal 

government and MA organizations and 

Part D sponsors. We note that the 

estimated savings do not represent net 

social benefits because they consist of 

transfers of value from drug 

manufacturers, pharmacies, and 

incarcerated individuals to the federal 

government, MA organizations, Part D 

sponsors and beneficiaries who 

continue in the programs. 

C. Anticipated Effects 

1. Effects of Closing Cost Contract Plans 

to New Enrollment 

We proposed to ensure that 

organizations do not move enrollees 

from one of their cost or MA plan types 

to another based on financial or some 

other interest, and to revise 

§ 422.503(b)(5) so that an entity seeking 

to contract as an MA organization must 

‘‘not accept new enrollees under a 

section 1876 reasonable cost contract in 

any area in which it seeks to offer an 

MA plan if the MA organization and 

reasonable cost contract are offered by 

the same parent organization.’’ We 

believe this provision will have minimal 

or no financial impact as only a handful 

of parent organizations currently offer 

MA and cost plans in the same service 

area. In addition, as the regulation 

requires that affected cost plans close to 

new enrollment, not that they terminate 

operations, we believe that there will be 

little or no impact to beneficiaries. We 

are finalizing the provision as proposed, 

with the revisions specified in our 

response to public comments earlier in 

this document. 

2. Effects of Authority To Impose 

Intermediate Sanctions and Civil Money 

Penalties 

We proposed to make two changes to 

existing authority for the imposition of 

intermediate sanctions and civil money 

penalties (CMPs). First, under the 

Affordable Care Act, new authority was 

provided to the Secretary, which now 

permits CMS to impose intermediate 

sanctions for additional contract 

violations in the areas of marketing and 

enrollment. This new authority further 

permits CMS to impose intermediate 

sanctions on contracting organizations’ 

that employ or contract with 

organizations, agents, and suppliers 

who commit any of the contract 

violations contained in §§ 422.752 and 

423.752. 

Second, we are clarifying our 

authority to impose CMPs for the 

aforementioned contract violations. 

Current regulations designate the OIG as 

the sole government agency with the 

authority to impose CMPs for the 

contract violations contained in 

§§ 422.752 and/or 423.752. We are 

modifying the language of these 

provisions to clarify that CMS or the 

OIG may impose CMPs for these 

contract violations except the provision 

that relates to the misrepresentation of 

falsification of information furnished to 

CMS, an individual or entity. 

We believe these provisions will not 

result in additional burden to sponsors 

nor will they have a financial impact on 

sponsors. 

3. Effects of Contract Termination 

Notification Requirements and Contract 

Termination Basis 

In current regulations, we are required 

to provide 90-day notice to 

organizations whose contracts are being 

terminated by CMS. The authorizing 

statute at section 1857(h)(1)(B) and 

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

the Secretary must provide reasonable 

notice and opportunity for hearing 

(including the right to appeal the initial 

determination) before terminating a 

contract (except under certain 

circumstances). We proposed to modify 

the notice timeframe from 90 days to 45 

days. We believe these provisions will 

not result in additional burden to 

sponsors nor will it have a financial 

impact on sponsors. 

4. Effects of Reducing the Burden of the 

Compliance Program Training 

Requirements 

We proposed to lessen the burden 

placed on contracting organizations and 

their first tier, downstream and related 

entities (FDRs). Current regulations 

specify that contracting organizations 

are required to provide general 

compliance program training for their 

FDRs upon initial contracting and 

annually thereafter. To lessen this 

burden, we will require all contracting 

organizations to accept a certificate of 

completion of the CMS Standardized 

General Compliance Program Training 

and Education Module as evidence of 


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satisfaction of this program requirement. 

Under this program change, contracting 

organizations will not be permitted (or 

required) to develop or implement 

organization specific training for FDRs. 

We anticipate that this will greatly 

reduce the burden on various sectors of 

the industry including, but not limited 

to, insurance providers, hospitals, 

suppliers, pharmacists and physicians. 

We anticipate that this change will 

actually provide savings for sponsors 

and the FDRs since FDRs will only have 

to take one training as opposed to the 

possible numerous trainings they may 

take under current requirements. 

Additionally, sponsors will save 

because they will not be required to 

provide training materials to each FDR 

with which they contract. 

We believe these provisions will not 

result in additional burden to sponsors 

nor will they have a financial impact on 

sponsors. 

5. Effects of Procedures for Imposing 

Intermediate Sanctions and Civil Money 

Penalties Under Part C and D 

We proposed to make changes to our 

authority for imposing intermediate 

sanctions and for determining when 

such sanctions will be lifted. Sections 

1857(g) and 1860D–12(b)(3)(E) of the 

Act provide the Secretary the ability to 

impose intermediate sanctions on MA 

organizations and PDP sponsors. 

Intermediate sanctions consist of 

suspension of enrollment, suspension of 

marketing and suspension of payment. 

Current regulations governing 

intermediate sanctions are contained in 

subparts O of part 422 and Part 423. 

Sections 422.756 and 423.756 provide 

specific procedures for imposing 

intermediate sanctions and include 

provisions, which address: The duration 

of the sanction; and the standard that 

we apply when determining if a 

sanction should be lifted. As specified 

in the Act and regulations, when 

intermediate sanctions are imposed on 

contracting organizations, the sanctions 

remain in place until the Secretary/CMS 

is satisfied that the basis for the sanction 

determination has been corrected and is 

not likely to recur. 

In the October 2009 proposed rule (74 

FR 54634), we proposed a change that 

included a rule that allows us to require 

a plan under a marketing and/or 

enrollment sanction to market or accept 

enrollments or both for a limited period 

of time. As we explained in that 

proposed rule, the purpose of the test 

period is to assist us in making a 

determination as to whether the 

deficiencies that are the bases for the 

intermediate sanctions have been 

corrected and are not likely to recur. 

The test period provides us with the 

opportunity to observe a sanctioned 

plans ability to enroll or market to 

Medicare beneficiaries prior to lifting 

the sanction. 

We proposed to extend the 

applicability of such a test period to 

include all intermediate sanctions and 

to clarify that while we may require a 

sponsor to receive enrollments during 

this test period, the sponsor will not 

receive any LIS annual or auto 

facilitated reassignments. 

We believe these provisions will not 

result in additional burden to sponsors 

nor will they have a financial impact on 

sponsors. 

6. Effects on Timely Access to Mail 

Order Services 

We proposed to establish a fulfillment 

requirement for mail order 

prescriptions. We believed it was 

necessary and appropriate to establish 

mail order fulfillment requirements 

defining maximum turnaround times 

from when the pharmacy receives the 

prescription order to when it is shipped. 

This would underscore the importance 

of consistent and reliable access to 

medications, protecting beneficiaries 

from inconsistent or unreliable practices 

that may otherwise jeopardize timely 

access to prescriptions. 

Comments persuaded us that we had 

not considered all relevant implications 

of this proposal and we decided not to 

finalize this provision. This in turn 

means that there will be no financial 

impact. 

7. Effects of the Modification of the 

Agent/Broker Compensation 

Requirements 

The current independent agent 

compensation structure (as originally 

published as CMS–4138–IFC2 in 

November 2008) is comprised of a 6- 

year cycle which ended December 31, 

2013. MA organizations and Part D 

sponsors provide an initial 

compensation payment to independent 

agents for new enrollees or unlike plan 

changes (Year 1), and pay a renewal rate 

(equal to 50 percent of the initial year 

compensation) for Years 2 through 6. 

We proposed revising this existing 

compensation structure. MA 

organizations and Part D sponsors will 

have the discretion to decide, on an 

annual basis, whether to pay initial and/ 

or renewal compensation payments to 

their independent agents. For new or 

unlike plan change enrollments, MA 

organizations and Part D sponsors could 

make an initial payment that is no 

greater than the fair market value (FMV) 

amount for such services, set annually 

by CMS in guidance interpreting these 

regulations. For renewals in Year 2 and 

subsequent years, the MA organization 

or Part D sponsor could pay up to 35 

percent of the FMV amount for that 

year. We are finalizing the provision 

with an up to 50 percent payment for 

renewals, instead of the proposed 35 

percent. We also proposed that plans 

not recover compensation when the 

disenrollment is not a result of the 

agent’s behavior. We are not 

implementing the changes with respect 

to the recovery of compensation, but 

will finalize language to keep the 

existing situation, which requires full 

recoupment if a member disenrolls 

within the first 3 months of enrollment 

except in limited circumstances. In 

addition to the agent and broker 

compensation structures, we are setting 

limits on referral fees for agents and 

brokers. 

We do not believe that any of these 

revisions will have a significant increase 

in burden or financial impact. Our 

existing compensation rules require that 

MA organizations and Part D sponsors 

pay on a calendar year basis, not a 

rolling year basis. Our regulations are 

restating existing requirements, to 

ensure consistency. While some MA 

organizations and Part D sponsors may 

have to make significant systems 

changes to ensure compliance, these 

changes are not based on this final rule 

but are required to meet existing 

requirements. MA organizations and 

Part D sponsors will likely have to make 

some systems modifications, such as 

paying between January 1 and December 

31 of each year. However, we do not 

believe these will be of significant 

impact. Although some changes will be 

necessary, we believe the small cost and 

burden of the changes will outweigh the 

cost and burden of the existing multitier approach by simplifying the 

compensation structure for independent 

agent brokers. 

8. Effects of Drug Categories or Classes 

of Clinical Concern 

We are not finalizing the proposed 

criteria or their application to the 

categories and classes of clinical 

concern. 

9. Effects of Medication Therapy 

Management Program (MTMP) under 

Part D 

Current regulations require that Part D 

sponsors must have established a 

Medication Therapy Management 

Program that targets beneficiaries who: 

(1) Have multiple chronic diseases with 

three chronic diseases being the 

maximum number a Part D plan sponsor 

may require for targeted enrollment; (2) 

are taking multiple Part D drugs, with 


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eight Part D drugs being the maximum 

number of drugs a Part D plan sponsor 

may require for targeted enrollment; and 

(3) are likely to incur costs for covered 

Part D drugs in an amount greater than 

or equal to $3000, as increased by an 

annual percentage. We specified in 

guidance that while Part D sponsors are 

permitted to target beneficiaries with 

select chronic diseases, they must 

include at least five of nine core chronic 

diseases in their criteria. These 

provisions have generated wide 

variability in MTM programs. Moreover, 

despite opt-out enrollment, completion 

rates for comprehensive medication 

reviews (CMR) remain very low. 

We proposed to broaden the MTM 

criteria to require that Part D sponsors 

target beneficiaries who have two or 

more chronic diseases and are taking 

two or more covered Part D drugs. We 

proposed to set the annual cost 

threshold at an amount commensurate 

with the annual amount of Part D costs 

incurred by individuals that meet the 

first two criteria regarding multiple 

chronic conditions and use of multiple 

covered Part D drugs. Applying this 

methodology, we would have set the 

cost threshold at $620 which is the 

approximate cost of filling two generic 

prescriptions. We proposed to revise 

this number periodically to reflect more 

up-to-date information regarding the 

drug spending of beneficiaries that have 

two or more chronic conditions and use 

two covered Part D drugs. We estimated 

that 2.5 million beneficiaries are 

currently eligible for MTM services, 13 

percent opt-out of the MTM program, 

and 10 percent of participating 

beneficiaries will receive an annual 

CMR. We also estimated that an average 

CMR requires 35 minutes to complete 

and the average hourly compensation 

(including fringe benefits, overhead, 

general, and administrative expenses 

and fee) of the MTM provider is $120 

(labor cost per CMR is $70), and that it 

costs $0.91 to print and mail a CMR 

summary in CMS’ standardized format. 

Therefore, the estimated total annual 

cost of providing CMRs in all settings is 

$15,422,925 ($70.91/CMR x 217,500 

CMRs). Previously, prior to the 

availability of more precise opt-out and 

CMR rates, we estimated that the total 

burden associated with conducting 

CMRs and delivering the CMR written 

summary in CMS’ standardized format 

was 1,192,429 hours with a cost of 

$143,363,555, including delivery of 

1,896,500 CMRs in all settings under the 

current eligibility criteria, and 

implementation and mailing costs for 

the CMR summary in standardized 

format (see OMB Control No. 0938– 

1154). We do not currently have data or 

estimates to determine the costs 

associated with quarterly targeted 

medication reviews and follow-up 

interventions, if necessary. 

In the proposed rule, we estimated 

that 18 million beneficiaries would be 

eligible for MTM services based on the 

proposed criteria. Using the same optout, CMR, and expense rates as before, 

the estimated total annual cost of 

providing CMRs in all settings would be 

$111,045,060 ($70.91/CMR × 1,566,000 

CMRs). This was below previous 

estimates. 

We were unable to definitively score 

the proposed changes to the eligibility 

criteria because the portion of the 

administrative costs attributable to 

MTM is not a specific line item that can 

be easily extracted from the bid. 

Although the increase in the number of 

CMRs was estimated to cost $111 

million, we cited evidence in the 

proposed rule that showed that MTM 

services may generate overall medical 

savings. 

We are not finalizing these proposals. 

Therefore, the increased burden 

estimates associated with increasing 

eligibility from 2.5 million beneficiaries 

to 18 million beneficiaries are removed. 

10. Effects of Requirement for 

Applicants or Their Contracted First 

Tier, Downstream, or Related Entities to 

Have Experience in the Part D Program 

Providing Key Part D Functions 

Based on CMS’ authority at section 

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

additional contract terms, not 

inconsistent with the Part C and D 

statutes, that are necessary and 

appropriate to administer the Part D 

program, we proposed at 

§ 423.504(b)(8)(i) through (iii) that Part 

D organizations seeking a new Medicare 

contract must have arrangements in 

place such that either the applicant, or 

a contracted entity that will be 

performing certain key Part D functions, 

has at least one full benefit year of 

experience providing key Part D 

functions. This proposal ensures that 

applicants take advantage of the 

abundant Part D industry expertise and 

experience that exists today in the 

development of their Part D program 

operations, rather than relying on 

technical assistance from CMS and 

having their inexperience place 

beneficiaries’ access to prescription 

drugs at risk. We believe this provision 

will have a very minor savings impact 

on the federal budget, based on savings 

of time and effort (staff time and 

contracted auditor time and resources) 

that the government would spend on 

overseeing the disproportionate level of 

problems experienced by organizations 

operating Part D plans without prior 

Part D experience. For each 

inexperienced organization allowed into 

the program in the absence of this 

proposal, we would anticipate a savings 

of 1,000 staff hours at an average rate of 

$50 per hour, for a total of $50,000 in 

employee time, plus an additional 

savings of $200,000 in contractor dollars 

to conduct an emergency audit, for a 

total of $250,000. In the absence of this 

proposal, we would anticipate no more 

than two such inexperienced entities 

beginning Part D operations per year, for 

a total annual savings of $500,000. 

The burden associated with this 

proposal on industry will be minimal, 

with a total estimated number of labor 

hours of 3.25 to submit information 

during the Part D application process. 

Using the same average hourly salary as 

previously mentioned, the total cost to 

Part D applicants will be $162.50. We 

do not believe there are any nonadministrative costs to industry 

associated with this proposal, as Part D 

applicants are already required to have 

arrangements in place to perform the 

key Part D functions discussed in our 

proposal. 

The main anticipated effect from this 

proposal is ensuring that only entities 

with some experience with Part D in 

critically important functional areas are 

permitted to offer new Part D contracts, 

thus strengthening the Part D program 

by enhancing the qualification criteria. 

We considered the alternate proposal of 

requiring the prior Part D experience to 

be tied to specific quality outcomes. We 

rejected the alternative because we 

believed it added unnecessary 

complexity and burden to the process, 

and we believe a simple experience 

requirement is currently sufficient. 

11. Effects of Requirement for 

Applicants for Stand Alone Part D Plan 

Sponsor Contracts To Be Actively 

Engaged in the Business of the 

Administration of Health Insurance 

Benefits 

Based on CMS’ authority at section 

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

additional contract terms, not 

inconsistent with the Part C and D 

statutes, that are necessary and 

appropriate to administer the Part D 

program, we proposed at 

§ 423.504(b)(9)(i) through (ii) that 

organizations seeking to offer a standalone prescription drug plans (PDP) for 

the first time must have either: (i) 

Actively offered health insurance or 

health benefits coverage for 2 

continuous years immediately prior to 

submitting an application, or (ii) 

actively managed prescription drug 


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benefits for a company offering health 

insurance or health benefits coverage for 

5 continuous years immediately prior to 

submitting an application. This 

proposal will ensure that applicants 

have substantial experience in 

administering health insurance benefits 

prior to becoming a Part D sponsor. We 

believe this provision will have a very 

minor savings impact on the federal 

budget, based on savings of time and 

effort (staff time and contracted auditor 

time and resources) that the government 

would spend on overseeing the 

disproportionate level of problems 

experienced by organizations operating 

stand-alone PDPs without prior health 

insurance administration experience. 

For each inexperienced organization not 

allowed into the program in the absence 

of this proposal, we would anticipate a 

savings of 1,000 staff hours at an average 

rate of $50 per hour, for a total of 

$50,000 in employee time, plus an 

additional savings of $200,000 in 

contractor dollars to conduct an 

emergency audit, for a total of $250,000. 

In the absence of this proposal, we 

would anticipate no more than two such 

inexperienced entities beginning Part D 

operations per year, for a total annual 

savings of $500,000. 

The burden associated with this 

proposal on industry will be minimal, 

with a total estimated number of labor 

hours of 3.25 to submit information 

during the Part D application process. 

Using the same average hourly salary as 

previously mentioned, the total cost to 

Part D applicants will be $162.50. We 

do not believe there are any nonadministrative costs to industry 

associated with this proposal, as Part D 

applicants are already required to be 

licensed in at least one state prior to 

offering Part D benefits. 

The main anticipated effect from this 

proposal is ensuring that only entities 

with some experience administering 

health insurance benefits will be 

permitted to offer new stand-alone 

PDPs, thus strengthening the Part D 

program by enhancing the qualification 

criteria. CMS considered the alternate 

proposal of requiring the prior health 

insurance benefit administration 

experience to be tied to specific quality 

outcomes. We rejected this alternative 

because we believed it added 

unnecessary complexity and burden to 

the process, and we believe a simple 

experience requirement is currently 

sufficient. 

12. Effects of Limit Parent Organizations 

To One Prescription Drug Plan (PDP) 

Sponsor Contract per PDP Region 

This provision has no quantifiable 

impact because the savings that might 

be achieved likely will be offset by the 

burden necessary with the consolidation 

activities and legal work necessary to 

implement these changes. 

13. Effects of Limit Stand-Alone 

Prescription Drug Plan Sponsors To 

Offering No More Than Two Plans per 

PDP Region 

As this proposal is not being 

finalized, there will be no financial 

impact. 

14. Effects of Applicable Cost-Sharing 

for Transition Supplies: Transition 

Process Under Part D 

We proposed to add at 

§ 423.120(b)(3)(vi) a paragraph clarifying 

that a Part D sponsor must charge cost 

sharing as follows: (a) For low-income 

subsidy (LIS) enrollees, a sponsor must 

not charge higher cost sharing for 

transition supplies than the statutory 

maximum copayment amounts; (b) for 

non-LIS enrollees, a sponsor must 

charge: (1) The same cost sharing for 

non-formulary Part D drugs provided 

during the transition that would apply 

for non-formulary drugs approved under 

a coverage exception; and (2) the same 

cost sharing for formulary drugs subject 

to utilization management edits 

provided (for example, prior 

authorization and step therapy) during 

the transition that would apply once the 

utilization management criteria are met. 

Because increases or decreases in cost 

sharing during transition supplies under 

the various circumstances are likely to 

offset one another, we anticipate that 

there will be no cost impact on plans. 

15. Effects of Interpreting the NonInterference Provision 

We proposed to formally interpret 

section 1860D–11(i) of the Act, referred 

to as the non-interference provision. 

This provision prohibits CMS from 

interfering with the negotiations 

between drug manufacturers and 

pharmacies and Part D sponsors, and 

requiring a particular formulary or 

instituting a price structure for the 

reimbursement of covered part D drugs. 

We have not formally interpreted the 

statutory provision, which has resulted 

in different stakeholders having 

different views about its scope. 

Consequently, we believe that a clear 

interpretation of the statutory provision 

will remove ambiguity. As we are not 

finalizing this proposal, there is no 

change in regulatory impact. 

16. Effects of Pharmacy Price 

Concessions in Negotiated Prices 

We proposed to revise the definition 

of negotiated prices at § 423.100 to 

specify that all pharmacy price 

concessions must be included in the 

negotiated price. This will preclude the 

differential reporting that is taking place 

today in the realm of reporting drug 

costs and price concessions from 

network pharmacies. The rule will 

change current policy that permits 

sponsors to elect which price 

concessions from pharmacies to report 

outside the PDE. This practice currently 

allows price concessions to be applied 

disproportionately to costs that plans 

are liable for, and thus may shift more 

low-income cost-sharing subsidy and 

reinsurance costs to the government, as 

well as to manufacturers in the 

calculation of coverage gap discount 

payments. A sponsor that engages in 

this practice can reduce its bid and 

achieve a competitive advantage relative 

to a sponsor that applies all price 

concessions to the negotiated price—a 

competitive advantage stemming not 

from greater efficiency, but from a 

technical difference in how costs are 

reported to CMS. Meanwhile, the higher 

the negotiated price, the higher 

beneficiary coinsurance will be, the 

faster the beneficiary is moved through 

the benefit, and the higher government 

subsidies for low-income cost sharing 

(LICS) and reinsurance subsidies will 

be. Our proposal will impose consistent 

treatment of drug price reporting. 

Our proposal to require all price 

concessions to be reflected in the 

negotiated price received by the 

pharmacy would not necessarily change 

the level of price concessions received 

from network pharmacies, but will 

impose a single consistent price 

concession reporting process on all Part 

D sponsors. Therefore, it is not clear that 

any contractual arrangements between a 

subset of sponsors and network 

pharmacies will require renegotiation, 

since only the form of the price 

concession, rather than its level, will be 

affected by this proposal. 

In addition, when price concessions 

from pharmacies are in forms other than 

the negotiated price, the degree of price 

concession that the pharmacy has 

agreed is no longer reflected in the 

negotiated prices available at point of 

sale or reflected on the Medicare 

Prescription Drug Plan Finder (Plan 

Finder) tool. Thus, the true price of 

drugs at individual pharmacies is no 

longer transparent to the market. 

Consequently, consumers cannot 

efficiently minimize both their costs 

(cost sharing) and costs to the taxpayers 

by seeking and finding the lowest-cost 

drug/pharmacy combination. This 

proposal will ensure that the actual 

level of price competition is transparent 

to the Part D market. 


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Under current policy, a sponsor may 

be able to offer a lower bid than its 

competitors and may achieve a 

competitive advantage stemming not 

from greater efficiency, but from a 

technical difference in how costs are 

reported to CMS. When this happens, 

such differential reporting may result in 

bids that are no longer comparable, and 

in premiums that are no longer valid 

indicators of relative plan efficiency. 

The changes we proposed will lend to 

Part D bids being more accurately 

comparable and premiums more 

accurately reflecting relative plan 

efficiencies. The lowest premiums will 

more accurately direct beneficiaries to 

the plans that have the lowest costs to 

the program overall. 

We do not collect sufficient detail in 

price concession data reported to CMS 

to quantify the impact of this change to 

standardize price concession reporting. 

We believe that only certain sponsors 

are engaging in the differential reporting 

practices today, and these sponsors face 

close competition from larger 

competitors that do not appear to be 

employing the same strategies. 

Consequently, if the sponsors 

employing these tactics increase their 

bids to maintain margin, they could 

likely risk losing market share. 

Therefore, we would expect these 

sponsors to carefully consider the risk of 

losing market share before raising their 

bids in response to our regulatory 

proposals, particularly those that are 

committed to the LIS market. 

We are finalizing the provision with 

modification to require that negotiated 

prices be inclusive of all price 

concessions from network pharmacies 

except those contingent price 

concessions that cannot reasonably be 

determined at the point of sale. We 

expect that the effect of regulation to 

require consistent and transparent 

pricing will not only provide higherquality information to the Part D market, 

but also promote increased price 

competition among network 

pharmacies. This expectation is 

consistent with economic theory that 

holds that increased price transparency 

will increase price competition. We 

believe pharmacies will support 

including the full price concession in 

the point-of-sale price, and fully 

transparent price competition will align 

beneficiary and taxpayer interests in 

minimizing costs. Our rule will not 

change the level of price concessions 

and therefore costs under the program 

as a whole, but will apply consistency 

to how these are reported to CMS and 

treated in bidding and payment 

processes. Therefore, we anticipate that 

there will be no cost impact on plans. 

17. Effects of Preferred Cost Sharing 

We proposed to require that sponsors 

may offer reduced copayments or 

coinsurance for covered Part D drugs 

obtained through a subset of network 

pharmacies, as long as such preferred 

cost sharing is in return for consistently 

lower negotiated prices relative to the 

same drugs when obtained in the rest of 

the pharmacy network. Therefore, we 

intended to clarify that preferred cost 

sharing should consistently be aligned 

with and accurately signal lower costs. 

We proposed that by ‘‘consistently 

lower’’ we meant that sponsors must 

offer better prices on all drugs in return 

for the lower cost sharing. In practice 

we believe this would mean that 

whatever pricing standard is used to 

reimburse drugs purchased from 

network pharmacies in general, a lower 

pricing standard must be applied to 

drugs offered at the preferred level of 

cost sharing. Our analysis shows that 

most sponsors offering preferred cost 

sharing are currently achieving these 

levels of savings, and therefore our 

proposed policy would only require a 

change in price concession levels or 

reporting for a limited number of 

sponsors. Our proposal would apply a 

consistent expectation across all 

sponsors to compete on the same basis 

on negotiated prices, including in 

related-party pharmacy operations. 

After considering the public 

comments, we are not finalizing the 

proposal to revise § 423.120(a)(9) to 

require consistently lower negotiated 

prices for Part D drugs obtained through 

pharmacies offering preferred cost 

sharing than the same Part D drugs 

when obtained in the rest of the 

pharmacy. 

This proposal will not be finalized 

and we will not engage in further 

rulemaking without re-proposing in a 

future rule, eliminating any estimated 

costs for implementation at this time. 

18. Effects of Maximum Allowable Cost 

Pricing Standard 

We proposed a change to the 

regulations at §§ 423.501, 423.505(b)(21) 

and 423.505(i)(3)(vii) governing the 

disclosure and updating of prescription 

drug pricing standards used by Part D 

sponsors to reimburse network 

pharmacies to make clear that drug 

pricing based on maximum allowable 

cost (MAC) is subject to these 

regulations. In the final rule at 76 FR 

54600 (September 1, 2011), we did not 

estimate a regulatory impact for Part D 

sponsors to comply with the 

prescription drug pricing standard 

requirements, and we do not believe 

these changes would result in any 

regulatory impact. Read together, the 

new provisions in §§ 423.501, 

423.505(b)(21), and 423.505(i)(3)(viii) 

require sponsors, when applicable, to 

include provisions in network 

pharmacy contracts, to address the 

disclosure of MAC prices themselves to 

be updated to the applicable pharmacies 

in advance of their use for 

reimbursement of claims, because the 

source of the MAC prices is not publicly 

available. Addressing prices that will be 

paid to a subcontractor is an activity 

undertaken in the normal course of 

business. Also, whether to use MAC 

prices is voluntary for Part D sponsors. 

Finally, sponsors must have procedures, 

systems, and technology currently in 

place to use these prices for 

reimbursement of pharmacy claims in 

the normal course of business. These 

systems will have to be adapted to also 

disclose the prices to pharmacies in 

advance of their use, which we believe 

will involve negligible effort for Part D 

sponsors’ existing employees and/or 

subcontractors. Therefore, we estimate 

the impact of these provisions to be 

negligible. 

19. Effects of Any Willing Pharmacy 

Standard Terms & Conditions 

Proposed changes to § 423.120(a)(8) 

would require Part D sponsors to offer 

the contract terms and conditions (T&C) 

for every level of cost sharing offered 

under a Part D plan (preferred, standard 

retail, mail order, etc.) to any willing 

pharmacy. We expected the burden for 

Part D sponsors to amend contracts, 

where necessary, to offer every level of 

cost sharing would be negligible. 

Sponsors already must meet any willing 

pharmacy requirements for retail and 

mail order cost sharing. In 2013, nearly 

half of non-employer group Part D 

sponsors were designing and marketing 

plans with T&C for preferred cost 

sharing levels. For these sponsors, the 

only change associated with this 

proposal would have been to ensure that 

now T&C for all levels of cost sharing, 

including preferred, are being offered (if 

they are not already) to all interested 

pharmacies. For the other half of Part D 

sponsors not currently offering preferred 

cost sharing options, this proposal did 

not require them to start. 

Part D sponsors already negotiate 

contracts regularly with pharmacies in 

order to meet network access 

requirements. We estimated that for 

sponsors who currently offer benefit 

packages with a preferred cost sharing 

level (approximately 500 plans), an 

estimated new burden of 5,000 legal 

hours (500 plans x 10 hours) for revising 

contract language and 2,000 hours (500 

plans x 4 hours) for additional contract 


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support staff time negotiating with and 

assisting pharmacies contracting at the 

preferred cost sharing level for the first 

time. The estimated cost associated with 

this change is the estimated number of 

hours multiplied by available average 

hourly rates ($62.93 per hour for a 

lawyer, $32.22 per hour for a financial 

specialist [May 2012 wage data from 

Bureau of Labor Statistics Occupational 

Employment Statistics]), plus 48 percent 

for fringe benefits and overhead, which 

equals a first year cost of $561,053.20. 

Once a sponsor had revised contracts to 

meet the proposed requirement, no 

extraordinary additional expenses were 

anticipated for subsequent years. For a 

plan not currently offering preferred 

cost sharing levels, it was expected that 

preferred cost sharing terms and 

conditions would be offered to any 

willing pharmacy if they ever decide to 

offer them. 

Any new burden on pharmacies was 

similarly expected to be negligible, as 

they are already reviewing and 

implementing terms from contracts, 

often annually. Pharmacies were not 

being directed to choose one set of T&C 

over another, but rather would have 

gained the option to review and 

implement terms for preferred cost 

sharing, if they so choose to accept the 

applicable negotiated pricing terms. 

Beneficiaries were expected to benefit 

from an increased number of 

pharmacies offering preferred cost 

sharing levels. 

We received the following comments 

and our response follows: 

Comment: Some commenters believed 

that there would be additional costs not 

reflected in the impact analysis, 

resulting from the proposed change to 

pharmacy contracts. One commenter 

believed that the estimates provided for 

revising contract language and 

especially negotiating new contracts 

with pharmacies were too low, and a 

few commenters stated that it would 

take more than 6 months to implement 

these changes. 

Response: We appreciate the 

comments. However, this proposal will 

not be finalized and we will not engage 

in further rulemaking without reproposing in a future rule, eliminating 

any estimated costs for implementation 

at this time. 

20. Effects of Enrollment Requirements 

for Prescribers of Part D Covered Drugs 

We proposed that prescribers must 

either be enrolled in Medicare or have 

validly opted-out in order for their 

prescriptions to be covered under the 

Part D program. This will entail Part D 

sponsors or their designated PBMs 

checking the prescriber’s individual NPI 

to determine whether the prescriber is 

enrolled or in a valid opt-out status in 

Medicare before paying a claim from a 

network pharmacy or a request for 

reimbursement from a beneficiary. 

When we promulgated the NPI PDE 

requirement in a final regulation 

published on April 12, 2012 (77 FR 

22072), we estimated the impact for 

PBMs and plan organizations to contract 

for or build prescriber ID validation 

services. Thus, while § 423.120(c)(6) 

entails a new requirement for Part D 

sponsors, we do not believe it will have 

any new or additional impact because 

Part D sponsors must already have 

prescriber validation capabilities to 

meet the NPI PDE requirement. 

We presume that if a beneficiary’s 

prescriber is not enrolled or does not 

enroll in Medicare, the beneficiary will 

find a new prescriber who is enrolled, 

rather than go without needed 

medications. Solely from this 

perspective, we do not project any 

savings from this provision. We believe 

there will be savings, though, from the 

fact that certain unqualified individuals 

will no longer be able to prescribe Part 

D drugs, for they will be unable to meet 

Medicare requirements. However, we 

are unable to estimate a particular 

savings figure because we do not know 

how many such individuals there will 

be. 

21. Effects of Improper Prescribing 

Practices and Patterns 

Our additions of §§ 424.530(a)(11) and 

424.535(a)(13) will likely result in 

additional application denials, 

revocations, and associated appeals. The 

DEA Web site found at http://

www.deadiversion.usdoj.gov/crim_

admin_actions/index.html contains a 

list of physicians, eligible professionals, 

and pharmacies that have had their DEA 

Certificate of Registration suspended or 

revoked since 2000. However, we do not 

have data available to assist us in 

calculating the possible costs to 

physicians and eligible professionals in 

lost potential billings or the possible 

costs or savings to the government 

arising from these two provisions. 

Section 424.535(a)(14) will result in 

an increase in the total number of 

revocations and associated appeals. Yet 

we are unable to project the number of 

providers and suppliers that will be 

revoked under § 424.535(a)(14) because 

we do not have data available that can 

be used to make such an estimate. Thus, 

we cannot project: (1) The potential 

costs to providers and suppliers in lost 

billings, or (2) the possible costs or 

savings to the government arising from 

this provision. 

We received the following comments 

regarding the impact of proposed 

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

424.535(a)(14). 

Comment: A commenter disagreed 

with CMS’ determination that 

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

424.535(a)(14) do not have federalism 

implications, contending that these 

provisions usurp the role of state 

licensing boards. The commenter 

recommended that CMS explain: (1) the 

federalism impacts of these provisions; 

and (2) the steps that it took to consult 

with state and local officials early in the 

process of developing the proposed rule. 

Response: We maintain that these 

three provisions have no federalism 

implications, for CMS is not usurping 

the authority of states to take action 

against a physician or practitioner with 

respect to his or her licensure status. 

Moreover, as stated earlier, CMS (not 

state licensing boards) is the agency 

responsible for administering the 

Medicare program. Therefore, we must 

have the ability to independently take 

steps to protect Medicare beneficiaries 

and the Trust Funds. 

Comment: One commenter stated that 

CMS did not furnish reasonable 

alternatives to the establishment of 

§ 424.535(a)(14). 

Response: In light of the very serious 

problem of abusive prescribing, as 

outlined by the OIG, CMS did not 

believe there were any reasonable 

alternatives to its proposal. Prompt 

action was necessary to protect 

Medicare beneficiaries and the Trust 

Funds. 

No modifications are being made to 

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

424.535(a)(14) as a result of these 

comments. 

22. Effects of Broadening the Release of 

Part D Data 

We proposed to revise our regulations 

governing the release of Part D data to 

expand the release of unencrypted 

prescriber, plan, and pharmacy 

identifiers contained in prescription 

drug event (PDE) records to external 

entities, as well as to make other 

changes to our policies regarding the 

use and release of PDE data, as currently 

codified at § 423.505 (f)(3), (l) and (m). 

These proposals would not impose any 

new costs on any stakeholders. 

Medicare Part D plan sponsors are 

already required to, and do, submit the 

information that may be used or 

released in accordance with these 

proposals. Therefore, although we are 

finalizing the revisions to the Part D 

data regulations as proposed, we are not 

including any assessment of this final 


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policy for the regulatory impact 

statement. 

23. Effects of Establish Authority To 

Directly Request Information From First 

Tier, Downstream, and Related Entities 

Pursuant to sections 1857(d)(2) and 

1860D 12(b)(3)(c) of the Act, we are now 

proposing to specify at 

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

that HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records directly from any first tier, 

downstream, or related entity. This 

regulatory change would not grant CMS 

(or the MEDIC, the contractor that 

conducts fraud investigations on our 

behalf) any oversight authority beyond 

what we already possess. 

In enabling CMS or its designee(s) to 

directly request information from a first 

tier, downstream, or related entity, we 

would provide a more efficient avenue 

to obtain necessary information. This 

proposal would change the current 

policy, which requires going through 

the plan sponsor in order to collect 

information. Our proposal would save 

money and time for CMS as well as the 

plan sponsor. 

We anticipate that adoption of this 

proposal would result in cost savings for 

plan sponsors. Under the current 

regulatory structure, assuming that the 

MEDIC (the CMS contractor that 

typically would put forth such requests) 

puts forth 1000 requests per year to Part 

C and D sponsors, each request requires 

the plan sponsor to spend 5 hours 

developing and making the request for 

information from its first tier, 

downstream, or related entity, and 

communicating the results of that 

request back to CMS. At a rate of $55 

per hour, plan sponsors may save a total 

of $275,000 in employee costs in the 

aggregate. Additionally, we believe this 

provision will have a very minor 

savings impact on the federal budget. 

This calculation is based on the savings 

in time and effort the MEDIC will 

experience (2 hours per information 

request) resulting from the ability to 

request information directly from first 

tier, downstream, and related entities. 

The 2 hours reflects the time the MEDIC 

currently spends resolving ambiguities 

in the request or in the information 

provided in response that are created by 

the presence of an intermediary (that is, 

the plan sponsor) between the requestor 

(MEDIC) and the custodian of the 

information (that is; first tier, 

downstream, or related entity). 

In addition to cost savings, this 

regulatory change will reduce the 

administrative burden on plan sponsors. 

The plan sponsor will no longer have to 

act as the gatekeeper between the 

MEDIC and its first tier, downstream, or 

related entity. 

We do not anticipate any additional 

burden relating to the requirement that 

we alert the plan sponsor that we are 

contacting its first tier, downstream or 

related entity since CMS will be merely 

copying the plan sponsor on the request. 

24. Effects of Eligibility of Enrollment 

for Incarcerated Individuals 

We proposed to amend 

§§ 417.460(b)(2)(i), 417.460(f)(1)(i), 

422.2, 422.74(d)(4)(i)(A), 422.74(d)(4)(v), 

423.4, and 423.44(d)(5) to clarify the 

eligibility requirement for residing in 

the plan’s service area related to 

incarceration for the purposes of 

enrolling into and remaining enrolled in 

MA, Part D, and Medicare cost plans. 

We expect the impact of this change to 

be primarily that of savings to the MA 

and Part D programs. In CY 2012, there 

were close to 50 million Medicare 

beneficiaries. Approximately 34.4 

million of those beneficiaries were 

enrolled in MA plans, PDPs, or cost 

plans which accounts for 68.8 percent of 

the total Medicare population. In the 

same year, an average of 21,329 

Medicare beneficiaries enrolled in MA 

or Part D plans were identified by SSA 

as being incarcerated. 

We issued guidance to MA plans and 

PDPs to investigate each individual’s 

incarcerated status and disenroll the 

individual for no longer residing in the 

plan’s service area if the plan confirmed 

incarcerated status. If the MA plan or 

PDP could not confirm the incarcerated 

status, those plans were to continue to 

investigate each instance of 

incarceration for up to 6 or 12 months 

and disenroll the individuals at the end 

of that time following 

§§ 422.74(b)(4)(ii)/423.44(b)(5)(ii) if they 

could not verify the incarcerated status 

sooner. As a result, plans received 

capitated payments when individuals 

were ineligible to receive payment of 

Medicare benefits. Section 1876 Cost 

contracts had no such instructions to 

disenroll individuals who are 

incarcerated. By directing MA plans, 

PDPs, and cost plans to disenroll 

incarcerated individuals at the time of 

notification from CMS, we intend to 

prevent improper payment for these 

individuals to MA plans, PDPs, and cost 

plans for periods when they were 

ineligible to receive such services. 

Based on the data for capitation 

payments for MA and PDPs, as well as 

the prepayments provided to cost plans, 

we estimate that the disenrollment of 

incarcerated individuals would result in 

a decrease in improper payments made 

by CMS and would result in a cost 

savings of $73 million in 2015. 

We estimate, based on the numbers 

mentioned previously, that this change 

could save the MA program 

approximately $27 million in 2015, 

increasing to $103 million in 2024, and 

could save the Part D program (includes 

the Part D portion of MA PD plans) 

approximately $46 million in 2015, 

increasing to $153 million in 2024. As 

cost plans are paid based on the 

reasonable costs of delivering Medicare 

covered services to their enrollees, 

instead of the fixed capitation amounts 

paid to MA and PDPs, we believe the 

impact to cost plans associated with this 

provision to be negligible. 


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TABLE 6—PROJECTED

NUMBER OF INDIVIDUALS

DISENROLLED

DUE

T

O INCARCERATION AND

ESTIMATED

SAVINGS TO THE

MEDICARE

ADVANTAGE

PROGRAM BY

PROVISION FOR

CALENDAR

YEARS 2015 THROUGH 2024 

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 

Totals 

(CYs 2015– 

2024) 

Projected number of incarcerated 

beneficiaries enrolled in MA plans 6,280 7,750 9,221 10,691 12,162 13,234 13,969 14,704 15,440 16,175 ........................

Projected federal impact due to incarcerated individuals disenrolled 

6 months sooner ........................... ¥$27 million ¥$35 million ¥$43 million ¥$52 million ¥$62 million ¥$70 million ¥$78 million ¥$86 million ¥$94 million ¥$103 million ¥$650 million 

Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA. 

TABLE 7—PROJECTED

NUMBER OF INDIVIDUALS

DISENROLLED

DUE

T

O INCARCERATION AND

ESTIMATED

SAVINGS TO THE

MEDICARE

PART D PROGRAM BY

PROVISION FOR

CALENDAR

YEARS 2015 THROUGH 2024 

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 

Totals 

(CYs 2015– 

2024) 

Projected number of incarcerated beneficiaries enrolled in 

MA plans ............................... 52,605 60,076 67,547 75,018 82,489 87,937 91,672 95,408 99,144 102,879 ........................

Projected federal impact due to 

incarcerated individuals disenrolled 6 months sooner ¥$46 million ¥$55 million ¥$65 million ¥$77 million ¥$90 million ¥$102 million ¥$113 million ¥$125 million ¥$138 million ¥$153 million ¥$965 million 

Note: Estimates reflect scoring by the CMS, Office of the Actuary, and 2012 incarceration data provided by the SSA. 


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We received the following comment: 

Comment: One commenter requested 

additional information on the 

assumptions used to calculate the 

savings related to our proposal to 

disenroll incarcerated individuals, such 

as the percentage of membership of 

incarcerated beneficiaries. 

Response: The following chart 

provides the assumptions used to 

calculate the savings previously 

outlined: 

TABLE 8—ASSUMPTIONS FOR ELIGIBILITY OF ENROLLMENT FOR INCARCERATED INDIVIDUALS

2015 2024 

Expected MAPD Enrollment due to be disenrolled (A) ........................................................................................... 6,280 16,175 

Average Part C per Capita Costs ($) (B)* ............................................................................................................... 10,024 14,845 

Average Length of Stay (years) (C) ........................................................................................................................ 0.5 0.5 

Gross Savings ($millions) (A x B x C) .................................................................................................................... 31.5 120.1 

Savings from Part A Trust Fund ($millions) (D) ...................................................................................................... 14.7 53.1 

Savings from Part B Trust Fund ($millions) (E) ...................................................................................................... 16.8 67.0 

Savings Net of Member Premium ($millions) (D + 0.75 x E) ................................................................................. 27.3 103.3 

* Note: Part C per Capita Costs are derived from the 2014 mid-session review. 

After consideration of the public 

comment received, we are finalizing the 

policy without modification. 

25. Rewards and Incentives Program 

Regulations for Part C Enrollees 

(§ 422.134) 

This provision permits plans to 

provide limited rewards and incentives 

to enrollees who participate in activities 

that focus on promoting improved 

health, preventing injuries and illness, 

and promoting efficient use of health 

care resources. While there would be a 

cost associated with providing rewards 

and incentives there may be savings as 

a result of healthier behavior. Because 

plans are not required to provide 

rewards and incentives and CMS does 

not have a means of calculating the 

costs and benefits of rewards/incentives 

at this time, we are not providing an 

impact analysis for this provision. 

26. Effects of Improving Payment 

Accuracy: Reporting Overpayments, 

RADV Appeals, and LIS Cost Sharing 

This section proposes only technical 

changes for overpayment reporting, 

RADV appeals, and CMS’ treatment of 

diagnoses for additional payment after 

the final risk adjustment data 

submission deadline. These technical 

changes will not result in costs to MA 

organizations and Part D sponsors, nor 

do we expect the impact of these 

technical changes to result in savings. 

27. Effects of Part C and Part D RAC 

Determination Appeals 

In section III.B.4. of this final rule, to 

establish an administrative appeals 

process for overpayment determinations 

by the Part C and Part D RACs. The cost 

associated with these provisions 

involves the preparation and 

submission of appeal requests by plans. 

We estimate this cost to be $48,343 as 

summarized in the following Table 9. 

TABLE 9—SUMMARY OF RAC DETERMINATION APPEALS

Provision description Costs 

(in $millions) Benefits 

Submission of MA plans’ first level Request for Reconsideration.0.02167 Administrative appeal rights and accuracy in recovery demands. 

Submission of Part D plans’ first level Request for Reconsideration.0.02167 Administrative appeal rights and accuracy in recovery demands. 

Submission of MA plans’ second level Request for Review .... 0.00208 Administrative appeal rights and accuracy in recovery demands. 

Submission of Part D plans’ second level Request for Review 0.00208 Administrative appeal rights and accuracy in recovery demands. 

Submission of MA plans’ third level Request for Review by 

the CMS Administrator.

0.0004 Administrative appeal rights and accuracy in recovery demands. 

Submission of Part D plans’ third level Request for Review by 

the CMS Administrator.

0.0004 Administrative appeal rights and accuracy in recovery demands. 

28. Effects of the Technical Changes to 

the Definition of Part D Drug 

There is no impact associated with 

this provision as it is a technical change 

to regulation language. 

29. Effects of Special Part D Access 

Rules During Disasters 

In § 423.126(a), we proposed to codify 

requirements similar to existing 

guidance that pertains to relaxing 

‘‘refill-too-soon’’ (RTS) edits to permit 

one refill in the event of any imminent 

or occurring disaster or emergency that 

would hinder an enrollee’s access to 

covered Part D drugs. 

The proposed changes would not 

have resulted in any additional costs. 

For one, we currently expect through 

guidance that sponsors will relax edits 

after the issuance of certain federal 

declarations. We also do not anticipate 

that providing a general framework for 

when sponsors must relax RTS edits 

would necessitate an increase in 

resources because it is currently not 

uncommon for Part D sponsors to relax 

edits for particular individuals under 

certain circumstances. 

The provisions would have required 

Part D sponsors to relax ‘‘refill-toosoon’’ (RTS) edits when, as evidenced 

by a declaration of a disaster or 

emergency or its imminence by an 

appropriate federal, state, or local 

official, it is reasonable to conclude that 

an occurring or imminent disaster or 

emergency would make it difficult for 

beneficiaries to obtain refills of their 

medications. Relaxing RTS edits in 

these circumstances would benefit 

beneficiaries by better ensuring that 

they do not run out of their medications 


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when a disaster is imminent or after it 

strikes. 

As this proposal is not being 

finalized, there will be no financial 

impact. 

30. Effects of Termination of a Contract 

Under Parts C and D 

The changes to §§ 422.510 and 

423.509 are minor technical and 

clarifying revisions and include making 

language consistent, aligning titles and 

correcting references. These technical 

and clarifying changes will not result in 

additional burden to MA organizations 

or Part D sponsors nor will they have a 

financial impact on such entities. 

31. Effects of Technical Changes 

Regarding Intermediate Sanctions and 

Civil Money Penalties 

The changes to §§ 422.756 and 

423.756 are minor technical and 

clarifying revisions and include making 

language consistent, aligning titles and 

correcting references. These technical 

and clarifying changes will not result in 

additional burden to MA organizations 

or Part D sponsors nor will they have a 

financial impact on such entities. 

TABLE 10—ESTIMATED 1 AGGREGATE SAVINGS TO THE HEALTH CARE SECTOR BY PROVISION FOR CALENDAR YEARS

2015 THROUGH 2024 

Provision Regulation section(s) 

Calendar year 

($ in millions) 

Total 

($ in millions) 

CYs 2015– 

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2019 

 Federal 

Government 

(Medicare) 

Impacts 

A.24. Eligibility of Enrollment for Incarcerated Individuals 2.§ 417.460(b)(2)(i), 

§ 417.460(f)(1)(i), 

§ 422.2, 

§ 422.74(d)(4)(i)(A), 

§ 422.74(d)(4)(v), 

§ 423.4, and 

§ 423.44(d)(5).

¥73 ¥90 ¥108 ¥129 ¥152 ¥172 ¥191 ¥211 ¥232 ¥256 ¥1615 

Total ($ in millions) ...... ................................. ¥73 ¥90 ¥108 ¥129 ¥152 ¥172 ¥191 ¥211 ¥232 ¥256 ¥1615 

Notes: 

1 Estimates of savings reflect scoring by the CMS, Office of the Actuary. Also, only provisions that are being finalized with savings or cost exceeding $1,000,000 

are listed. Other provisions either have no expected savings or cost, have a savings or cost that is difficult to score, have a cost that is expected to be counterbalanced by savings, have a savings or cost under $1,000,000, or, were not finalized. 2 Supporting 2012 incarceration data provided by the SSA. 

D. Expected Benefits 

1. Drug Categories or Classes of Clinical 

Concerns (§ 423.102(b)(2)(v)) 

Proposed codification of the 

categories or classes of clinical concern 

provisions would assist PBMs in 

applying the Part D plans and managing 

the Part D sponsor’s benefit packages 

more efficiently. 

However, we are not codifying the 

propose criteria or applying them to the 

drug categories and classes of clinical 

concern. Thus, this does not apply. 

2. Medication Therapy Management 

Program Under Part D 

We anticipated that many more 

beneficiaries would have access to MTM 

services and believed that the proposed 

changes would have simplified the 

MTM criteria and minimized 

beneficiary confusion when choosing or 

transitioning between plans. Moreover, 

we believed the proposed changes 

would have reduced disparity and 

allowed more beneficiaries with drug 

therapy problems to receive MTM 

services. 

However, we are not finalizing these 

proposals, so these expected benefits are 

no longer applicable. 

E. Alternatives Considered 

1. Modifying the Agent/Broker 

Compensation Requirements 

In the preamble of this final rule, we 

outlined a few alternative compensation 

schedules. Ultimately we determined 

that the best approach was a two-tiered 

payment schedule, incorporating an 

initial payment and a continuous 

renewal payment. 

2. Any Willing Pharmacy Standard 

Terms & Conditions 

We considered the alternative of 

maintaining the current process where 

Part D plans can limit pharmacy access 

to preferred cost-sharing contracts. We 

have observed this in practice to be 

limiting market competition, creating a 

barrier to entry, and further, not 

producing the savings to the program 

that were initially anticipated. 

We are not finalizing this proposal. 

3. Pharmacy Price Concessions in 

Negotiated Prices 

We did not identify any alternatives 

that both maintained consistent 

reporting among sponsors leading to 

comparable bids, and maximized price 

competition. 

4. Special Part D Access Rules During 

Disasters or Emergencies 

We did not consider alternatives to 

requiring Part D sponsors to lift ‘‘refill 

too soon’’ (RTS) edits in the event of any 

imminent or occurring disaster or 

emergency that would hinder an 

enrollee’s access to covered Part D 

drugs. It is important for the well-being 

and health of beneficiaries that they be 

able to obtain their medications after 

disasters strike. Furthermore, given the 

complexities of moving large numbers 

of people with different health 

conditions to safer locations, we also 

believed we had no alternative but to 

require Part D sponsors to relax RTS 

edits when a disaster is imminent and 

access to services might be jeopardized 

rather than waiting for it to strike. 

We are not finalizing this proposal. 

5. Drug Categories or Classes of Clinical 

Concerns 

The critical policy decision was how 

broadly or narrowly to establish criteria 

and exceptions to those criteria 

pursuant to Affordable Care Act 

provisions. Broad criteria might easily 

encompass many classes of drugs and 

significantly increase costs to the Part D 

program by eliminating the need for 

manufacturers to aggressively rebate 

their products for formulary placement. 


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Only narrow criteria would limit the 

number of categories or classes of 

clinical concern receiving additional 

protections under the Affordable Care 

Act. Similarly, broad exceptions further 

limit the products within those 

categories or classes of clinical concern 

that would receive additional protection 

under the Affordable Care Act. 

However, we are not codifying the 

propose criteria or applying them to the 

drug categories and classes of clinical 

concern. Thus, this does not apply. 

6. Medication Therapy Management 

Program (MTM) Under Part D 

In the proposed rule, we considered 

leaving the maximum number of 

multiple chronic diseases a plan may 

require for targeted enrollment at three, 

but believed this threshold significantly 

limited the number of beneficiaries who 

qualified for MTM services and was 

inconsistent with literature concerning 

the relative risk of the combination of 

multiple disease states and the need for 

access to MTM interventions. Similarly, 

we considered other numbers of Part D 

drugs less than eight, but again believed 

these thresholds decreased access to 

MTM services, contributed to 

beneficiary confusion, and led to racial 

disparities in access to MTM services. 

We also considered other cost 

thresholds less than $3,000, for 

example, $900 or $1,200, which roughly 

coincide with cost thresholds achieved 

by taking 3 or 4 generic drugs, and we 

solicited stakeholder comment on where 

the threshold might alternatively be set. 

7. Requirement for Applicants or Their 

Contracted First Tier, Downstream, or 

Related Entities To Have Experience in 

the Part D Program Providing Key Part 

D Functions 

Based on our authority at section 

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

additional contract terms that are 

necessary and appropriate to administer 

the Part D program, we proposed 

changes at § 423.504(b)(8)(i) through (iii) 

that Part D organizations seeking a new 

Medicare contract must have 

arrangements in place such that either 

the applicant or a contracted entity that 

will be performing certain key Part D 

functions has at least 1 full benefit year 

of experience providing the function for 

another Part D plan sponsor. This 

proposal ensures that applicants take 

advantage of the abundant Part D 

industry expertise and experience that 

exists today in the development of their 

Part D program operations, rather than 

relying on technical assistance from 

CMS and having their inexperience 

place beneficiaries’ access to 

prescription drugs at risk. We believe 

this provision will have a very minor 

savings impact on the federal budget, 

based on savings of time and effort (staff 

time and contracted auditor time and 

resources) that the government would 

spend on overseeing the 

disproportionate level of problems 

experienced by organizations operating 

Part D plans without prior Part D 

experience. For each inexperienced 

organization allowed into the program 

in the absence of this proposal, we 

would anticipate a savings of 1,000 staff 

hours at an average rate of $50 per hour, 

for a total of $50,000 in employee time, 

plus an additional savings of $200,000 

in contractor dollars to conduct an 

emergency audit, for a total of $250,000. 

In the absence of this proposal, we 

would anticipate no more than two such 

inexperienced entities beginning Part D 

operations per year, for a total annual 

savings of $500,000. 

The burden associated with this 

proposal on industry would be minimal, 

with a total estimated number of labor 

hours of 3.25 to submit information 

during the Part D application process. 

Using the same average hourly salary as 

previously mentioned, the total cost to 

Part D applicants would be $162.50. We 

do not believe there are any nonadministrative costs to industry 

associated with this proposal, as Part D 

applicants are already required to have 

arrangements in place to perform the 

key Part D functions discussed in our 

proposal. 

The main anticipated effect from this 

proposal is ensuring that only entities 

with some experience with Part D in 

critically important functional areas are 

permitted to offer new Part D contracts, 

thus strengthening the Part D program 

by enhancing the qualification criteria. 

We considered the alternate proposal of 

requiring the prior Part D experience to 

be tied to specific quality outcomes. We 

rejected the alternative because we 

believed it added unnecessary 

complexity and burden to the process, 

and we believe a simple experience 

requirement is currently sufficient. 

F. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at http://

www.whitehouse.gov/omb/circulars/

a0004/a-4/pdf), in Table 11 we have 

prepared an accounting statement 

showing the transfers associated with 

the provisions of this final rule for CYs 

2015 through 2019. 

TABLE 11—ACCOUNTING STATEMENT: CLASSIFICATIONS OF ESTIMATED TRANSFERS FROM CALENDAR YEARS 2015 TO

2024 

[$ in millions] 

Category 

Transfers 

Discount rate 

Period covered 

7% 3% 

Annualized Monetized Transfers (Federal) ............................................................... ¥$150.27 ¥156.27 CYs 2015–2024 

Whom to Whom? ....................................................................................................... Federal Government to MA Organizations and Part D 

Sponsors 

Note: Monetized figures in 2014 Dollars. 

G. Conclusion 

We estimate the savings to the federal 

government from implementing these 

provisions will be $73 million in CY 

2015. The savings will increase 

annually. In CY 2024, the federal 

government savings from implementing 

these provisions will be $256 million. 

For the entire estimated period, CYs 

2015 through 2024, we estimate the total 

federal government (Medicare) impact 

to result in savings of approximately 

$1.615 billion. We note that these 

savings do not represent net social 

benefits because they consist of transfers 


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of value from drug manufacturers, 

pharmacies, and incarcerated 

individuals to the federal government, 

MA organizations, Part D sponsors and 

beneficiaries who continue in the 

programs 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs—health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs—health, Medicare, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, Reporting and recordkeeping 

requirements. 

42 CFR Part 424 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

Chapter IV as follows: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATION, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 1. The authority citation for part 417 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

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

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

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

■ 2. Section 417.1 is amended by 

revising the definition of ‘‘service area’’ 

to read as follows: 

§ 417.1 Definitions. 

* * * * * 

Service area means a geographic area, 

defined through zip codes, census 

tracts, or other geographic 

measurements, that is the area, as 

determined by CMS, within which the 

HMO furnishes basic and supplemental 

health services and makes them 

available and accessible to all its 

enrollees in accordance with 

§ 417.106(b). Facilities in which 

individuals are incarcerated are not 

included in the geographic service area 

of an HMO or CMP plan. 

* * * * * 

■ 3. Section 417.460 is amended by 

revising paragraph (b)(2)(i) and adding 

paragraphs (f)(1)(i)(A) through (C) to 

read as follows: 

§ 417.460 Disenrollment of beneficiaries 

by an HMO or CMP. 

* * * * * 

(b) * * * 

(2) * * * 

(i) Moves out of the HMO’s or CMP’s 

geographic service area or is 

incarcerated. 

* * * * * 

(f) * * * 

(1) * * * 

(i) * * * 

(A) Incarceration. The HMO or CMP 

must disenroll an individual if the HMO 

or CMP establishes, on the basis of 

evidence acceptable to CMS, that the 

individual is incarcerated and does not 

reside in the geographic service area of 

the HMO or CMP per § 417.1. 

(B) Notification by CMS of 

incarceration. When CMS notifies an 

HMO or CMP of disenrollment due to 

the individual being incarcerated and 

not residing in the geographic service 

area of the HMO or CMP, as per § 417.1, 

the disenrollment is effective the first of 

the month following the start of 

incarceration, unless otherwise 

specified by CMS. 

(C) Exception. The exception in 

paragraph (f)(2) of this section does not 

apply to individuals who are 

incarcerated. 

* * * * * 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 4. 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). 

■ 5. Section 422.2 is amended by— 

■ A. Revising the definition of 

‘‘Attestation process’’. 

■ B. Removing the definition of ‘‘Initial 

Validation Contractor (IVC)’’. 

■ C. Adding the definition of ‘‘RADV 

appeal process’’. 

■ D. Removing the definition of ‘‘RADV 

payment error calculation appeal 

process’’. 

■ E. Revising the definition of ‘‘Risk 

adjustment data validation (RADV) 

audit’’. 

■ F. Removing the definition of ‘‘The 

one best medical record for the purposes 

of Medicare Advantage Risk Adjustment 

Validation (RADV)’’. 

The revisions and additions read as 

follows: 

§ 422.2 Definitions. 

* * * * * 

Attestation process means a CMSdeveloped RADV audit-related process 

that is part of the medical record review 

process that enables MA organizations 

undergoing RADV audit to submit CMSgenerated attestations for eligible 

medical records with missing or 

illegible signatures or credentials. The 

purpose of the CMS-generated 

attestations is to cure signature and 

credential issues. CMS-generated 

attestations do not provide an 

opportunity for a provider or supplier to 

replace a medical record or for a 

provider or supplier to attest that a 

beneficiary has the medical condition 

* * * * * 

RADV appeal process means an 

administrative process that enables MA 

organizations that have undergone 

RADV audit to appeal the Secretary’s 

medical record review determinations 

and the Secretary’s calculation of an MA 

organization’s RADV payment error. 

* * * * * 

Risk adjustment data validation 

(RADV) audit means a payment audit of 

a MA organization administered by the 

Secretary that ensures the integrity and 

accuracy of risk adjustment payment 

data. 

* * * * * 

■ 6. Section 422.74 is amended by 

revising paragraph (d)(4)(i)(A) and 

adding paragraph (d)(4)(v) to read as 

follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(4) * * * 

(i) * * * 

(A) Out of the MA plan’s service area 

or is incarcerated as specified in 

paragraph (d)(4)(v) of this section. 

* * * * * 

(v) Incarceration. (A) The MA 

organization must disenroll an 

individual if the MA organization 

establishes, on the basis of evidence 

acceptable to CMS, that the individual 

is incarcerated and does not reside in 

the service area of the MA plan as 

specified at § 422.2 or when notified of 

the incarceration by CMS as specified in 

paragraph (d)(4)(v)(B) of this section. 


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(B) Notification by CMS of 

incarceration. When CMS notifies the 

MA organization of the disenrollment 

due to the individual being incarcerated 

and not residing in the service area of 

the MA plan as per § 422.2, 

disenrollment is effective the first of the 

month following the start of 

incarceration, unless otherwise 

specified by CMS. 

* * * * * 

■ 7. Section 422.134 is added to subpart 

C to read as follows: 

§ 422.134 Reward and incentive programs. 

(a) General rule. The MA organization 

may create one or more programs 

consistent with the standards of this 

section that provide rewards and 

incentives to enrollees in connection 

with participation in activities that 

focus on promoting improved health, 

preventing injuries and illness, and 

promoting efficient use of health care 

resources. 

(b) Non-discrimination. Reward and 

incentive programs— 

(1) Must not discriminate against 

enrollees based on race, national origin, 

including limited English proficiency, 

gender, disability, chronic disease, 

whether a person resides or receives 

services in an institutional setting, 

frailty, health status or other prohibited 

basis; 

(2) Must be designed so that all 

enrollees are able to earn rewards; and 

(3) Are subject to sanctions at 

§ 422.752(a)(4). 

(c) Requirements. (1) A rewards and 

incentives program must — 

(i) Be offered in connection with the 

entire service or activity; 

(ii) Be offered to all eligible members 

without discrimination; 

(iii) Have a monetary cap as 

determined by CMS of a value that may 

be expected to impact enrollee behavior 

but not exceed the value of the health 

related service or activity itself; and 

(iv) Otherwise comply with all 

relevant fraud and abuse laws, 

including, when applicable, the antikickback statute and civil money 

penalty prohibiting inducements to 

beneficiaries. 

(2) Reward and incentive items may 

not— 

(i) Be offered in the form of cash or 

other monetary rebates; or 

(ii) Be used to target potential 

enrollees. 

(3) The MA organization must make 

information available to CMS upon 

request about the form and manner of 

any rewards and incentives programs it 

offers and any evaluations of the 

effectiveness of such programs. 

§ 422.300 [Amended] 

■ 8. Section 422.300 is amended by 

removing the phrase ‘‘and 1858 of the 

Act.’’ and adding in its place the phrase 

‘‘1858, and 1128J(d) of the Act.’’ 

■ 9. Section 422.310 is amended by 

revising paragraph (g)(2) and adding 

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

§ 422.310 Risk adjustment data. 

* * * * * 

(g) * * * 

(2) After the payment year is 

completed, CMS recalculates the risk 

factors for affected individuals to 

determine if adjustments to payments 

are necessary. 

(i) Prior to calculation of final risk 

factors for a payment year, CMS allows 

a reconciliation process to account for 

risk adjustment data submitted after the 

March deadline until the final risk 

adjustment data submission deadline in 

the year following the payment year. 

(ii) After the final risk adjustment data 

submission deadline, which is January 

31 of the year following the payment 

year, an MA organization can submit 

data to correct overpayments but cannot 

submit diagnoses for additional 

payment. 

(3) Submission of corrected risk 

adjustment data in accordance with 

overpayments after the final risk 

adjustment data submission deadline, as 

described in paragraph (g)(2) of this 

section, must be made as provided in 

§ 422.326. 

■ 10. Section 422.311 is amended as 

follows: 

■ A. In paragraph (a), by removing the 

phrase ‘‘CMS annually’’ and adding in 

its place the phrase ‘‘the Secretary 

annually’’. 

■ B. In paragraph (b)(2), by removing the 

phrase ‘‘to CMS or its contractors’’ and 

adding in its place the phrase ‘‘to the 

Secretary’’. 

■ C. By removing paragraph (b)(3). 

■ D. By revising paragraph (c). 

The revision reads as follows: 

§ 422.311 RADV audit dispute and appeal 

processes. 

* * * * * 

(c) RADV audit appeals. (1) Appeal 

rights. MA organizations that do not 

agree with their RADV audit results may 

appeal. 

(2) Issues eligible for RADV appeals. 

(i) General rules. MA organizations may 

appeal RADV medical record review 

determinations and the Secretary’s 

RADV payment error calculation. In 

order to be eligible for RADV appeal, 

MA organizations must adhere to the 

following: 

(A) Established RADV audit 

procedures and requirements. 

(B) RADV appeals procedures and 

requirements. 

(ii) Failure to follow RADV rules. 

Failure to follow the Secretary’s RADV 

audit procedures and requirements and 

the Secretary’s RADV appeals 

procedures and requirements will 

render the MA organization’s request for 

appeal invalid. 

(iii) RADV appeal rules. The MA 

organization’s written request for 

medical record review determination 

appeal must specify the following: 

(A) The audited HCC(s) that the 

Secretary identified as being in error. 

(B) A justification in support of the 

audited HCC selected for appeal. 

(iv) Number of medical records 

eligible for appeal. For each audited 

HCC, MA organizations may appeal one 

medical record that has undergone 

RADV review. If an attestation was 

submitted to cure a signature or 

credential-related error, the attestation 

may be included in the HCC appeal. 

(v) Selection of medical record for 

appeal. The MA organization must 

select the medical record that undergoes 

appeal. 

(vi) Written request for RADV 

payment error calculation appeal. The 

written request for RADV payment error 

calculation appeal must clearly specify 

the following: 

(A) The MA organization’s own RADV 

payment error calculation. 

(B) Where the Secretary’s RADV 

payment error calculation was 

erroneous. 

(3) Issues ineligible for RADV appeals. 

(i) MA organizations’ request for appeal 

may not include HCCs, medical records 

or other documents beyond the audited 

HCC, RADV-reviewed medical record, 

and any accompanying attestation that 

the MA organization chooses for appeal. 

(ii) MA organizations may not appeal 

the Secretary’s medical record review 

determination methodology or RADV 

payment error calculation methodology. 

(iii) As part of the RADV payment 

error calculation appeal— MA 

organizations may not appeal RADV 

medical record review-related errors. 

(iv) MA organizations may not appeal 

RADV errors that result from an MA 

organization’s failure to submit a 

medical record. 

(4) Burden of proof. The MA 

organization bears the burden of proof 

by a preponderance of the evidence in 

demonstrating that the Secretary’s 

medical record review determination(s) 

or payment error calculation was 

incorrect. 

(5) Manner and timing of a request for 

RADV appeal. (i) At the time the 

Secretary issues its RADV audit report, 


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the Secretary notifies audited MA 

organizations of the following: 

(A) That they may appeal RADV HCC 

errors that are eligible for medical 

record review determination appeal. 

(B) That they may appeal the 

Secretary’s RADV payment error 

calculation. 

(ii) MA organizations have 60 days 

from date of issuance of the RADV audit 

report to file a written request with CMS 

for RADV appeal. This request for 

RADV appeal must specify one of the 

following: 

(A) Whether the MA organization 

requests medical record review 

determination appeal, the issues with 

which the MA organization disagrees, 

and the reasons for the disagreements. 

(B) Whether the MA organization 

requests RADV payment error 

calculation appeal, the issues with 

which the MA organization disagrees, 

and the reasons for the disagreements. 

(C) Whether the MA organization 

requests both medical record review 

determination appeal and RADV 

payment error calculation appeal, the 

issues with which the MA organization 

disagrees, and the reasons for the 

disagreements. 

(iii) For MA organizations that appeal 

both medical record review 

determination appeal and RADV 

payment error calculation appeal: 

(A) The Secretary adjudicates the 

request for RADV payment error 

calculation following conclusion of 

reconsideration of the MA 

organization’s request for medical 

record review determination appeal. 

(B) An MA organization’s request for 

appeal of its RADV payment error 

calculation will not be adjudicated until 

appeals of RADV medical record review 

determinations filed by the MA 

organization have been completed and 

the decisions are final for that stage of 

appeal. 

(6) Reconsideration stage. (i) Written 

request for medical record review 

reconsideration. A MA organization’s 

written request for medical record 

review determination reconsideration 

must specify the following: 

(A) The audited HCC that the 

Secretary identified as being in error 

that the MA organization wishes to 

appeal. 

(B) A justification in support of the 

audited HCC chosen for appeal. 

(ii) Written request for payment error 

calculation. The MA organization’s 

written request for payment error 

calculation reconsideration— 

(A) Must include the MA 

organization’s own RADV payment error 

calculation that clearly specifies where 

the Secretary’s RADV payment error 

calculation was erroneous; and 

(B) May include additional 

documentary evidence pertaining to the 

calculation of the payment error that the 

MA organization wishes the 

reconsideration official to consider. 

(iii) Conduct of the reconsideration. 

(A) For medical record review 

determination reconsideration, a 

medical record review professional who 

was not involved in the initial medical 

record review determination of the 

disputed audited HCCs does the 

following: 

(1) Reviews the medical record and 

accompanying dispute justification. 

(2) Reconsiders the initial audited 

medical record review determination. 

(B) For payment error calculation 

reconsideration, CMS ensures that a 

third party not involved in the initial 

RADV payment error calculation does 

the following: 

(1) Reviews the Secretary’s RADV 

payment error calculation. 

(2) Reviews the MA organization’s 

RADV payment error calculation; 

(3) Recalculates the payment error in 

accordance with CMS’s RADV payment 

error calculation procedures. 

(iv) Effect of the reconsideration 

official’s decision. (A) The 

reconsideration official issues a written 

reconsideration decision to the MA 

organization. 

(B) The reconsideration official’s 

decision is final unless the MA 

organization disagrees with the 

reconsideration official’s decision. 

(C) If the MA organization disagrees 

with the reconsideration official’s 

decision, they may request a hearing in 

accordance with paragraph (c)(7) of this 

section. 

(7) Hearing stage. (i) Errors eligible for 

hearing. At the time the reconsideration 

official issues his or her reconsideration 

determination to the MA organization, 

the reconsideration official notifies the 

MA organization of any RADV HCC 

errors or payment error-calculations that 

are eligible for RADV hearing. 

(ii) General hearing rules. A MA 

organization that requests a RADV 

hearing must do so in writing in 

accordance with procedures established 

by CMS. 

(iii) Written request for hearing. The 

written request for a hearing must be 

filed with the Hearing Officer within 60 

days of the date the MA organization 

receives the reconsideration officer’s 

written reconsideration decision. 

(A) If the MA organization appeals 

medical record review reconsideration 

determination, the written request for 

RADV hearing must— 

(1) Include a copy of the written 

decision of the reconsideration official; 

(2) Specify the audited HCCs that the 

reconsideration official confirmed as 

being in error; and 

(3) Specify a justification why the MA 

organization disputes the 

reconsideration official’s determination. 

(B) If the MA organization appeals the 

RADV payment error calculation 

reconsideration determination, the 

written request for RADV hearing must 

include the following: 

(1) A copy of the written decision of 

the reconsideration official. 

(2) The MA organization’s own RADV 

payment error calculation that clearly 

specifies where the Secretary’s payment 

error calculation was erroneous. 

(iv) Designation of hearing officer. A 

hearing officer will conduct the RADV 

hearing. 

(v) Disqualification of the hearing 

officer. (A) A hearing officer may not 

conduct a hearing in a case in which he 

or she is prejudiced or partial to any 

party or has any interest in the matter 

pending for decision. 

(B) A party to the hearing who objects 

to the designated hearing officer must 

notify that officer in writing at the 

earliest opportunity. 

(C) The hearing officer must consider 

the objections, and may, at his or her 

discretion, either proceed with the 

hearing or withdraw. 

(D) If the hearing officer withdraws, 

another hearing officer conducts the 

hearing. 

(E) If the hearing officer does not 

withdraw, the objecting party may, after 

the hearing, present objections and 

request that the officer’s decision be 

revised or a new hearing be held before 

another hearing officer. The objections 

must be submitted in writing to the 

Secretary. 

(vi) Hearing Officer review. The 

hearing officer reviews the following: 

(A) For a medical record review 

determination appeal, the hearing 

officer reviews all of the following: 

(1) The RADV-reviewed medical 

record and any accompanying 

attestation that the MA organization 

selected for review. 

(2) The reconsideration official’s 

written determination. 

(3) The written brief submitted by the 

MA organization or the Secretary in 

response to the reconsideration official’s 

determination. 

(B) For a payment error calculation 

appeal, the hearing officer reviews all of 

the following: 

(1) The reconsideration official’s 

written determination. 

(2) Briefs addressing the 

reconsideration decision. 

(vii) Hearing procedures. (A) 

Authority of the Hearing Officer. The 


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hearing officer has full power to make 

rules and establish procedures, 

consistent with the law, regulations, and 

the Secretary rulings. These powers 

include the authority to dismiss the 

appeal with prejudice and take any 

other action which the hearing officer 

considers appropriate, including for 

failure to comply with such rules and 

procedures. 

(B) The hearing is on the record. (1) 

Except as specified in paragraph 

(c)(viii)(B)(2) of this section, the hearing 

officer is limited to the review of the 

record. 

(2)(i) Subject to the hearing officer’s 

full discretion, the parties may request 

a live or telephonic hearing regarding 

some or all of the disputed medical 

records. 

(ii) The hearing officer may, on his or 

her own-motion, schedule a live or 

telephonic hearing. 

(3) The record is comprised of the 

following: 

(i) Written decisions described at 

paragraphs (c)(6)(iv) and (7)(vi) of this 

section. 

(ii) Written briefs from the MA 

organization explaining why they 

believe the reconsideration official’s 

determination was incorrect. 

(iii) The Secretary’s optional brief that 

responds to the MA organization’s 

brief— 

(4) The hearing officer neither 

receives testimony nor accepts any new 

evidence that is not part of the record. 

(5) Either the MA organization or the 

Secretary may ask the hearing officer to 

rule on a motion for summary judgment. 

(viii) Hearing Officer decision. The 

hearing officer decides whether to 

uphold or overturn the reconsideration 

official’s decision, and sends a written 

determination to CMS and the MA 

organization, explaining the basis for 

the decision. 

(ix) Computations based on hearing 

decision. (A) Once the hearing officer’s 

decision is considered final in 

accordance with paragraph (c)(7)(x) of 

this section, a third party not involved 

in the initial RADV payment error 

calculation recalculates the MA 

organization’s RADV payment error and 

issues a new RADV audit report to the 

appellant MA organization and CMS. 

(B) For MA organizations appealing 

the RADV error calculation only, a third 

party not involved in the initial RADV 

payment error calculation recalculates 

the MA organization’s RADV payment 

error and issues a new RADV audit 

report to the appellant MA organization 

and CMS. 

(x) Effect of the Hearing Officer’s 

decision. The hearing officer’s decision 

is final unless the decision is reversed 

or modified by the CMS Administrator. 

(8) CMS Administrator review stage. 

(i) A request for CMS Administrator 

review must be made in writing and 

filed with the CMS Administrator. 

(ii) CMS or a MA organization that 

has received a hearing officer’s decision 

and requests review by the CMS 

Administrator must do so within 60 

days of receipt of the hearing officer’s 

decision. 

(iii) After receiving a request for 

review, the CMS Administrator has the 

discretion to elect to review the hearing 

officer’s decision or to decline to review 

the hearing officer’s decision. 

(iv) If the CMS Administrator elects to 

review the hearing decision— 

(A) The CMS Administrator 

acknowledges the decision to review the 

hearing decision in writing and notifies 

CMS and the MA organization of their 

right to submit comments within 15 

days of the date of the notification; and 

(B) The CMS Administrator is limited 

to the review of the record. The record 

is comprised of the following: 

(1) The record is comprised of 

documents described at paragraph 

(c)(7)(vii)(B)(3) of this section. 

(2) The hearing record. 

(3) Written arguments from the MA 

organization or CMS explaining why 

either or both parties believe the hearing 

officer’s determination was correct or 

incorrect. 

(C) The CMS Administrator reviews 

the record and determines whether the 

hearing officer’s determination should 

be upheld, reversed, or modified. 

(v) The CMS Administrator renders 

his or her final decision in writing to the 

parties within 60 days of acknowledging 

his or her decision to review the hearing 

officer’s decision. 

(vi) The decision of the hearing officer 

is final if the CMS Administrator— 

(A) Declines to review the hearing 

officer’s decision; or 

(B) Does not make a decision within 

60 days. 

■ 11. Section 422.326 is added to 

subpart G to read as follows: 

§ 422.326 Reporting and returning of 

overpayments. 

(a) Terminology. For purposes of this 

section— 

Applicable reconciliation occurs on 

the date of the annual final deadline for 

risk adjustment data submission 

described at § 422.310(g), which is 

announced by CMS each year. 

Funds means any payment that an 

MA organization has received that is 

based on data submitted by the MA 

organization to CMS for payment 

purposes, including § 422.308(f) and 

§ 422.310. 

Overpayment means any funds that 

an MA organization has received or 

retained under title XVIII of the Act to 

which the MA organization, after 

applicable reconciliation, is not entitled 

under such title. 

(b) General rule. If an MA 

organization has identified that it has 

received an overpayment, the MA 

organization must report and return that 

overpayment in the form and manner 

set forth in this section. 

(c) Identified overpayment. The MA 

organization has identified an 

overpayment when the MA organization 

has determined, or should have 

determined through the exercise of 

reasonable diligence, that the MA 

organization has received an 

overpayment. 

(d) Reporting and returning of an 

overpayment. An MA organization must 

report and return any overpayment it 

received no later than 60 days after the 

date on which it identified it received 

an overpayment, unless otherwise 

directed by CMS for purposes of 

§ 422.311. 

(1) Reporting. An MA organization 

must notify CMS, of the amount and 

reason for the overpayment, using a 

notification process determined by 

CMS. 

(2) Returning. An MA organization 

must return identified overpayments in 

a manner specified by CMS. 

(e) Enforcement. Any overpayment 

retained by an MA organization is an 

obligation under 31 U.S.C. 3729(b)(3) if 

not reported and returned in accordance 

with paragraph (d) of this section. 

(f) Look-back period. An MA 

organization must report and return any 

overpayment identified for the 6 most 

recent completed payment years. 

■ 12. Section 422.503 is amended by – 

■ A. Adding paragraph (b)(4)(vi)(C)(3). 

■ B. Adding reserved paragraph 

(b)(4)(vi)(G)(4). 

■ C. Revising paragraph (b)(4)(vi)(G)(5). 

The revisions and additions are as 

follows: 

§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) * * * 

(C) * * * 

(3) An MA organization must require 

all of its first tier, downstream, and 

related entities to take the CMS training 

and accept the certificate of completion 

of the CMS training as satisfaction of 

this requirement. MA organizations are 

prohibited from developing and 

implementing their own training or 


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providing supplemental training 

materials to fulfill this requirement. 

* * * * * 

(G) * * * 

(5)(i) Not accept, or share, a corporate 

parent organization owning a 

controlling interest in an entity that 

accepts new enrollees under a section 

1876 reasonable cost contract in any 

area in which it seeks to offer an MA 

plan. 

(ii) Not accept, as either the parent 

organization owning a controlling 

interest of, or subsidiary of, an entity 

that accepts new enrollees under a 

section 1876 reasonable cost contract in 

any area in which it seeks to offer an 

MA plan. 

* * * * * 

■ 13. Amend § 422.504 by: 

■ A. Revising paragraph (i)(2)(i). 

■ B. Redesignating paragraph (i)(2)(ii) as 

(i)(2)(iv). 

■ C. Adding new paragraph (i)(2)(ii) and 

paragraphs (i)(2)(iii) and (1)(5). 

The revisions and additions read as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(i)* * * 

(2)* * * 

(i) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, collect, and inspect any books, 

contracts, computer or other electronic 

systems, including medical records and 

documentation of the first tier, 

downstream, and entities related to 

CMS’ contract with the MA 

organization. 

(ii) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records under paragraph (i)(2)(i) of this 

section directly from any first tier, 

downstream, or related entity. 

(iii) For records subject to review 

under paragraph (i)(2)(ii) of this section, 

except in exceptional circumstances, 

CMS will provide notification to the MA 

organization that a direct request for 

information has been initiated. 

* * * * * 

(l) * * * 

(5) Certification of accuracy of data 

for overpayments. The CEO, CFO, or 

COO must certify (based on best 

knowledge, information, and belief) that 

the information provided for purposes 

of reporting and returning of 

overpayments under § 422.326 is 

accurate, complete, and truthful. 

* * * * * 

■ 14. Amend § 422.510 as follows; 

■ A. By redesigating paragraphs (a)(4) 

through (15) as paragraphs (a)(4)(i) 

through (xii). 

■ B. By adding new paragraph (a)(4) 

introductory text. 

■ C. In newly redesignated paragraphs 

(a)(4)(ii), (v), (vi), and (viii) by removing 

the term ‘‘fails’’ and adding in its place 

the term ‘‘failed’’. 

■ D. In newly redesignated paragraphs 

(a)(4)(iii), (iv), (vii), (ix), and (x), by 

removing the term ‘‘Fails’’ and adding 

in its place the term ‘‘Failed’’. 

■ E. By revising newly redesignated 

paragraph (a)(4)(xii). 

■ F. By revising paragraph (b)(1)(i) 

through (iii) and the heading for 

paragraph (b)(2). 

■ G. In paragraph (b)(2)(i)(C), by 

removing the cross-reference ‘‘(a)(4) of 

this section’’ and adding in its place the 

cross reference ‘‘(a)(4)(i) of this section’’. 

■ H. In paragraph (c)(2)(iii), by 

removing the cross reference ‘‘(a)(4) of 

this section’’ and adding in its place the 

cross reference ‘‘(a)(4)(i) of this section’’. 

The additions and revisions read as 

follows: 

§ 422.510 Termination of contract by CMS. 

* * * * * 

(a) * * * 

(4) CMS may make a determination 

under paragraph (a)(1), (2), or (3) of this 

section if the MA organization has had 

one or more of the following occur: 

* * * * * 

(xii) Has failed to report MLR data in 

a timely and accurate manner in 

accordance with § 422.2460 or that any 

MLR data required by this subpart is 

found to be materially incorrect or 

fraudulent. 

* * * * * 

(b) * * * 

(1) * * * 

(i) CMS notifies the MA organization 

in writing at least 45 calendar days 

before the intended date of the 

termination. 

(ii) The MA organization notifies its 

Medicare enrollees of the termination by 

mail at least 30 calendar days before the 

effective date of the termination. 

(iii) The MA organization notifies the 

general public of the termination at least 

30 calendar days before the effective 

date of the termination by releasing a 

press statement to news media serving 

the affected community or county and 

posting the press statement prominently 

on the organization’s Web site. 

(2) Immediate termination of contract 

by CMS.* * * 

* * * * * 

■ 15. Amend § 422.752 by adding 

paragraphs (a)(9) through (12) and 

revising paragraphs (c)(1) and (c)(2)(ii) 

to read as follows: 

§ 422.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) * * * 

(9) Except as provided under § 423.34 

of this chapter, enrolls an individual in 

any plan under this part without the 

prior consent of the individual or the 

designee of the individual. 

(10) Transfers an individual enrolled 

under this part from one plan to another 

without the prior consent of the 

individual or the designee of the 

individual or solely for the purpose of 

earning a commission. 

(11) Fails to comply with marketing 

restrictions described in subpart V or 

applicable implementing guidance. 

(12) Employs or contracts with any 

individual, agent, provider, supplier or 

entity who engages in the conduct 

described in paragraphs (a)(1) through 

(11) of this section. 

* * * * * 

(c) * * * 

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

any intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in the following: 

(i) Section 422.760(b) for any of the 

determinations at § 422.510(a), except 

§ 422.510(a)(4)(i). 

(ii) Section 422.760(c) for any of the 

determinations at § 422.752(a) except 

§ 422.752(a)(5). 

(2) * * * 

(ii) Determinations made under 

§ 422.510(a)(4)(i). 

■ 16. Amend § 422.756 as follows: 

■ A. In paragraph (a)(2), by removing 

the phrase ‘‘days from receipt’’ and 

adding in its place ‘‘days after receipt’’ 

and by removing the phrase ‘‘considers 

receipt of notice’’ and adding in its 

place ‘‘considers receipt of the notice’’. 

■ B. In paragraph (b)(4), by removing the 

cross-reference ’’§ 423.660 through 

§ 423.684 of this part.’’ and adding in its 

place ‘‘Subpart N of this part.’’. 

■ C. In paragraph (c)(3)(ii) introductory 

text, by removing the phrase ‘‘In 

instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed,’’ and 

adding in its place the phrase ‘‘In 

instances where intermediate sanctions 

have been imposed,’’. 

■ D. Adding paragraph (c)(3)(ii)(C). 

■ E. Revising paragraph (d). 

The addition and revision read as 

follows: 

§ 422.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(c) * * * 

(3) * * * 

(ii) * * * 

(C) During the limited time period, 

sanctioned sponsoring organizations 


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offering Part D plans under the 

benchmark that would normally 

participate in the annual and monthly 

auto enrollment process for enrollees 

receiving the low income subsidy will 

not be allowed to receive or process 

these types of enrollments. 

* * * * * 

(d) Non-renewal or termination by 

CMS. In addition to or as an alternative 

to the sanctions described in § 422.750, 

CMS may— 

(1) Decline to authorize the renewal of 

an organization’s contract in accordance 

with § 422.506(b); or 

(2) Terminate the contract in 

accordance with § 422.510. 

* * * * * 

■ 17. Amend § 422.760 by revising 

paragraph (a)(3) and the heading of 

paragraph (b) and adding paragraph (c) 

to read as follows: 

§ 422.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) * * * 

(3) The adverse effect to enrollees 

which resulted or could have resulted 

from the conduct of MA organization; 

* * * * * 

(b) Amount of penalty imposed by 

CMS. * * * 

* * * * * 

(c) Amount of penalty imposed by 

CMS or OIG. CMS or the OIG may 

impose civil money penalties in the 

following amounts for a determination 

made under § 422.752(a): 

(1) Civil money penalties of not more 

than $25,000 for each determination 

made. 

(2) With respect to a determination 

made under § 422.752(a)(4) or (a)(5)(i), 

not more than $100,000 for each such 

determination, except with respect to a 

determination made under 

§ 422.752(a)(5), an assessment of not 

more than the amount claimed by such 

plan or MA organization based upon the 

misrepresentation or falsified 

information involved. 

(3) Plus with respect to a 

determination made under 

§ 422.752(a)(2), double the excess 

amount charged in violation of such 

paragraph (and the excess amount 

charged must be deducted from the 

penalty and returned to the individual 

concerned). 

(4) Plus with respect to a 

determination made under 

§ 422.752(a)(4), $15,000 for each 

individual not enrolled as a result of the 

practice involved. 

■ 18. Amend § 422.1016 by revising the 

first sentence of paragraph (b)(1) to read 

as follows: 

§ 422.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

* * * * * 

(b) * * * 

(1) The other party will have 20 

calendar days from the date of mailing 

or in person filing to submit any rebuttal 

statement or additional evidence.* * * 

* * * * * 

■ 19. Amend § 422.1020 by revising 

paragraph (a)(2) to read as follows: 

§ 422.1020 Request for hearing. 

(a) * * * 

(2) The MA organization or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days after 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

* * * * * 

■ 20. Amend § 422.2274 by: 

■ A. Revising the introductory text. 

■ B. Redesignating paragraphs (a) 

through (f) as (b) through (g). 

■ C. Adding new paragraph (a). 

■ D. Revising newly redesignated 

paragraph (b). 

■ E. Adding paragraph (h). 

The revisions and addition read as 

follows: 

§ 422.2274 Broker and agent requirements. 

If an MA organization uses agents and 

brokers to sell its Medicare plans, the 

following requirements in this section 

are applicable. 

(a) Definitions. For purposes of this 

section, the following definitions are 

applicable: 

Compensation (1) Includes monetary 

or non-monetary remuneration of any 

kind relating to the sale or renewal of a 

policy including, but not limited to— 

(i) Commissions; 

(ii) Bonuses; 

(iii) Gifts; 

(iv) Prizes or Awards; or 

(v) Referral or Finder fees. 

(2) Does not include— 

(i) Payment of fees to comply with 

State appointment laws, training, 

certification, and testing costs; 

(ii) Reimbursement for mileage to, and 

from, appointments with beneficiaries; 

or 

(iii) Reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. 

Like plan type means one of the 

following: 

(1) PDP replaced with another PDP. 

(2) MA or MA–PD replaced with 

another MA or MA–PD. 

(3) Cost plan replaced with another 

cost plan. 

Unlike plan type means one of the 

following: 

(1) PDP replaced with an MA–PD or 

an MA–PD replaced with a PDP. 

(2) PDP replaced with a cost plan or 

a cost plan replaced with a PDP. 

(3) MA–PD replaced with a cost plan 

or a cost plan replaced with an MA–PD. 

Plan year means the year beginning 

January 1 and ending December 31. 

Renewal year means all years 

following the initial enrollment year in 

a like plan type. 

(b) Compensation rules. An MA 

organization must compensate 

independent brokers and agents, if 

compensation is paid, only according to 

the following rules in this section. 

(1) Compensation amounts. (i) For an 

initial year enrollment of a Medicare 

beneficiary into an MA plan, the 

compensation must be at or below the 

fair market value of such services, 

published annually as a cut-off amount 

by CMS. 

(ii) For renewal years, compensation 

may be up to 50 percent of the current 

fair market value cut-off amounts 

published annually by CMS. 

(iii) If the MA organization contracts 

with a third party entity such as a Field 

Marketing Organization or similar type 

entity to sell its insurance products, or 

perform services (for example, training, 

customer service, or agent 

recruitment)— 

(A) The total amount paid by the MA 

organization to the third party and its 

agents for enrollment of a beneficiary 

into a plan, if any, must be made in 

accordance with paragraph (b)(1) of this 

section; and 

(B) The amount paid to the third party 

for services other than selling insurance 

products, if any, must be fair-market 

value and must not exceed an amount 

that is commensurate with the amounts 

paid by the MA organization to a third 

party for similar services during each of 

the previous 2 years. 

(2) Aggregate compensation. (i) An 

entity must not provide aggregate 

compensation to its agents or brokers 

greater than the renewal compensation 

payable by the replacing plan on 

renewal policies if an existing policy is 

replaced with a like plan at any time. 

(ii) An agent or broker must not 

receive aggregate compensation greater 

than the renewal compensation payable 

by the replacing plan on renewal 

policies if an existing policy is replaced 

with a like plan type at any time. 


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(iii) The initial compensation is paid 

for replacements between unlike plan 

types. 

(3) Compensation payment and 

payment recovery. (i) Compensation 

may only be paid for the enrollee’s 

months of enrollment during a plan 

year. 

(ii)(A) Subject to paragraph (b)(3)(iii) 

of this section, compensation payments 

may be made at one time for the entire 

current plan year or in installments 

throughout the year. 

(B) Compensation may not be paid 

until January 1 of the enrollment year 

and, if paid at all, must be paid in full 

by December 31 of the enrollment year. 

(iii) When a beneficiary disenrolls 

from an MA plan, compensation paid to 

agents and brokers must be recovered 

for those months of the plan year for 

which the beneficiary is not enrolled. 

For disenrollments occurring within the 

first 3 months, the entire compensation 

must be recovered unless CMS 

determines that recoupment is not in 

the best interests of the Medicare 

program. 

(4) Compensation structure. (i) The 

MA organization must establish a 

compensation structure for new and 

replacement enrollments and renewals 

effective in a given plan year. 

Compensation structures must be in 

place by the beginning of the plan 

marketing period, October 1. 

(ii) Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

* * * * * 

(h) Finder’s (referral) fees. Finder’s 

(referral) fees paid to all agents and 

brokers— 

(1) May not exceed an amount that 

CMS determines could reasonably be 

expected to provide financial incentive 

for an agent or broker to recommend or 

enroll a beneficiary into a plan that is 

not the most appropriate to meet his or 

her needs; and 

(2) Must be included in the total 

compensation not to exceed the fair 

market value for that calendar year. 

Subpart Y—[Reserved] 

■ 21. Part 422 is amended by adding 

reserved subpart Y. 

■ 22. Part 422 is amended by adding 

subpart Z to read as follows: 

Subpart Z—Part C Recovery Audit 

Contractor Appeals Process 

Sec. 

422.2600 Payment appeals. 

422.2605 Request for reconsideration. 

422.2610 Hearing official review. 

422.2615 Review by the Administrator. 

Subpart Z—Part C Recovery Audit 

Contractor Appeals Process 

§ 422.2600 Payment appeals. 

If the Part C RAC did not apply its 

stated payment methodology correctly, 

an MA organization may appeal the 

findings of the applied methodology. 

The payment methodology itself is not 

subject to appeal. 

§ 422.2605 Request for reconsideration. 

(a) Time for filing a request. The 

request for reconsideration must be filed 

with the designated independent 

reviewer within 60 calendar days from 

the date of the demand letter received 

by the MA organization. 

(b) Content of request. (1) The request 

for reconsideration must be in writing 

and specify the findings or issues with 

which the MA organization disagrees. 

(2) The MA organization must include 

with its request all supporting 

documentary evidence it wishes the 

independent reviewer to consider. 

(i) This material must be submitted in 

the format requested by CMS. 

(ii) Documentation, evidence, or 

substantiation submitted after the filing 

of the reconsideration request will not 

be considered. 

(c) CMS rebuttal. CMS may file a 

rebuttal to the MA organization’s 

reconsideration request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the review 

entity’s notification to CMS that it has 

received the MA organization’s 

reconsideration request. 

(2) CMS sends its rebuttal to the MA 

organization at the same time it is 

submitted to the independent reviewer. 

(d) Review entity. An independent 

reviewer conducts the reconsideration. 

The independent reviewer reviews the 

demand for repayment, the evidence 

and findings upon which it was based 

and any supporting documentation that 

the MA organization or CMS submitted 

in accordance with this section. 

(e) Notification of decision. The 

independent reviewer informs the CMS 

and the MA organization of its decision 

in writing. 

(f) Effect of decision. A 

reconsideration decision is final and 

binding unless the MA organization 

requests a hearing official review in 

accordance with § 422.2610. 

(g) Right to hearing official review. An 

MA organization that is dissatisfied 

with the independent reviewer’s 

reconsideration decision is entitled to a 

hearing official review as provided in 

§ 422.2610. 

§ 422.2610 Hearing official review. 

(a) Time for filing a request. A MA 

organization must file with CMS a 

request for a hearing official review 

within 30 calendar days from the date 

of the independent reviewer’s issuance 

of a reconsideration determination. 

(b) Content of the request. (1) The 

request must be in writing and must 

specify the findings or issues in the 

reconsideration decision with which the 

MA organization disagrees and the 

reasons for the disagreements. 

(2) The MA organization must submit 

with its request all supporting 

documentation, evidence, and 

substantiation that it wants to be 

considered. 

(3) No new evidence may be 

submitted. 

(4) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(c) CMS rebuttal. CMS may file a 

rebuttal to the MA organization’s 

hearing official review request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the MA 

organization’s submission of its hearing 

official review request. 

(2) CMS sends its rebuttal to the MA 

organization at the same time it is 

submitted to the hearing official. 

(d) Conducting a review. A CMSdesignated hearing official conducts the 

hearing on the record. 

(1) The hearing is not to be conducted 

live or via telephone unless the hearing 

official, in his or her sole discretion, 

requests a live or telephonic hearing. 

(2) In all cases, the hearing official’s 

review is limited to information that 

meets one or more of the following: 

(i) The Part C RAC used in making its 

determinations. 

(ii) The independent reviewer used in 

making its determinations. 

(iii) The MA organization submits 

with its hearing request. 

(iv) CMS submits in accordance with 

paragraph (c) of this section. 

(3) Neither the MA organization nor 

CMS may submit new evidence. 

(e) Hearing official decision. The CMS 

hearing official decides the case within 

60 days and sends a written decision to 

the MA organization and CMS, 

explaining the basis for the decision. 

(f) Effect of hearing official decision. 

The hearing official’s decision is final 

and binding, unless the decision is 

reversed or modified by the CMS 

Administrator in accordance with 

§ 422.2615. 

§ 422.2615 Review by the Administrator. 

(a) Request for review by 

Administrator. If an MA organization is 

dissatisfied with the hearing official’s 

decision, it may request that the CMS 

Administrator review the decision. 

(1) The request must be filed with the 

CMS Administrator within 30 calendar 


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days of the date of the hearing official’s 

decision. 

(2) The request must provide evidence 

or reasons to substantiate the request. 

(b) Content of request. The MA 

organization must submit with its 

request all supporting documentation, 

evidence, and substantiation that it 

wants to be considered. 

(1) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(2) Neither the MA organization, nor 

CMS may submit new evidence. 

(c) Discretionary review. After 

receiving a request for review, the CMS 

Administrator has the discretion to 

review the hearing official’s decision in 

accordance with paragraph (e) of this 

section or to decline to review said 

decision. 

(d) Notification of decision whether to 

review. The Administrator notifies the 

MA organization within 45 days of 

receiving the MA organization’s hearing 

request of whether he or she intends to 

review the hearing official’s decision. 

(1) If the Administrator agrees to 

review the hearing official’s decision, 

CMS may file a rebuttal statement 

within 30 days of the Administrator’s 

notice to the plan that the request for 

review has been accepted. CMS sends 

its rebuttal statement to the plan at the 

same time it is submitted to the 

Administrator. 

(2) If the CMS Administrator declines 

to review the hearing official’s decision, 

the hearing official’s decision is final 

and binding. 

(e) CMS Administrator’s review. If the 

CMS Administrator agrees to review the 

hearing official’s decision, he or she 

determines, based upon this decision, 

the hearing record, and any arguments 

submitted by the MA organization or 

CMS in accordance with this section, 

whether the determination should be 

upheld, reversed, or modified. The 

Administrator furnishes a written 

decision, which is final and binding, to 

the MA organization and to CMS. 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

■ 23. 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). 

■ 24. Amend § 423.1 by adding new 

references in numerical order to 

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

§ 423.1 Basis and scope. 

(a) * * * 

(1) * * * 

1128J(d). Reporting and Returning of 

Overpayments. 

* * * * * 

1860D–14A. Medicare coverage gap 

discount program. 

* * * * * 

1860D–43. Condition for coverage of 

drugs under this part. 

* * * * * 

■ 25. Amend § 423.44 by adding 

paragraphs (d)(5)(iii) and (iv) to read as 

follows: 

§ 423.44 Involuntary disenrollment from 

Part D coverage. 

* * * * * 

(d) * * * 

(5) * * * 

(iii) Incarceration. The PDP must 

disenroll an individual if the PDP 

establishes, on the basis of evidence 

acceptable to CMS, that the individual 

is incarcerated and does not reside in 

the service area of the PDP as specified 

at § 423.4 or when notified of an 

incarceration by CMS as specified in 

paragraph (d)(5)(iv) of this section. 

(iv) Notification by CMS of 

incarceration. When CMS notifies the 

PDP of the disenrollment due to the 

individual being incarcerated and not 

residing in the service area of the PDP 

as per § 423.4, disenrollment is effective 

the first of the month following the start 

of incarceration, unless otherwise 

specified by CMS. 

* * * * * 

■ 26. In § 423.100, amend the definition 

of ‘‘Part D drug’’ as follows: 

■ A. By adding paragraph (1)(vii). 

■ B. By revising paragraph (2) 

introductory text. 

■ C. In paragraph (2)(i), by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ D. In paragraph (2)(ii), by removing 

the phrase ‘‘; barbiturates when used to 

treat epilepsy, cancer, or a chronic 

mental health disorder; and 

benzodiazepines.’’ and adding in its 

place ‘‘.’’ 

■ E. By adding paragraph (2)(iii). 

The additions read as follows: 

§ 423.100 Definitions 

* * * * * 

Part D drug * * * 

(1) * * * 

(vii) A combination product approved 

and regulated by the FDA as a drug, 

vaccine, or biologic described in 

paragraphs (1)(i), (ii), (iii), or (v) of this 

definition. 

(2) Does not include any of the 

following: 

* * * * * 

(iii) Medical foods, defined as a food 

that is formulated to be consumed or 

administered enterally under the 

supervision of a physician and which is 

intended for the specific dietary 

management of a disease or condition 

for which distinctive nutritional 

requirements, based on recognized 

scientific principles, are established by 

medical evaluation, and that are not 

regulated as drugs under section 505 of 

the Federal Food, Drug, and Cosmetic 

Act. 

* * * * * 

■ 27. Section 423.100 is further 

amended, effective January 1, 2016, by 

revising the definition of ‘‘Negotiated 

prices’’ to read as follows: 

§ 423.100 Definitions 

* * * * * 

Negotiated prices means prices for 

covered Part D drugs that meet all of the 

following: 

(1) The Part D sponsor (or other 

intermediary contracting organization) 

and the network dispensing pharmacy 

or other network dispensing provider 

have negotiated as the amount such 

network entity will receive, in total, for 

a particular drug. 

(2) Are inclusive of all price 

concessions from network pharmacies 

except those contingent price 

concessions that cannot reasonably be 

determined at the point-of-sale; and 

(3) Include any dispensing fees; but 

(4) Excludes additional contingent 

amounts, such as incentive fees, if these 

amounts increase prices and cannot 

reasonably be determined at the pointof-sale. 

(5) Must not be rebated back to the 

Part D sponsor (or other intermediary 

contracting organization) in full or in 

part. 

* * * * * 

■ 28. Amend 423.120 by: 

■ A. Revising paragraph (b)(2)(v). 

■ B. Adding paragraph (b)(3)(vi). 

■ C. Adding paragraph (c)(5) 

introductory text. 

■ D. Adding paragraph (c)(6). 

The revisions and additions read as 

follows: 

§ 423.120 Access to covered Part D drugs. 

* * * * * 

(b) * * * 

(2) * * * 

(v) Until such time as there are 

established, through notice and 

comment rulemaking, criteria to 

identify, as appropriate, categories and 

classes of clinical concern, the 

categories and classes of clinical 

concern are as specified in section 

1860D–4(b)(3)(G)(iv) of the Act. 

* * * * * 

(3) * * * 


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Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 29963 

(vi) A Part D sponsor must charge cost 

sharing for a temporary supply of drugs 

provided under its transition process 

such that the following conditions are 

met: 

(A) For low-income subsidy (LIS) 

enrollees, a sponsor must not charge 

higher cost sharing for transition 

supplies than the statutory maximum 

copayment amounts. 

(B) For non-LIS enrollees, a sponsor 

must charge— 

(1) The same cost sharing for nonformulary Part D drugs provided during 

the transition that would apply for nonformulary drugs approved through a 

formulary exception in accordance with 

§ 423.578(b); and 

(2) The same cost sharing for 

formulary drugs subject to utilization 

management edits provided during the 

transition that would apply once the 

utilization management criteria are met. 

* * * * * 

(c) * * * 

(5) Before June 1, 2015, the following 

are applicable: 

* * * * * 

(6) Beginning June 1, 2015, the 

following are applicable: — 

(i) A Part D sponsor must deny, or 

must require its pharmaceutical benefit 

manager (PBM) to deny, a pharmacy 

claim for a Part D drug if an active and 

valid physician or eligible professional 

(as defined in section 1848(k)(3)(B)(i) or 

(ii) of the Act) National Provider 

Identifier (NPI) is not contained on the 

claim. 

(ii) A Part D sponsor must deny, or 

must require its PBM to deny, a 

pharmacy claim for a Part D drug if the 

physician or eligible professional (when 

permitted to write prescriptions by 

applicable State law)— 

(A) Is not enrolled in the Medicare 

program in an approved status; and 

(B) Does not have a valid opt-out 

affidavit on file with an A/B Medicare 

Administrative Contractor (MAC). 

(iii) A Part D sponsor must deny, or 

must require its PBM to deny, a request 

for reimbursement from a Medicare 

beneficiary for a drug if the request is 

not for a Part D drug that was dispensed 

in accordance with a prescription 

written by a physician or, when 

permitted by applicable State law, other 

eligible professional (as defined in 

section 1848(k)(3)(B)(i) or (ii) of the Act) 

who— 

(A) Is identified by his or her legal 

name in the request; and 

(B)(1) Is enrolled in Medicare in an 

approved status; or 

(2) Has a valid opt-out affidavit on file 

with an A/B MAC. 

(iv) In order for a Part D sponsor to 

submit to CMS a prescription drug event 

record (PDE), the PDE must contain an 

active and valid individual prescriber 

NPI and must pertain to a claim for a 

Part D drug that was dispensed in 

accordance with a prescription written 

by a physician or, when permitted by 

applicable State law, an eligible 

professional (as defined in section 

1848(k)(3)(B)(i) or (ii) of the Act) who— 

(A) Is enrolled in Medicare in an 

approved status, or 

(B) Has a valid opt-out affidavit on file 

with an A/B MAC. 

* * * * * 

■ 29. Section 423.360 is added to 

subpart G to read as follows: 

§ 423.360 Reporting and returning of 

overpayments. 

(a) Definitions. For the purposes of 

this section the following definitions are 

applicable: 

Applicable reconciliation means the 

later of either the annual deadline for 

submitting— 

(i) PDE data for the annual Part D 

payment reconciliations referred to in 

§ 423.343(c) and (d); or 

(ii) Direct and indirect remuneration 

data. 

Funds for purposes of this section, 

means any payment that a Part D 

sponsor has received that is based on 

data submitted by the Part D sponsor to 

CMS for payment purposes, including 

data submitted under § 423.329(b)(3), 

§ 423.336(c)(1), § 423.343, and data 

provided for purposes of supporting 

allowable costs as defined in § 423.308 

which includes data submitted to CMS 

regarding direct or indirect 

remuneration. 

Overpayment means funds that a Part 

D sponsor has received or retained 

under title XVIII of the Act to which the 

Part D sponsor, after applicable 

reconciliation, is not entitled under 

such title. 

(b) General rule. If a Part D sponsor 

has identified that it has received an 

overpayment, the Part D sponsor must 

report and return that overpayment in 

the form and manner set forth in this 

section. 

(c) Identified overpayment. The Part D 

sponsor has identified an overpayment 

when the Part D sponsor has 

determined, or should have determined 

through the exercise of reasonable 

diligence, that the Part D sponsor has 

received an overpayment. 

(d) Reporting and returning of an 

overpayment. A Part D sponsor must 

report and return any overpayment it 

received no later than 60 days after the 

date on which it identified it received 

an overpayment. 

(1) Reporting. A Part D sponsor must 

notify CMS of the amount and reason 

for the overpayment, using the 

notification process determined by 

CMS. 

(2) Returning. A Part D sponsor must 

return identified overpayments in a 

manner specified by CMS. 

(e) Enforcement. Any overpayment 

retained by a Part D sponsor is an 

obligation under 31 U.S.C. 3729(b)(3) if 

not reported and returned in accordance 

with paragraph (d) of this section. 

(f) Look-back period. A Part D sponsor 

must report and return any overpayment 

identified within the 6 most recent 

completed payment years. 

§ 423.464 [Amended] 

■ 35. Amend § 423.464 as follows: 

■ A. In paragraph (f)(2)(i) introductory 

text, by removing the phrase ‘‘a Part D 

plan must—’’ and adding in its place ‘‘a 

Part D plan must do all of the 

following:’’. 

■ B. In paragraph (f)(2)(i)(A), by 

removing ‘‘; and’’ and adding in its 

place ‘‘.’’. 

■ 30. Amend § 423.501, effective 

January 1, 2016, by a adding a definition 

for ‘‘prescription drug pricing standard’’ 

to read as follows: 

§ 423.501 Definitions. 

* * * * * 

Prescription drug pricing standard 

means any methodology or formula for 

varying the pricing of a drug or drugs 

during the term of a pharmacy 

reimbursement contract that is based on 

the cost of a drug, which includes, but 

is not limited to, drug pricing references 

and amounts based on any of the 

following: 

(1) Average wholesale price. 

(2) Wholesale acquisition cost. 

(3) Average manufacturer price. 

(4) Average sales price. 

(5) Maximum allowable cost. 

(6) Other cost, whether publicly 

available or not. 

* * * * * 

■ 31. Amend § 423.503 by adding 

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

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

(a) * * * 

(3) CMS does not approve an 

application when it would result in the 

applicant’s parent organization, directly 

or through its subsidiaries, holding 

more than one PDP sponsor contract in 

the PDP Region for which the applicant 

is seeking qualification as a PDP 

sponsor. A parent organization is an 

entity that exercises a controlling 

interest in the applicant. 

* * * * * 


TKELLEY on DSK3SPTVN1PROD with RULES2
29964 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

■ 32. Amend § 423.504 by adding 

paragraphs (b)(4)(vi)(C)(4) and (b)(8) and 

(9) to read as follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) * * * 

(C) * * * 

(4) A Part D plan sponsor must 

require all of its first tier, downstream 

and related entities to take the CMS 

training and accept the certificate of 

completion of the CMS training as 

satisfaction of this requirement. Part D 

plan sponsors are prohibited from 

developing and implementing their own 

training or providing supplemental 

training materials to fulfill this 

requirement. 

* * * * * 

(8) If neither the applicant, nor its 

parent or another subsidiary of the same 

parent, holds a Part D sponsor contract 

that has been in effect for at least 1 year 

at the time it submits an application, the 

applicant must have arrangements in 

place such that the applicant and its 

contracted first tier, downstream, or 

related entities, in combination, have at 

least 1 full-benefit year of experience 

within the 2 years preceding the 

application submission performing at a 

minimum all of the following functions 

in support of the operation of another 

Part D contract: 

(i) Authorization, adjudication, and 

processing of prescription drug claims 

at the point of sale. 

(ii) Administration and tracking of 

enrollees’ drug benefits in real time, 

including automated coordination of 

benefits with other payers. 

(iii) Operation of an enrollee appeals 

and grievance process. 

(9) For organizations applying to offer 

stand-alone prescription drug plans, the 

organization, its parent, or a subsidiary 

of the organization or its parent, must 

have either of the following: 

(i) For 2 continuous years 

immediately prior to submitting an 

application, actively offered health 

insurance or health benefits coverage, 

including prescription drug coverage, as 

a risk-bearing entity in at least one State. 

(ii) For 5 continuous years 

immediately prior to submitting an 

application, actively managed 

prescription drug benefits for an 

organization that offers health insurance 

or health benefits coverage, including at 

a minimum, all of the services listed in 

paragraph (b)(8) of this section. 

* * * * * 

■ 33. Amend § 423.505 as follows: 

■ A. In paragraph (f)(3)(v), by removing 

‘‘,’’ and adding in its place ‘‘.’’. 

■ B. In paragraph (f)(3)(vi), by removing 

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

■ C. By adding paragraph (f)(3)(viii). 

■ D. In paragraph (i)(2)(i), by removing 

the phrase ‘‘audit, evaluate and inspect’’ 

and adding in its place ‘‘audit, evaluate, 

collect, and inspect’’. 

■ E. By redesignating paragraph (i)(2)(ii) 

as paragraph (i)(2)(iv). 

■ F. By adding new paragraphs 

(i)(2)(ii)and (i)(2)(iii). 

■ G. By removing paragraph (i)(3)(iv). 

■ H. By redesignating (i)(3)(v) through 

(viii) as (i)(3)(iv) through (vii). 

■ I. By adding paragraph (k)(7). 

■ J. By adding a paragraph (m) heading. 

■ K. By revising paragraphs (m)(1)(iii).L. 

By revising paragraph (m)(3). 

The revisions and additions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(f) * * * 

(3) * * * 

(viii) Supporting program integrity 

purposes, including coordination with 

the States. 

* * * * * 

(i) * * * 

(2) * * * 

(ii) HHS, the Comptroller General or 

their designees have the right to audit, 

evaluate, collect, and inspect any 

records under paragraph (i)(2)(i) of this 

section directly from any first tier, 

downstream, or related entity. 

(iii) For records subject to review 

under paragraph (i)(2)(ii) of this section, 

except in exceptional circumstances, 

CMS will provide notification to the 

Part D sponsor that a direct request for 

information has been initiated. 

* * * * * 

(k) * * * 

(7) Certification of accuracy of data 

for overpayments. The CEO, CFO, or 

COO must certify (based on best 

knowledge, information, and belief) that 

the information provided for purposes 

of reporting and returning of 

overpayments under § 423.360 is 

accurate, complete, and truthful. 

* * * * * 

(m) Release of data. 

(1) * * * 

(iii) Subject, in certain cases, to 

encryption of beneficiary identifiers and 

aggregation of cost data to protect 

beneficiary confidentiality and 

commercially sensitive data of Part D 

sponsors, in accordance with all of the 

following principles: 

(A) Subject to the restrictions in this 

paragraph, all elements on the claim are 

available to HHS, other executive 

branch agencies, and the States. 

(B) Cost data elements on the claim 

generally are aggregated for releases to 

other executive branch agencies, States, 

and external entities. Upon request, 

CMS excludes sales tax from the 

aggregation at the individual level if 

necessary for the project. 

(C) Beneficiary identifier elements on 

the claim generally are encrypted for 

release, except in limited circumstances, 

such as the following: 

(1) If needed, in the case of release to 

other HHS entities, Congressional 

oversight agencies, non-HHS executive 

agencies and the States. 

(2) If needed to link to another 

dataset, in the case of release to external 

entities. Public disclosure of research 

results will not include beneficiary 

identifying information. 

* * * * * 

(3)(i) CMS must make available to 

Congressional support agencies (the 

Congressional Budget Office, the 

Government Accountability Office, the 

Medicare Payment Advisory 

Commission, and the Congressional 

Research Service when it is acting on 

behalf of a Congressional committee in 

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

information collected under paragraph 

(f)(3) of this section for the purposes of 

conducting congressional oversight, 

monitoring, making recommendations, 

and analysis of the Medicare program. 

(ii) The Congressional Research 

Service is considered an external entity 

when it is not acting on behalf of a 

Congressional committee in accordance 

with 2 U.S.C. 166(d)(1) for the purposes 

of paragraph (m)(1) of this section. 

* * * * * 

■ 34. Section 423.505 is further 

amended, effective January 1, 2016, by 

revising paragraphs (b)(21) and (i)(3)(vii) 

to read as follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(21)(i) Update any prescription drug 

pricing standard (as defined in 

§ 423.501) based on the cost of the drug 

used for reimbursement of network 

pharmacies by the Part D sponsor on 

January 1 of each contract year and not 

less frequently than once every 7 days 

thereafter; 

(ii) Indicate the source used for 

making any such updates; and 

(iii) Disclose all individual drug 

prices to be updated to the applicable 

pharmacies in advance of their use for 

reimbursement of claims, if the source 

for any prescription drug pricing 

standard is not publicly available. 

* * * * * 

(i) * * * 

(3) * * * 


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Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 29965 

(vii) If applicable, provisions 

addressing the drug pricing standard 

requirements of § 423.505(b)(21). 

* * * * * 

■ 35. Amend § 423.509 as follows: 

■ A. By redesignating paragraphs (a)(4), 

through (7), (a)(8) introductory text, 

(a)(8)(i) and (ii), and (a)(9) through (14) 

as paragraphs (a)(4)(i) through (iv), 

(a)(4)(v) introductory text, (a)(4)(v)(A) 

and (B), and (a)(4)(vi) through (xi), 

respectively. 

■ B. By adding paragraph (a)(4) 

introductory text. 

■ C. In newly redesignated paragraphs 

(a)(4)(ii), (iv), (v) introductory text, (vi), 

and (vii), by removing the term ‘‘fails’’ 

and adding in its place the term 

‘‘failed’’. 

■ D. In newly redesignated paragraphs 

(a)(4)(iii), (viii), and (ix), by removing 

the term ‘‘fails’’ and adding in its place 

the term ‘‘failed’’. 

■ E. By revising newly redesignated 

paragraphs (a)(4)(x) and (xi). 

■ G. By revising paragraphs (b)(1)(i) 

through (iv) and (b)(2)(i)(C). 

■ H. In paragraph (b)(2)(ii), by removing 

the phrase ‘‘MA organization’’ and 

adding in its place the phrase ‘‘Part D 

plan sponsor’’. 

■ I. In paragraph (c)(2)(iii), by removing 

the cross-reference ‘‘(a)(4) of this 

section’’ and adding in its place the 

cross-reference ‘‘(a)(4)(i) of this section’’. 

■ J. In paragraph (d), by removing the 

cross-reference ‘‘§ 423.642’’ and adding 

in its place the cross-reference ‘‘subpart 

N of this part’’. 

The additions and revisions read as 

follows: 

§ 423.509 Termination of a contract by 

CMS. 

(a) * * * 

(4) CMS may make a determination 

under paragraph (a)(1), (2) or (3) of this 

section if the Part D Plan sponsor has 

had one or more of the following occur: 

* * * * * 

(x) Achieves a Part D summary plan 

rating of less than 3 stars for 3 

consecutive contract years. Plan ratings 

issued by CMS before September 1, 

2012 are not included in the calculation 

of the 3-year period. 

(xi)(A) Has failed to report MLR data 

in a timely and accurate manner in 

accordance with § 423.2460; or 

(B) That any MLR data required by 

this subpart is found to be materially 

incorrect or fraudulent. 

* * * * * 

(b) * * * 

(1) * * * 

(i) CMS notifies the Part D plan 

sponsor in writing at least 45 calendar 

days before the intended date of the 

termination. 

(ii) The Part D plan sponsor notifies 

its Medicare enrollees of the termination 

by mail at least 30 calendar days before 

the effective date of the termination. 

(iii) The Part D plan sponsor notifies 

the general public of the termination at 

least 30 calendar days before the 

effective date of the termination by 

releasing a press statement to news 

media serving the affected community 

or county and posting the press 

statement prominently on the 

organization’s Web site. 

(iv) CMS notifies the general public of 

the termination no later than 30 

calendar days after notifying the plan of 

CMS’s decision to terminate the Part D 

plan sponsor’s contract by releasing a 

press statement. 

(2) * * * 

(i) * * * 

(C) The contract is being terminated 

based on the grounds specified in 

paragraphs (a)(4)(i) and (xi) of this 

section. 

* * * * * 

§ 423.642 [Amended] 

■ 36. Amend § 423.642(c)(1) by 

removing the phrase ‘‘90 calendar days’’ 

and adding in its place ‘‘45 calendar 

days’’. 

■ 37. Amend § 423.752 as follows: 

■ A. By adding paragraphs (a)(7) 

through (10). 

■ B. By revising paragraph (c)(1). 

■ C. In paragraph (c)(2)(ii), by removing 

the phrase ‘‘pursuant to 423.509(a)(4)’’ 

and adding in its place the phrase 

‘‘pursuant to § 422.510(a)(4)(i) of this 

chapter’’. 

The additions and revision read as 

follows: 

§ 423.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

* * * * * 

(a) * * * 

(7) Except as provided under § 423.34, 

enrolls an individual in any plan under 

this part without the prior consent of 

the individual or the designee of the 

individual. 

(8) Transfers an individual enrolled 

under this part from one plan to another 

without the prior consent of the 

individual or the designee of the 

individual or solely for the purpose of 

earning a commission. 

(9) Fails to comply with marketing 

restrictions described in subpart V or 

applicable implementing guidance. 

(10) Employs or contracts with any 

individual, agent, provider, supplier or 

entity who engages in the conduct 

described in paragraphs (a)(1) through 

(9) of this section. 

* * * * * 

(c) * * * 

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

any intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in either of the 

following: 

(i) Section 423.760(b) for any of the 

determinations at § 423.509(a), except 

§ 423.509(a)(4)(i). 

(ii) Section 423.760(c) for any of the 

determinations in paragraph (a) of this 

section except § 422.752(a)(5) of this 

chapter. 

* * * * * 

■ 38. Amend § 423.756 as follows: 

■ A. In paragraph (a)(2), by removing 

the phrase ‘‘days from receipt’’ and 

adding in its place ‘‘days after receipt’’ 

and by removing the phrase ‘‘considers 

receipt of notice’’ and adding in its 

place the phrase ’’considers receipt of 

the notice’’. 

■ B. In paragraph (b)(4), by removing the 

cross-reference ‘‘§ 423.650 through 

§ 423.662 of this part.’’ and adding in its 

place ‘‘Subpart N of this part.’’. 

■ C. In paragraph (c)(3)(ii) introductory 

text, by removing the phrase ‘‘In 

instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed,’’ and 

adding in its place the phrase ‘‘In 

instances where intermediate sanctions 

have been imposed,’’. 

■ D. Adding paragraph (c)(3)(ii)(C). 

■ E. Revising paragraph (d). 

The addition and revision read as 

follows: 

§ 423.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) * * * 

(C) During the limited time period, 

sanctioned Part D plan sponsors under 

the benchmark that would normally 

participate in the annual and monthly 

auto enrollment process for enrollees 

receiving the low income subsidy will 

not be allowed to receive or process 

these types of enrollments. 

(d) Non-renewal or termination by 

CMS. In addition to or as an alternative 

to the sanctions described in § 423.750, 

CMS may decline to authorize the 

renewal of an organization’s contract in 

accordance with § 423.507(b), or 

terminate the contract in accordance 

with § 423.509. 

(1) Decline to authorize the renewal of 

an organization’s contract in accordance 

with § 423.507(b); or 

(2) Terminate the contract in 

accordance with § 423.509. 

* * * * * 


TKELLEY on DSK3SPTVN1PROD with RULES2
29966 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

■ 39. Amend § 423.760 as follows: 

■ A. In paragraph (a) introductory text, 

by removing the phrase ‘‘under 

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

appropriate:’’ and adding in its place the 

phrase ‘‘under § 423.752(c)(1), CMS 

considers the following as 

appropriate:’’. 

■ B. In paragraphs (a)(1) and (2), by 

removing ‘‘;’’ and adding in its place 

‘‘.’’. 

■ C. Revising paragraph (a)(3). 

■ D. In paragraph (a)(4) by removing ‘‘;’’ 

and adding in its place ‘‘.’’. 

■ E. In paragraph (a)(5), by removing ‘‘; 

and’’ and adding in its place ‘‘.’’. 

■ F. Adding paragraph (c). 

The revision and addition read as 

follows: 

§ 423.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) * * * 

(3) The adverse effect to enrollees 

which resulted or could have resulted 

from the conduct of the Part D sponsor. 

* * * * * 

(c) Amount of penalty imposed by 

CMS or OIG. CMS or the OIG may 

impose civil money penalties in the 

following amounts for a determination 

made under § 423.752(a): 

(1) Civil money penalties of not more 

than $25,000 for each determination 

made. 

(2) With respect to a determination 

made under § 423.752(a)(4) or (a)(5)(i), 

not more than $100,000 for each such 

determination except with respect to a 

determination made under 

§ 423.752(a)(5), an assessment of not 

more than the amount claimed by such 

plan or PDP sponsor based upon the 

misrepresentation or falsified 

information involved. 

(3) Plus with respect to a 

determination made under 

§ 423.752(a)(2), double the excess 

amount charged in violation of such 

paragraph (and the excess amount 

charged must be deducted from the 

penalty and returned to the individual 

concerned). 

(4) Plus with respect to a 

determination made under 

§ 423.752(a)(4), $15,000 for each 

individual not enrolled as a result of the 

practice involved. 

■ 40. Amend § 423.1016 by revising the 

first sentence in paragraph (b)(1) to read 

as follows: 

§ 423.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

* * * * * 

(b) * * * 

(1) The other party will have 20 

calendar days from the date of mailing 

or in person filing to submit any rebuttal 

statement or additional evidence. * * * 

* * * * * 

■ 41. Amend § 423.1020 by revising 

paragraph (a)(2) to read as follows: 

§ 423.1020 Request for hearing. 

(a) * * * 

(2) The Part D sponsor or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days after 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

* * * * * 

■ 42. Amend § 423.2274 by: 

■ A. Revising the introductory text. 

■ B. Redesignating paragraphs (a) 

through (f) as (b) through (g). 

■ C. Adding new paragraph (a). 

■ D. Revising newly redesignated 

paragraph (b). 

■ E. Adding paragraph (h). 

The revisions and additions read as 

follows: 

§ 423.2274 Broker and agent requirements. 

If a Part D sponsor uses agents and 

brokers to sell its Part D plans, the 

following requirements in this section 

are applicable. 

(a) Definitions. For purposes of this 

section, the following definitions are 

applicable: 

Compensation—(1) Includes 

monetary or non-monetary 

remuneration of any kind relating to the 

sale or renewal of a policy including, 

but not limited to— 

(i) Commissions; 

(ii) Bonuses; 

(iii) Gifts; 

(iv) Prizes or Awards; or 

(v) Referral or Finder fees. 

(2) Does not include— 

(i) Payment of fees to comply with 

State appointment laws, training, 

certification, and testing costs; 

(ii) Reimbursement for mileage to, and 

from, appointments with beneficiaries; 

or 

(iii) Reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. 

Like plan type means one of the 

following: 

(1) PDP replaced with another PDP. 

(2) MA or MA–PD replaced with 

another MA or MA–PD. 

(3) Cost plan replaced with another 

cost plan. 

Unlike plan type means one of the 

following: 

(1) PDP replaced with an MA–PD or 

an MA–PD replaced with a PDP. 

(2) PDP replaced with a cost plan or 

a cost plan replaced with a PDP. 

(3) MA–PD replaced with a cost plan 

or a cost plan replaced with an MA–PD. 

Plan year means the year beginning 

January 1 and ending December 31. 

Renewal year means all years 

following the initial enrollment year in 

a like plan type. 

(b) Compensation rules. A Part D 

sponsor must compensate independent 

brokers and agents, if compensation is 

paid, only according to the following 

rules in this section. 

(1) Compensation amounts. (i) For an 

initial year enrollment of a Medicare 

beneficiary into a Part D plan, the 

compensation must be at or below the 

fair market value of such services, 

published annually as a cut-off amount 

by CMS. 

(ii) For renewal years, compensation 

may be up to 50 percent of the current 

fair market value cut-off amounts 

published annually by CMS. 

(iii) If the Part D sponsor contracts 

with a third party entity such as a Field 

Marketing Organization or similar type 

entity to sell its insurance products, or 

perform services (for example, training, 

customer service, or agent 

recruitment)— 

(A) The total amount paid by the Part 

D sponsor to the third party and its 

agents for enrollment of a beneficiary 

into a plan, if any, must be made in 

accordance with paragraph (b)(1) of this 

section; and 

(B) The amount paid to the third party 

for services other than selling insurance 

products, if any, must be fair-market 

value and must not exceed an amount 

that is commensurate with the amounts 

paid by the Part D sponsor to a third 

party for similar services during each of 

the previous 2 years. 

(2) Aggregate compensation. (i) An 

entity must not provide aggregate 

compensation to its agents or brokers 

greater than the renewal compensation 

payable by the replacing plan on 

renewal policies if an existing policy is 

replaced with a like plan at any time. 

(ii) An agent or broker must not 

receive aggregate compensation greater 

than the renewal compensation payable 

by the replacing plan on renewal 

policies if an existing policy is replaced 

with a like plan type at any time. 

(iii) The initial compensation is paid 

for replacements between unlike plan 

types. 

(3) Compensation payment and 

payment recovery. (i) Compensation 

may only be paid for the enrollee’s 


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Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 29967 

months of enrollment during a plan 

year. 

(ii)(A) Subject to paragraph (b)(3)(iii) 

of this section, compensation payments 

may be made at one time for the entire 

current plan year or in installments 

throughout the year. 

(B) Compensation may not be paid 

until January 1 of the enrollment year 

and, if paid at all, must be paid in full 

by December 31 of the enrollment year. 

(iii) When a beneficiary disenrolls 

from an MA plan, compensation paid to 

agents and brokers must be recovered 

for those months of the plan year for 

which the beneficiary is not enrolled. 

For disenrollments occurring within the 

first 3 months, the entire compensation 

must be recovered unless CMS 

determines that recoupment is not in 

the best interests of the Medicare 

program. 

(4) Compensation structure. (i) A Part 

D sponsor must establish a 

compensation structure for new and 

replacement enrollments and renewals 

effective in a given plan year. 

Compensation structures must be in 

place by the beginning of the plan 

marketing period, October 1. 

(ii) Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

* * * * * 

(h) Finder’s (referral) fees. Finder’s 

(referral) fees paid to all agents and 

brokers— 

(1) May not exceed an amount that 

CMS determines could reasonably be 

expected to provide financial incentive 

for an agent or broker to recommend or 

enroll a beneficiary into a plan that is 

not the most appropriate to meet his or 

her needs; and 

(2) Must be included in the total 

compensation not to exceed the fair 

market value for that calendar year. 

Subpart Y—[Reserved] 

■ 43. Part 423 is amended by adding 

reserved subpart Y. 

■ 44. Part 423 is amended by adding 

subpart Z to read as follows: 

Subpart Z—Recovery Audit Contractor Part 

D Appeals Process 

Sec. 

423.2600 Payment appeals. 

423.2605 Request for reconsideration. 

423.2610 Hearing official review. 

423.2615 Review by the Administrator. 

Subpart Z—Recovery Audit Contractor 

Part C Appeals Process 

§ 423.2600 Payment appeals. 

If the Part D RAC did not apply its 

stated payment methodology correctly, a 

Part D plan sponsor may appeal the 

findings of the applied methodology. 

The payment methodology itself is not 

subject to appeal. 

§ 423.2605 Request for reconsideration. 

(a) Time for filing a request. The 

request for reconsideration must be filed 

with the designated independent 

reviewer within 60 calendar days from 

the date of the demand letter received 

by the Part D plan sponsor. 

(b) Content of request. (1) The request 

for reconsideration must be in writing 

and specify the findings or issues with 

which the Part D plan sponsor 

disagrees. 

(2) The Part D plan sponsor must 

include with its request all supporting 

documentary evidence it wishes the 

independent reviewer to consider. 

(i) This material must be submitted in 

the format requested by CMS. 

(ii) Documentation, evidence, or 

substantiation submitted after the filing 

of the reconsideration request will not 

be considered. 

(c) CMS Rebuttal. CMS may file a 

rebuttal to the Part D plan sponsor’s 

reconsideration request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the review 

entity’s notification to CMS that it has 

received the Part D plan sponsor’s 

reconsideration request. 

(2) CMS sends its rebuttal to the Part 

D plan sponsor at the same time it is 

submitted to the independent reviewer. 

(d) Review entity. An independent 

reviewer conducts the reconsideration. 

The independent reviewer reviews the 

demand for repayment, the evidence 

and findings upon which it was based, 

and any evidence that the Part D plan 

sponsor or CMS submitted in 

accordance with this section. 

(e) Notification of decision. The 

independent reviewer informs CMS and 

the Part D plan sponsor of its decision 

in writing. 

(f) Effect of decision. A 

reconsideration decision is final and 

binding unless the Part D plan sponsor 

requests a hearing official review in 

accordance with § 423.2610. 

(g) Right to hearing official review. A 

Part D plan sponsor that is dissatisfied 

with the independent reviewer’s 

reconsideration decision is entitled to a 

hearing official review as provided in 

§ 423.2610. 

§ 423.2610 Hearing official review. 

(a) Time for filing a request. A Part D 

plan sponsor must file with CMS a 

request for a hearing official review 

within 30 calendar days from the date 

of the independent reviewer’s issuance 

of a determination. 

(b) Content of the request. (1) The 

request must be in writing and must 

provide evidence or reasons or both to 

substantiate the request. 

(2) The Part D plan sponsor must 

submit with its request all supporting 

documentation, evidence, and 

substantiation that it wants to be 

considered. 

(3) No new evidence may be 

submitted. 

(4) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(c) CMS rebuttal. CMS may file a 

rebuttal to the Part D plan sponsor’s 

hearing official review request. 

(1) The rebuttal must be submitted 

within 30 calendar days of the Part D 

plan sponsor’s submission of its hearing 

official review request. 

(2) CMS sends its rebuttal to the Part 

D plan sponsor at the same time it is 

submitted to the hearing official. 

(d) Conducting a review. A CMSdesignated hearing official conducts the 

hearing on the record. 

(1) The hearing is not to be conducted 

live or via telephone unless the hearing 

official, in his or her sole discretion, 

requests a live or telephonic hearing. 

(2) In all cases, the hearing official’s 

review is limited to information that 

meets one or more of the following: 

(i) The Part D RAC used in making its 

determinations. 

(ii) The independent reviewer used in 

making its determinations. 

(iii) The Part D plan sponsor submits 

with its hearing request. 

(iv) CMS submits in accordance with 

paragraph (c) of this section. 

(3) Neither the Part D plan sponsor 

nor CMS may submit new evidence. 

(e) Hearing official decision. The CMS 

hearing official decides the case within 

60 days and sends a written decision to 

the Part D plan sponsor and CMS, 

explaining the basis for the decision. 

(f) Effect of hearing official decision. 

The hearing official’s decision is final 

and binding, unless the decision is 

reversed or modified by the CMS 

Administrator in accordance with 

§ 423.2610. 

§ 423.2615 Review by the Administrator. 

(a) Request for review by 

Administrator. If a Part D plan sponsor 

is dissatisfied with the hearing official’s 

decision, it may request that the CMS 

Administrator review the decision. 

(1) The request must be filed with the 

CMS Administrator within 30 calendar 

days of the date of the hearing official’s 

decision. 

(2) The request must provide evidence 

or reasons to substantiate the request. 

(b) Content of request. The Part D plan 

sponsor must submit with its request all 


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29968 Federal Register / Vol. 79, No. 100 / Friday, May 23, 2014 / Rules and Regulations 

supporting documentation, evidence, 

and substantiation that it wants to be 

considered. 

(1) Documentation, evidence, or 

substantiation submitted after the filing 

of the request will not be considered. 

(2) Neither the Part D plan sponsor 

nor CMS may submit new evidence. 

(c) Discretionary review. After 

receiving a request for review, the CMS 

Administrator has the discretion to 

review the hearing official’s decision in 

accordance with paragraph (e) of this 

section or to decline to review said 

decision. 

(d) Notification of decision whether to 

review. The CMS Administrator notifies 

the Part D plan sponsor within 45 days 

of receiving the Part D plan sponsor’s 

hearing request of whether he or she 

intends to review the hearing official’s 

decision. If the Administrator agrees to 

review the hearing official’s decision, 

CMS may file a rebuttal statement 

within 30 days of the Administrator’s 

notice to the plan sponsor that the 

request for review has been accepted. 

CMS sends its rebuttal statement to the 

plan sponsor at the same time it is 

submitted to the Administrator. If the 

CMS Administrator declines to review 

the hearing official’s decision, the 

hearing official’s decision is final and 

binding. 

(e) Administrator review. If the CMS 

Administrator agrees to review the 

hearing official’s decision, he or she 

determines, based upon this decision, 

the hearing record, and any arguments 

submitted by the Part D plan sponsor or 

CMS in accordance with this section, 

whether the determination should be 

upheld, reversed, or modified. The CMS 

Administrator furnishes a written 

decision, which is final and binding, to 

the Part D plan sponsor and to CMS. 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

■ 45. The authority citation for part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

■ 46. Amend § 424.530 by adding 

paragraph (a)(11) to read as follows: 

§ 424.530 Denial of enrollment in the 

Medicare program. 

(a) * * * 

(11) Prescribing authority. (i) A 

physician or eligible professional’s Drug 

Enforcement Administration (DEA) 

Certificate of Registration to dispense a 

controlled substance is currently 

suspended or revoked; or 

(ii) The applicable licensing or 

administrative body for any State in 

which a physician or eligible 

professional practices has suspended or 

revoked the physician or eligible 

professional’s ability to prescribe drugs, 

and such suspension or revocation is in 

effect on the date the physician or 

eligible professional submits his or her 

enrollment application to the Medicare 

contractor. 

* * * * * 

■ 44. Amend § 424.535 by revising the 

section heading and adding paragraphs 

(a)(13) and (14) to read as follows: 

§ 424.535 Revocation of enrollment in the 

Medicare program. 

(a) * * * 

(13) Prescribing authority. (i) The 

physician or eligible professional’s Drug 

Enforcement Administration (DEA) 

Certificate of Registration is suspended 

or revoked; or 

(ii) The applicable licensing or 

administrative body for any state in 

which the physician or eligible 

professional practices suspends or 

revokes the physician or eligible 

professional’s ability to prescribe drugs. 

(14) Improper prescribing practices. 

CMS determines that the physician or 

eligible professional has a pattern or 

practice of prescribing Part D drugs that 

falls into one of the following categories: 

(i) The pattern or practice is abusive 

or represents a threat to the health and 

safety of Medicare beneficiaries or both. 

In making this determination, CMS 

considers the following factors: 

(A) Whether there are diagnoses to 

support the indications for which the 

drugs were prescribed. 

(B) Whether there are instances when 

the necessary evaluation of the patient 

for whom the drug was prescribed could 

not have occurred (for example, the 

patient was deceased or out of state at 

the time of the alleged office visit). 

(C) Whether the physician or eligible 

professional has prescribed controlled 

substances in excessive dosages that are 

linked to patient overdoses. 

(D) The number and type(s) of 

disciplinary actions taken against the 

physician or eligible professional by the 

licensing body or medical board for the 

State or States in which he or she 

practices, and the reason(s) for the 

action(s). 

(E) Whether the physician or eligible 

professional has any history of ‘‘final 

adverse actions’’ (as that term is defined 

in § 424.502). 

(F) The number and type(s) of 

malpractice suits that have been filed 

against the physician or eligible 

professional related to prescribing that 

have resulted in a final judgment against 

the physician or eligible professional or 

in which the physician or eligible 

professional has paid a settlement to the 

plaintiff(s) (to the extent this can be 

determined). 

(G) Whether any State Medicaid 

program or any other public or private 

health insurance program has restricted, 

suspended, revoked, or terminated the 

physician or eligible professional’s 

ability to prescribe medications, and the 

reason(s) for any such restriction, 

suspension, revocation, or termination. 

(H) Any other relevant information 

provided to CMS. 

(ii) The pattern or practice of 

prescribing fails to meet Medicare 

requirements. In making this 

determination, CMS considers the 

following factors: 

(A) Whether the physician or eligible 

professional has a pattern or practice of 

prescribing without valid prescribing 

authority. 

(B) Whether the physician or eligible 

professional has a pattern or practice of 

prescribing for controlled substances 

outside the scope of the prescriber’s 

DEA registration. 

(C) Whether the physician or eligible 

professional has a pattern or practice of 

prescribing drugs for indications that 

were not medically accepted—that is, 

for indications neither approved by the 

FDA nor medically accepted under 

section 1860D–2(e)(4) of the Act—and 

whether there is evidence that the 

physician or eligible professional acted 

in reckless disregard for the health and 

safety of the patient. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; Program No. 93.774, Medicare— 

Supplementary Medical Insurance Program) 

Dated: April 30, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: May 1, 2014. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–11734 Filed 5–19–14; 2:56 pm] 

BILLING CODE 4120–01–P 


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