Thursday, 

April 15, 2010 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 417, 422, 423, and 480 

Medicare Program; Policy and Technical 

Changes to the Medicare Advantage and 

the Medicare Prescription Drug Benefit 

Programs; Final Rule 


sroberts on DSKD5P82C1PROD with RULES
19678 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, 423, and 480 

[CMS–4085–F] 

RIN 0938–AP77 

Medicare Program; Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule makes 

revisions to the regulations governing 

the Medicare Advantage (MA) program 

(Part C) and prescription drug benefit 

program (Part D) based on our 

continued experience in the 

administration of the Part C and D 

programs. The revisions strengthen 

various program participation and exit 

requirements; strengthen beneficiary 

protections; ensure that plan offerings to 

beneficiaries include meaningful 

differences; improve plan payment rules 

and processes; improve data collection 

for oversight and quality assessment, 

implement new policies and clarify 

existing program policy. 

DATES: Effective Date: These regulations 

are effective on June 7, 2010. However, 

we note that because health and drug 

plans under the Part C and D programs 

operate under contracts with CMS that 

are applicable on a calendar year basis, 

the provisions will not be applicable 

prior to contract year January 1, 2011, 

except where otherwise noted. 

FOR FURTHER INFORMATION CONTACT: 

Alissa Deboy, (410) 786–6041, General 

information and Part D issues. 

Sabrina Ahmed, (410) 786–7499, Part C 

issues. 

Terry Lied, (410) 786–8973, Collection 

of information requirements and 

regulatory impact analysis issues. 

Kristy Nishimoto, (410) 786–8517, Part 

C and D enrollment and appeals 

issues. 

Jennifer Smith, (410) 786–2987, Part C 

and D compliance and sanction 

issues. 

Frank Szeflinski, (303) 844–7119, Part C 

payment issues. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Overview of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 

B. History and Overview 

II. Provisions of the Proposed Rule and 

Analysis and Responses to Public 

Comments 

A. Changes to Strengthen Our Ability To 

Distinguish for Approval Stronger 

Applicants for Part C and D Program 

Participation and To Remove 

Consistently Poor Performers 

1. Require Notice of Intent to Apply Under 

Part C and D Within the Application 

Requirements (§ 422.501 and § 423.502) 

2. Application Requirements (§ 422.501(c) 

and § 423.502(c)) and Evaluation and 

Determination Procedures for 

Determining Whether Applicants are 

Qualified for a Contract Under Parts C 

and D (§ 422.502 and § 423.503) 

3. Deny Contract Qualification 

Applications Based on Past Contract 

Performance (§ 423.750 and § 422.750) 

4. Use of Data to Evaluate Continued 

Ability to Act as a Qualified Sponsoring 

Organization Under Parts C and D 

(§ 422.504, and § 423.505) 

5. Compliance Programs Under Part C and 

D (§ 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi)) 

6. Network Adequacy of Coordinated Care 

and Network-Based Private Fee-forService Plans Under Part C (§ 422.112) 

7. Deemable Program Requirements Under 

Parts C and D (§ 422.156(b) (7), § 422.156 

(f), § 423.165(b), and § 423.165(f)) 

8. Modify the Corrective Action Plan (CAP) 

Process as it Relates to Procedures for 

Termination and Nonrenewal of a Part C 

or D Contract By CMS (§ 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1)) 

9. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Part C and D (§ 422.756 and 

423.756) 

10. Termination of Contracts Under Parts C 

and D (§ 422.510(a) and § 423.509(a)) 

11. Request for Hearing Under Parts C and 

D (§ 422.662 and § 423.651) 

12. Burden of Proof, Standard of Proof, 

Standard of Review and Conduct of 

Hearing (§ 422.660, § 423.650, § 422.676, 

and § 423.658) 

13. Expedited Contract Terminations 

Procedures (§ 422.510, § 423.509, 

§ 422.664, § 423.652, § 422.644, and 

§ 423.642) Under Parts C and D 

14. Time and Place of Hearing Under Parts 

C and D (§ 422.670 and § 423.655) 

15. Discovery Under Parts C and D 

(§ 422.682 and § 423.661) 

16. Review by the Administrator Under 

Parts C and D (§ 422.692(a) and 

§ 423.666(a)) 

17. Reopening of an Initial Contract 

Determination or Decision of a Hearing 

Officer or the Administrator Under Parts 

C and D (§ 422.696 and § 423.668) 

18. Prohibition of MA and Part D 

Applications for 2 Years after a Mutual 

Termination (§ 422.503(b)(6) and 

§ 423.504(b)(5)) 

B. Changes to Strengthen Beneficiary 

Protections 

1. Broker and Agent Requirements Under 

Parts C and D 

2. Beneficiary Communications Materials 

Under Parts C and D (§ 422.2260, 

§ 423.2262, § 423.2260, and § 423.2262) 

3. Required Use of Standardized Model 

Materials Under Parts C and D 

(§ 422.2262 and § 423.2262) 

4. Involuntary Disenrollment for Failure to 

Pay Plan Premiums Under Parts C and D 

(§ 422.74 and § 423.44) 

5. Maximum Allowable Out-of-Pocket Cost 

Amount for Medicare Parts A and B 

Services (§ 422.100) 

6. Maximum Allowable Cost Sharing 

Amount for Medicare Parts A and B 

Services and Prescription Drugs 

(§ 422.100 and § 423.104) 

7. Prohibition on Prior Notification by 

PPO, PFFS, and MSA Plans Under Part 

C (§ 422.2, § 422.4, and § 422.105) 

8. Requirements for LIS Eligibility Under 

Part D (§ 423.773) 

9. Enrollment of Full Subsidy Eligible 

Individuals and Other Subsidy Eligible 

Individuals Under Part D (§ 423.34) 

10. Special Enrollment Periods Under Part 

D (§ 423.380) 

11. Transition Process Under Part D 

(§ 423.120(b)(3)) 

12. Part D Sponsor Responsibility for 

Retroactive Claims Adjustment 

Reimbursements and Recoveries Under 

Part D (§ 423.464) 

13. Time Limits for Coordination of 

Benefits (§ 423.466) 

14. Use of Standardized Technology Under 

Part D (§ 423.120) 

15. Absence from Service Area for More 

Than 12 Months Under Part D (§ 423.44) 

16. Prohibition of Mid Year Mass 

Enrollment Changes by SPAPS Under 

Part D (§ 423.464(e)) 

17. Non-renewal Beneficiary Notification 

Requirement Under Parts C and D 

(§ 422.506 and § 423.507) 

18. Notice of Alternative Medicare Plans 

Available to Replace Non-Renewing 

Plans Under Parts C and D 

(§ 422.506(a)(2)(ii) and 

§ 423.507(a)(2)(ii)) 

19. Timeframes and Responsibilities for 

Making Redeterminations Under Part D 

(§ 423.590) 

20. Requirements for Requesting 

Organization Determinations Under Part 

C (§ 422.568) 

21. Organization Determinations Under 

Part C (§ 422.566 and § 422.568) 

22. Representatives (§ 422.561, § 422.574, 

and § 422.624) 

23. Disclosure Requirements Under Parts C 

and D (§ 422.111(g) and § 423.128(f)) 

24. Definition of MA Plan Service Area 

(§ 422.2) 

C. Changes to Provide Plan Offerings With 

Meaningful Differences 

1. Meaningful Differences in Bid 

Submissions and Bid Review (§ 422.254, 

§ 423.265, § 422.256, and 423.272) 

2. Transition Process in Cases of 

Acquisitions and Mergers (§ 422.256 and 

§ 423.272) 

3. Non-renewing Low-enrollment Plans 

(§ 422.506(b)(1)(iv) and 

§ 423.507(b)(1)(iii)) 

4. Medicare Options Compare and 

Medicare Prescription Drug Plan Finder 


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D. Changes to Improve Payment Rules and 

Processes 

1. Definitions Related to Risk Adjustment 

Data Validation Appeals (§ 422.2) and 

Proposed Addition of Medicare 

Advantage Organization Risk 

Adjustment Data Validation—Dispute 

and Appeal Procedures (§ 422.311) 

2. Payments to Medicare Advantage 

Organizations—Certification of Actuarial 

Valuation (§ 422.254) 

3. Determination of Acceptable 

Administrative Cost by HMO/CMP Cost 

Contractors and Health Care Prepayment 

Plans (HCPPs) (§ 417.564) 

4. Calculation of the Minimum Percentage 

Increase Under Part C (§ 422.306) 

E. Changes to Improve Data Collection for 

Oversight and Quality Assessment 

1. Requirements for Quality Improvement 

Programs Under Part C (§ 422.152, 

§ 422.153, and § 480.140) 

a. Quality Improvement Programs 

b. New Quality Measures 

c. Use of Quality Improvement 

Organization Review Information 

2. CAHPS Survey Administration Under 

Parts C and D (§ 417.472, § 422.152, and 

§ 423.156) 

3. Validation of Part C and Part D 

Reporting Requirements (§ 422.516 and 

§ 423.514) 

4. Collection of Additional Part D Claims’ 

Elements for Nonpayment-Related 

Purposes (§ 423.505) 

F. Changes to Implement New Policy 

1. Protected Classes of Concern Under Part 

D (§ 423.120(b)(2)(v)) 

2. Pro-rating the Plan Deductible for Part C 

MSA Enrollments Occurring During an 

Initial Coverage Election Period 

(§ 422.103) 

G. Changes to Clarify Various Program 

Participation Requirements 

1. Uniform Benefits Under Parts C and D 

(§ 422.100(d) and § 423.104)) 

2. Ensuring the Security of Protected 

Health Information and Other Personally 

Identifiable Information (§ 422.504 and 

§ 423.505) 

3. Requirement for Sponsoring 

Organizations Under Parts C and D to 

Report Other Payer Information to the 

Coordination of Benefits Contractor 

(§ 422.108 and § 423.464) 

4. Visitor/Traveler Benefit Under Part C for 

the Purpose of Extending Enrollment Up 

to 12 Months (§ 422.74) 

5. Medication Therapy Management 

Programs Under Part D (§ 423.153(d)) 

6. Formulary Requirements—Development 

and Revision by a Pharmacy and 

Therapeutics Committee (§ 423.120) 

7. Generic Equivalent Disclosure Under 

Part D (§ 423.132) 

8. Access to Covered Part D drugs 

(§ 423.120) 

9. Standard Timeframe and Notice 

Requirements for Coverage 

Determinations Under Part D (§ 423.568) 

10. Expediting Certain Coverage 

Determinations (§ 423.570) 

11. Timeframes and Notice Requirements 

for Expedited Coverage Determinations 

(§ 423.572) 

12. Clarify Novation Agreements Under 

Part D (§ 423.551) 

13. Cost Contract Program Revisions: 

Appeals and Marketing Requirements 

(§ 417.428, § 417.494, § 417.500, and 

§ 417.640) 

a. Cost Contract Determinations (§ 417.492 

and 417.494), Civil Money Penalties 

(§ 417.500), and Intermediate Sanctions 

(§ 417.500) 

b. Extending MA Marketing Requirements 

to Cost Program Plans (§ 417.428) 

14. Out of Scope Comments 

H. Changes to Implement Corrections and 

Other Technical Changes 

1. Application of Subpart M to Health Care 

Prepayment Plans (§ 417.840) 

2. Generic Notice Delivery Requirements 

(§ 422.622 and 422.626) 

3. Revision to Definition of Gross Covered 

Prescription Drug Costs (§ 423.308) 

4. Application Evaluation Procedures 

(§ 422.502(c and d) and § 423.503(c and 

d)) 

5. Intermediate Sanctions (§ 422.750(a) and 

§ 423.750(a)) 

6. Basis for Imposing Intermediate 

Sanctions and Civil Money Penalties 

(§ 422.752 and § 423.752) 

III. Provisions of the Final Rule 

IV. Collection of Information Requirements 

A. ICRs Regarding Basic Contract 

Requirements (§ 417.472) 

B. ICRs Regarding Apportionment and 

Allocation of Administrative and 

General Costs (§ 417.564) 

C. ICRs Regarding Medicare Secondary 

Payer (MSP) Procedure (§ 422.108 and 

§ 423.462) 

D. ICRs Regarding Disclosure Requirements 

(§ 422.111) 

E. ICRs Regarding Quality Improvement 

Program (§ 422.152) 

F. ICRs Regarding Application 

Requirements (§ 422.501 and § 423.502) 

G. ICRs Regarding General Provisions 

(§ 422.503 and § 423.504) 

H. ICRs Regarding Contract Provisions 

(§ 422.504 and 423.505) 

I. ICRs Regarding Nonrenewal of Contract 

(§ 422.506 and § 423.507) 

J. ICRs Regarding Request for Hearing 

(§ 422.662 and § 423.651) 

K. ICRs Regarding Time and Place of 

Hearing (§ 422.670 and § 423.655) 

L. ICRs Regarding Review by the 

Administrator (§ 422.692 and § 423.666) 

M. ICRs Regarding Procedures for Imposing 

Intermediate Sanctions and Civil 

Monetary Penalties (§ 422.756 and 

§ 423.756) 

N. ICRs Regarding Disclosure of Part D 

Plan Information (§ 423.128) 

O. ICRs Regarding Consumer Satisfaction 

Surveys (§ 423.156) 

P. ICRs Regarding Validation of Part C and 

Part D Reporting Requirements 

(§ 422.516 and § 423.514) 

Q. ICRs Regarding Drug Utilization 

Management, Quality Assurance, and 

Medication Therapy Management 

Programs (MTMPs) (§ 423.153) 

R. ICRs Regarding Timeframes and Notice 

Requirements for Standard Coverage 

Determinations (§ 423.568) 

S. ICRs Regarding Timeframes and Notice 

Requirements for Expedited Coverage 

Determinations (§ 423.572) 

T. ICRs Regarding Access to Covered Part 

D Drugs (§ 423.120) 

U. ICRs Regarding Timeframes and 

Responsibility for Making 

Redeterminations (§ 423.590) 

V. Annual Information Collection Burden 

V. Regulatory Impact Analysis 

A. Need for Regulatory Action 

B. Overall Impact 

C. Increase in Costs to MA Organizations 

and Part D Sponsors 

D. Expected Benefits 

E. Anticipated Effects—Effects of Cap on 

Out-of-Pocket Costs and Cost Sharing 

Amounts 

F. Alternatives Considered 

1. Strengthening CMS’ Ability to Take 

Timely, Effective Contract 

Determinations or Intermediate 

Sanctions (Part C & D) 

2. Changing the Standards of Review, 

Clarifying the Standard of Proof and 

Burden of Proof for Appeals, and 

Modifying the Conduct of Hearing for 

Contract Decisions (Including Denials of 

Initial Applications to Contract, Service 

Area Expansions for Existing Contracts, 

Contract Non-Renewals and 

Terminations, and Intermediate 

Sanctions) 

3. Clarify That CMS May Require a ‘‘Test 

Period’’ During an Enrollment/Marketing 

Sanction 

4. Right for CMS to Require an 

Independent Audit of Sponsoring 

Organizations under Intermediate 

Sanction 

5. The Ability for CMS to Require Sponsors 

to Disclose To Current and Potential 

Enrollees Compliance and Performance 

Deficiencies 

6. Reducing Duplicative and Low 

Enrollment Plans (Parts C & D) 

7. Validation of Part C and Part D 

Reporting Requirements 

G. Accounting Statement 

H. Conclusion 

Regulations Text 

Acronyms 

AO Accrediting Organization 

ADS Dispensing System 

AEP Annual Enrollment Period 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service—Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ALJ Administrative Law Judge 

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) 

CAHPS Consumer Assessment Health 

Providers Survey 

CAP Corrective Action Plan 

CCIP Chronic Care Improvement Program 

CCS Certified Coding Specialist 

CMR Comprehensive Medical Review 

CMP Civil Money Penalties 


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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 

DOL U.S. Department of Labor 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171) 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

ESRD End-stage renal disease 

FACA Federal Advisory Committee Act 

FDA Food and Drug Administration (HHS) 

FEHBP Federal Employees Health Benefits 

Plan 

FFS Fee-For-Service 

FY Fiscal year 

GAO General Accounting Office 

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 

ICD–9–CM Internal Classification of 

Disease, 9th, Clinical Modification 

Guidelines 

ICEP Initial Coverage Enrollment Period 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

IVC Initial Validation Contractor 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LTC Long Term Care 

LTCF Long Term Care Facility 

MA Medicare Advantage 

MAAA American Academy of Actuaries 

MAO Medicare Advantage Operations 

MA–PD Medicare Advantage-Prescription 

Drug Plans 

M+C Medicare+Choice program 

MPDPF Medicare Prescription Drug Plan 

Finder 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MSA Metropolitan statistical area 

MSAs Medical Savings Accounts 

MSP Medicare Secondary Payer 

MTM Medication Therapy Management 

MTMP Medication Therapy Management 

Programs 

NAIC National Association Insurance 

Commissioners 

NCPDP National Council for Prescription 

Drug Programs 

NGC National Guideline Clearinghouse 

NIH National Institutes of Health 

NOMNC Notice of Medicare Non-coverage 

OEP Open Enrollment Period 

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 

Programs 

PPACA Patient Protection and Affordable 

Care Act (Pub. L. 111–148) 

PBM Pharmacy Benefit Manager 

PDE Prescription Drug Event 

PDP Prescription drug plan 

PFFS Private Fee For Service Plan 

POS Point of service 

PPO Preferred Provider Organization 

PPS Prospective Payment System 

P&T Pharmacy & Therapeutics 

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 

RHIA Registered Health Information 

Administrator 

RHIT Registered Health Information 

Technician 

SCHIP State Children’s Health Insurance 

Programs 

SEP Special Enrollment Periods 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSI Supplemental Security Income 

TrOOP True Out Of Pocket 

U&C Usual and Customary 

USP U.S. Pharmacopoeia 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Overview of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 

The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173) was 

enacted on December 8, 2003. The 

MMA established the Part D program 

and made revisions to the provisions in 

Part C of the Medicare statute governing 

the Medicare Advantage (MA) program. 

The MMA directed that important 

aspects of the new Medicare 

prescription drug benefit program under 

Part D 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 for the MA and Part D 

prescription drug programs appeared in 

the Federal Register on January 28, 

2005 (70 FR 4588–4741 and 70 FR 

4194–4585, respectively). While the 

provisions of the final rule did not 

govern plan payment or benefits until 

January 1, 2006, given the fact that 

provisions relating to applications, 

marketing, contracts, and the new 

bidding process for the MA and Part D 

programs, many provisions in these 

final rules became effective on March 

22, 2005, 60 days after publication of 

the rule. 

As we have gained experience with 

the MA program and the prescription 

drug benefit program, we periodically 

have revised the Part C and D 

regulations to continue to improve or 

clarify existing policies and/or codify 

current guidance for both programs. For 

example, in December 2007, we 

published a final rule with comment on 

contract determinations involving 

Medicare Advantage (MA) organizations 

and Medicare Part D prescription drug 

plan sponsors (72 FR 68700). In April 

2008, we published a final rule to 

address policy and technical changes to 

the Part D program (73 FR 20486). In 

September 2008 and January 2009, we 

finalized revisions to both the Medicare 

Advantage and prescription drug benefit 

programs (73 FR 54226 and 74 FR 1494, 

respectively) to implement provisions in 

the Medicare Improvement for Patients 

and Providers Act (MIPPA) (Pub. L. 

110–275), which contained provisions 

impacting both the Medicare Part C and 

D programs, and make other policy 

clarifications based on experience with 

both programs (73 FR 54208, 73 FR 

54226, and 74 FR 2881). 

B. History and Overview 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) established a 

new ‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act) which 

provided for what was then called the 

Medicare+Choice (M+C) program. 

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

every individual entitled to Medicare 

Part A and enrolled under Medicare Part 

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

to receive benefits either through the 

original Medicare program or an M+C 

plan, if one was offered where he or she 

lived. The primary goal of the M+C 

program was to provide Medicare 

beneficiaries with a wider range of 

health plan choices. The M+C 

provisions in Part C were amended by 

the Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA) (Pub. L. 106–111), and 

further amended by the Medicare, 

Medicaid, and State Children’s Health 

Insurance Program SCHIP) Benefits 

Improvement Act of 2000 (BIPA) (Pub. 

L. 106–554). 

As discussed above, the MMA, 

enacted on December 8, 2003, added a 

new ‘‘Part D’’ to the Medicare statute 

(sections 1860D–1 through 42 of the 

Act) creating the Medicare Prescription 

Drug Benefit Program, and made 

significant changes to the M+C program. 


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Also as noted above, MIPPA, enacted 

on July 15, 2008, addressed a number of 

provisions impacting the Part C and D 

programs, including provisions 

impacting marketing under both 

programs which were implemented in 

regulations published in the Federal 

Register on September 18, 2008 (73 FR 

54208), a final rule effective October 1, 

2008, that paralleled provisions in 

MIPPA, and in the same issue of the 

Federal Register (73 FR 54226), a 

separate interim final rule that 

addressed the other provisions of 

MIPPA affecting the MA and Part D 

programs. We also clarified the MIPPA 

marketing provisions in a November 

2008 interim final rule (73 FR 67407 

and issued a separate interim final rule 

in January 2009 to address MIPPA 

provisions related to Part D plan 

formularies (74 FR 2881). 

In October 22, 2009 Federal Register 

(74 FR 54634), we published a proposed 

rule (file code CMS–4085–P), 

hereinafter referred to as the October 22, 

2009 proposed rule) addressing 

additional policy clarifications under 

the Part C and D programs. As noted 

when issuing this proposed rule, we 

believe that additional programmatic 

and operational changes are needed in 

order to further improve our oversight 

and management of the Part C and D 

programs and to further improve 

beneficiary experience under MA or 

Part D plans. 

Indeed, one of the primary reasons set 

forth in the preamble for issuing the 

October 22, 2009 proposed rule was to 

address beneficiary concerns associated 

with the annual task of selecting one 

plan from so many options. We noted 

that while it is clear that the Medicare 

Part D program has improved access to 

drug coverage for elderly and offered 

beneficiaries a wide range of plans from 

which to choose, some have suggested 

that a significant numbers of 

beneficiaries are confused by the array 

of choices and find it difficult to make 

enrollment decisions that are best for 

them. Moreover, experience has shown 

that organizations submitting bids under 

Part C and D to offer multiple plans 

have not consistently submitted plan 

benefit designs that were significantly 

different from each other, which can 

add to beneficiary confusion. In this 

rule, we finalize a number of proposals 

to the way we administer the Part C and 

D programs to promote beneficiaries 

making the best plan choice that suits 

their needs. Although we believe these 

provisions will go a long way to further 

that goal, we are committed to 

additional explorations of ways to 

structure choices for seniors to aid them 

in making better plan choices, and will 

continue to evaluate program changes in 

this area. 

We also proposed additional 

provisions aimed at strengthening 

existing beneficiary protections, 

improving payment rules and processes, 

enhancing our ability to pursue data 

collection for oversight and quality 

assessment, strengthening formulary 

policy, and finalizing a number of 

clarifications and technical corrections 

to existing policy. Except as noted or 

otherwise modified, we finalize these 

requirements in this rule. 

Section 902 of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) 

amended section 1871(a) of the Act and 

requires the Secretary, in consultation 

with the Director of the Office of 

Management and Budget, to establish 

and publish timelines for the 

publication of Medicare final 

regulations based on the previous 

publication of a Medicare proposed or 

interim final regulation. Section 902 of 

the MMA also states that the timelines 

for these regulations may vary but shall 

not exceed 3 years after publication of 

the preceding proposed or interim final 

regulation except under exceptional 

circumstances. 

This final rule has been published 

within the 3-year time limit imposed by 

section 902 of the MMA, and thus is in 

accordance with the Congress’ intent to 

ensure timely publication of final 

regulations. 

On March 23, 2010, the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148) was enacted. Several 

provisions of this public law affect the 

Part C and D programs. In sections II.B. 

and II.F. of this final rule, we provide 

a discussion of the effects of two of 

these provisions on our proposed 

policies regarding MA cost sharing and 

‘‘protected classes’’ of drugs under Part 

D, respectively. 

II. Provisions of the Proposed Rule and 

Analysis and Responses to Public 

Comments 

We received approximately 114 items 

of timely correspondence containing 

comments on the October 22, 2009 

proposed rule. Commenters included 

health and drug plan organizations, 

insurance industry trade groups, 

pharmacy associations, pharmaceutical 

benefit manager (PBM) organizations, 

provider associations, representatives of 

hospital and long term care institutions, 

drug manufacturers, mental health and 

disease specific advocacy groups, 

beneficiary advocacy groups, 

researchers, and others. 

In this final rule, we address all 

timely comments and concerns on the 

policies included in the proposed rule. 

We note that there were several 

comments submitted that were outside 

the scope of the proposals set forth in 

the proposed rule and, as such, we do 

not address them within this final rule. 

Generally, the commenters supported 

our efforts to improve plan offerings by 

the same sponsor that are meaningfully 

different from each other in order to 

support improved beneficiary decision 

making and our efforts to clarify and 

codify existing policy through 

rulemaking. 

A. Changes to Strengthen Our Ability To 

Distinguish for Approval Strong 

Applicants for Part C and D Program 

Participation and To Remove 

Consistently Poor Performers 

This section finalizes a number of 

proposed revisions designed to 

strengthen our ability to approve strong 

applicants and remove poor performers 

in the Part C and D programs. Since the 

implementation of revisions to the MA 

and initial implementation of the 

prescription drug programs in January 

2006, we have steadily enhanced our 

ability to measure MAO and PDP 

sponsor performance through efforts 

such as the analysis of data provided 

routinely by sponsors and by our 

contractors, regular review of 

beneficiary complaints, marketing 

surveillance activities, and routine 

audits. This information, combined with 

feedback we have received from 

beneficiary satisfaction surveys, HEDIS 

data, and information from MAOs and 

PDP sponsors themselves, has enabled 

us to develop a clearer sense of what 

constitutes a successful Medicare 

organization capable of providing 

quality Part C and D services to 

beneficiaries. Additionally, this 

information has also allowed us to 

identify and take appropriate action 

against organizations that are not 

meeting program requirements and not 

meeting the needs of beneficiaries. 

As set forth below, we are finalizing 

changes and clarifications to our 

regulations to make certain that all 

current and potential MAOs and PDP 

sponsors clearly understand and can 

reasonably anticipate how we measure 

sponsor performance, determine when 

there is noncompliance, and when 

enforcement actions are warranted. 

These provisions are described in 

detail in Table 1. 


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TABLE 1—PROVISIONS STRENGTHENING OUR ABILITY TO DISTINGUISH FOR APPROVAL STRONG APPLICANTS AND TO

REMOVE CONSISTENTLY POOR PERFORMERS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Notice of Intent to Apply .................................................................. Subpart K ... § 422.501 ................... Subpart K ... § 423.502. 

Application Standards ..................................................................... Subpart K ... § 422.502 ................... Subpart K ... § 423.503. 

Compliance Measures/Analysis ...................................................... Subpart K ... § 422.502 ................... Subpart K ... § 423.503. 

Compliance Programs ..................................................................... Subpart K ... § 422.503(b)(4)(vi) ..... Subpart K ... § 423.504(b)(4)(vi). 

Network Adequacy of Coordinated Care and Network-Based Private-Fee-For-Service plans under Part C.Subpart C .. § 422.112 ................... N/A ............. N/A. 

Clarify programmatic elements that are ‘‘deemable’’ ...................... Subpart D .. § 422.156(b)(7), 

§ 422.156(f).

Subpart D .. § 423.165(b), 

§ 423.165(f). 

Procedures for termination and Nonrenewals: Part C and D ......... Subpart K ... § 422.510(c)(1), 

§ 422.506(b)(3).

Subpart K ... § 423.509(c)(1), 

§ 423.507(b)(3). 

Intermediate Sanctions: procedures for imposing civil and money 

penalties.

Subpart O .. § 422.756 ................... Subpart O .. § 423.756. 

Contract Termination ....................................................................... Subpart K ... § 422.510(a) .............. Subpart K ... § 423.509(a). 

Proper request for hearings ............................................................ Subpart N .. § 422.662 ................... Subpart N .. § 423.651. 

Burden of Proof, Standard of Proof, Standard of Review and 

Conduct of Hearing.

Subpart N .. § 422.660, 

§ 422.676(d).

Subpart N .. § 423.650, 

§ 423.658(d). 

Postponement of effective date of determination when a request 

is being filed.

Subpart N .. § 422.664 ................... Subpart N .. § 423.652. 

Extending timeframe for contract determination hearings .............. Subpart N .. § 422.670 ................... Subpart N .. § 423.655.

Appeal times: require each party provide witness list and documents 5 calendar days before hearing.Subpart N .. § 422.682 ................... Subpart N .. § 423.661. 

Appeal times: require request for a review by the administrator 

must be received with 15 days after receipt of hearing decision.

Subpart N ..

§ 422.692(a) 

§ 422.692(a) .............. Subpart N .. § 423.666(a). 

Contract redeterminations and reopening ....................................... Subpart N .. § 422.696 ................... Subpart N .. § 423.668. 

Mutual termination of contract ......................................................... Subpart K ... § 422.503(b)(6) .......... Subpart K ... § 423.504(b)(6). 

1. Require Notice of Intent To Apply 

Under Part C and D Within the 

Application Requirements (§ 422.501 

and § 423.502) 

Under the authority of section 

1871(a)(1) of the Act, which authorizes 

us to prescribe such regulations as may 

be necessary to carry out the 

administration of the Medicare program, 

we proposed an administrative 

requirement in the October 22, 2009 

proposed rule for both the Part C and D 

programs related to the application 

submission to qualify as MA and PDP 

sponsor contractors. We specifically 

proposed in § 422.501 and § 423.502 to 

codify our existing guidance that initial 

applicants and existing contractors 

seeking to expand complete a 

nonbinding Notice of Intent to Apply. 

We noted that as a result of the fully 

electronic submission process and 

restrictions on access to the CMS Health 

Plan Management System (HPMS), 

every applicant must complete a Notice 

of Intent to Apply as described in the 

HPMS memo dated October 10, 2008. 

This includes both initial applicants 

and current contractors seeking to 

expand their organizations’ service area 

and current contractors adding a Special 

Needs Plan (SNP) or an Employer 

Group/Union-Sponsored Waiver Plan 

(EGWP) to their existing contract. 

We also noted that submitting a 

Notice of Intent to Apply does not bind 

that organization to submit an 

application for the following year. 

However, without a pending contract 

number and completed CMS User ID 

connectivity, an organization will not be 

able to access the appropriate modules 

in HPMS to complete the application 

materials. 

In this final rule, we address 

comments received and finalize this 

provision with modification. As 

explained below, we modified 

§ 422.503(b)(2) and § 423.502 (b)(2) to 

clearly indicate that the decision not to 

submit an application after submission 

of a notice of intent will not result in 

any compliance consequences. 

Comment: Several commenters 

supported this provision. 

Response: We appreciate the 

commenters support of our proposal. 

Comment: Some commenters were 

concerned about the due date of the 

Notice of Intent to Apply and wanted 

exceptions to allow CMS the flexibility 

to accept notice of intent after the due 

date. Some commenters were 

particularly concerned about special 

need plans offered in conjunction with 

Medicaid. Commenters also urged CMS 

to provide organizations adequate time 

to make the decision whether to apply 

and stated that some organizations may 

not consider submitting an application 

at the time notices are due. 

Response: As stated in the proposed 

regulation at § 422.503(b)(2) and 

§ 423.503(b)(2), the Notice of Intent to 

Apply does not bind the organization to 

submit an application. For this reason, 

we do not believe it is necessary to be 

flexible with the due date of the notice 

of intent. Organizations are free to 

submit a Notice of Intent to Apply and 

then consider whether or not to submit 

an application without risking any 

negative consequences from CMS. We 

also believe that the notice of intent 

requirement will benefit applicants as it 

will serve as a 3-month advance 

reminder to begin preparation for their 

submission. We anticipate that the 

additional lead time will result in more 

successful applications. 

Comment: One commenter questioned 

whether the three month lead time is 

necessary, particularly for existing 

sponsors, to ensure timely connectivity 

to CMS systems. 

Response: Our preparation for the 

receipt of applications is a process that 

can take up to 3 months. We encourage 

interested parties to see the October 2, 

2009 HPMS memo for an example of the 

timeline from submission of the Notice 

of Intent to Apply to the application 

submission. 

Comment: One commenter wanted 

CMS to add language indicating that for 

those notices of intent that do not result 

in the submission of an application, lack 

of submission would not be considered 

as part of any punitive evaluation. 

Response: As we stated in the October 

2009 proposed rule, the Notice of Intent 


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to Apply does not bind the organization 

to submit an application. We want to 

make clear that the submission of a 

notice of intent without a subsequent 

application submission would present 

no risk of reprimand or sanction by us. 

For this reason, we are modifying 

§ 422.503(b) and § 423.502 (b) to clearly 

indicate that the decision not to submit 

an application after submission of a 

notice of intent will not result in any 

compliance consequences. 

2. Application Requirements (§ 422.501 

(c) and § 423.502 (c)) and Evaluation 

and Determination Procedures for 

Determining Whether Applicants Are 

Qualified for a Contract Under Parts C 

and D (§ 422.502 and § 423.503) 

In the October 2009 proposed rule, we 

proposed a single clarification that 

applies to both MA organizations and 

Part D sponsors related to our 

application evaluation procedures and 

appeals of our determinations regarding 

applications. At § 422.502 and 

§ 423.503, we specifically proposed to 

make explicit that we will approve only 

those applications that demonstrate that 

they meet all (not substantially all) Part 

C and D program requirements. 

We noted that the application process 

under Part C and D requires an 

applicant to submit for our review a 

combination of attestations that it will 

comply with stated program 

requirements, as well as submit 

contracts with organizations the 

applicant has contracted with to 

perform key Part C or D functions, 

evidence of the applicant’s risk-bearing 

licenses, and data documenting that the 

applicant can provide its members 

access to Part C and D services 

consistent with the programs’ 

requirements. We proposed at 

§ 422.501(c)(1) and (2), § 422.502(a)(2), 

§ 423.502(c)(1) and (2), and 

§ 423.503(a)(2) to require that applicants 

demonstrate that they meet all 

requirements outlined in the MA 

organization and Part D sponsor 

applications. 

We simplified the application 

evaluation process under § 422.502(a)(1) 

and § 423.503(a)(1) by limiting the 

evaluation of an entity’s application to 

information contained in the 

application and any additional 

information that we obtain through 

onsite visits. As we noted in the 

proposed rule, limiting our review to 

this information ensures that we will 

afford all applicants (numbering in the 

hundreds each of the last 4 years) a fair 

and consistent review of their 

qualifications. Organizations can be 

assured that we will not consider 

additional sources of information 

regarding one applicant’s qualifications 

that we do not consider for others. 

We also proposed to clarify our 

authority to decline to consider 

application materials submitted after the 

expiration of the 10-day period 

following our issuance of a notice of 

intent to deny an organization’s contract 

qualification application. We clarified 

§ 422.502(c)(2) and § 423.503(c)(2) by 

proposing to add a new paragraph (iii) 

to establish that if we do not receive a 

revised application within 10 days from 

the date of the intent to deny notice, or 

if after timely submission of a revised 

application the applicant still appears 

unqualified to contract as an MA 

organization or Part D sponsor or has 

not provided enough information to 

allow us to evaluate the application, we 

will deny the application. 

Further, we noted that consistent with 

the revisions to § 422.650(b)(2) and 

§ 423.660(b)(2), which are discussed 

elsewhere in this final rule, the 

applicant would not be permitted to 

submit additional revised application 

material to the Hearing Officer for 

review should the applicant elect to 

appeal the denial of its application. 

Allowing for such a submission and 

review of such information as part of the 

hearing would, in effect, extend the 

deadline for submitting an approvable 

application. In this final rule, we adopt 

these provisions as proposed. Comment: 

A number of commenters expressed 

support for all areas of this provision. 

Response: We appreciate the 

commenters support of our proposal. 

Comment: Many commenters urged 

CMS to be flexible and allow for unique 

circumstances. Several commenters 

noted that SNPs have only limited 

ability to influence the terms and 

timelines that State Medicaid agencies 

follow in executing the SNP agreements. 

Response: We design our solicitations 

to ensure that all organizations have a 

fair opportunity to demonstrate their 

qualifications for an MA or PDP 

contract. As noted in the preamble to 

the October 2009 proposed rule, 

allowing exceptions to requirements to 

address unique circumstances would 

undermine the need for a uniform 

application process applied fairly to all 

applicants. With respect to Medicaid 

agency contracts, we may require that 

organizations submit those documents 

as part of an application to qualify to 

offer a SNP plan. When we include that 

requirement in a particular year’s SNP 

application, we have determined that 

organizations can reasonably be 

expected to obtain the executed 

agreements in time for us to determine 

that it is qualified to operate a SNP 

during the coming contract year. We do 

not anticipate the need to provide any 

flexibility on this particular matter. 

Comment: One commenter stated that 

the ‘‘all’’ standard is not practical given 

that there is not a narrative of 

requirements in the applications, but a 

series of attestations and tables (with 

detailed requirements stated in 

regulations and CMS subregulatory 

guidance). 

Response: We believe the ‘‘all’’ 

standard is practical. Applicants receive 

enough information to successfully 

apply and are given two opportunities 

with instructions to cure deficiencies. 

While we advise that applicants should 

be familiar with Part C and D program 

regulations and guidance, in most 

instances they are not required to 

describe how their organization will 

meet a requirement; rather they simply 

attest that they will meet the 

requirement. Therefore, an explanation 

of all the program requirements in the 

application is not necessary for 

organizations to submit successful Part 

C or D applications to us. 

Comment: Several commenters stated 

that CMS has been unclear in its 

previous deficiency responses to 

applicants and that it has been difficult 

to obtain guidance from CMS. 

Commenters urged CMS to provide clear 

rules and be consistent. In light of the 

inconsistencies with which applications 

are reviewed, one commenter 

recommended using a standard that 

emphasizes the materiality of the 

requirements that sponsors must meet. 

Response: We agree that in order for 

applicants to have a consistent 

understanding of the expectations on 

which we base our contract approval 

and denials, we must ensure the clarity 

and transparency of the program 

requirements and review criteria. 

Applicants receive up to three 

communications which explain our 

application requirements and provide 

clear instructions on how to be a 

successful applicant. Organizations that 

fail to completely and accurately apply 

receive a courtesy e-mail explaining the 

deficiencies and are given an 

opportunity to cure. Organizations that 

are still deficient after the initial 

opportunity to cure receive a notice of 

intent to deny and are given another 

opportunity to cure. All application 

communications include contact 

information for CMS subject matter 

specialists. We are always willing to 

work with applicants to ensure a 

complete understanding of program and 

contracting requirements. 

Comment: One commenter stated that 

the applicants that have disagreed with 

CMS’ network adequacy determinations 

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evaluation of their network adequacy in 

specific counties because of the 

possibility that CMS will confirm its 

original finding and deny the entire 

application. A denial of one county in 

one state could result in the denial of an 

entire application. To address this 

problem, the commenter recommended 

that CMS revise its policy to provide 

that an applicant for a network-based 

plan or service area expansion (SAE) 

may drop a county or portion of its 

service area that has been identified in 

the intent to deny notice after receiving 

CMS’ final decision based upon the 

additional information submitted by the 

organization. 

Response: We afford sponsors 

multiple opportunities during the 

application review process for 

applicants to modify their proposed 

service area. However, when we 

conduct our final review of an 

application prior to the issuance of a 

notice of intent to deny, we must make 

the reasonable assumption, for the sake 

of consistency, that the applicant seeks 

approval for its entire proposed service 

area, not some portion that the applicant 

will identify at a later date. Therefore, 

we will not allow applicants to modify 

their service areas after they have 

received a final notice of denial of their 

application from us. 

Comment: One commenter 

recommended that CMS explicitly 

provide in the regulation for a process 

to permit applicants to cure deficiencies 

identified by CMS subsequent to the 

issuance of the notice of intent to deny; 

and that if such an opportunity is not 

provided, CMS should base any denial 

notice only on issues raised in the 

notice of intent to deny and not on 

deficiencies that are identified later in 

the application review process. 

Response: When we have discovered 

a deficiency after we have issued a 

notice of intent to deny, we have not 

disapproved that application based on 

the failure to correct the new deficiency. 

Rather, we approve the application 

(assuming all corrections have been 

made based on deficiencies identified in 

the Notice of Intent to Deny), but 

communicate to the applicant that the 

newly identified deficiency must be 

corrected prior to executing a Medicare 

contract. If the issue is not so corrected, 

it immediately becomes the subject of a 

CMS contract compliance action. 

Comment: One commenter requested 

that we clarify the type of information 

gained via the onsite visits and how this 

information will be used in evaluation 

of applications. 

Response: We clarify, that we limit 

our application reviews (with the 

exception of the past performance 

analysis) to the materials organizations 

submit in response to the annual 

solicitations. We would also make clear 

that we retain our authority to conduct 

site visits to conduct compliance and 

monitoring activities. 

Comment: One commenter noted that 

it would be beneficial to sponsors if 

CMS provided a tool that allows 

sponsors to self-determine network 

adequacy. The commenter stated that 

the CMS network adequacy standards 

are subject to reviewer discretion and 

stated that this ambiguity is unfair when 

the sponsor must identify, negotiate, 

and complete contract terms, sometimes 

with multiple entities, within a 10-day 

period. 

Response: We have developed 

standardized network criteria and an 

automated review process that we will 

use, starting with the contract year 2011 

application cycle, to review network 

adequacy. Applicants may request 

exceptions where they do not meet the 

standardized criteria for individual 

provider types in individual counties 

under limited, defined circumstances. 

We believe these changes will increase 

the consistency and transparency of 

network reviews. 

3. Deny Contract Qualification 

Applications Based on Past Contract 

Performance (§ 422.750 and § 423.750) 

As described in the existing 

provisions at § 422.502(b) and 

§ 423.503(b), we may deny an 

application based on the applicant’s 

failure to comply with the terms of a 

prior contract with CMS even if the 

applicant currently meets all of the 

application requirements. In the October 

22, 2009 proposed rule, we proposed to 

modify these provisions at § 422.502(b) 

and § 423.503(b) to clarify that we will 

review past performance across any and 

all of the contracts held by the 

applicant, by specifically revising the 

language to refer to ‘‘any current or prior 

contract’’ held by the organization, 

instead of the current language referring 

to a ‘‘previous year’s contract.’’ We also 

clarified that the period that will be 

examined for past performance 

problems will be limited to those 

identified by us during the 14 months 

prior to the date by which organizations 

must submit contract qualification 

applications to CMS. Fourteen months 

covers the time period from the start of 

the previous contract year through the 

time that applications are received for 

the next contract year. 

In making these proposed changes, we 

noted that indicia of performance 

deficiencies that might lead us to 

conclude that an organization has failed 

to comply with a current or prior 

contract include, but are not limited to, 

poor performance ratings as displayed 

on the Medicare Options Compare and 

MPDPF Web sites; receipt of requests for 

corrective action plans (CAPs) unrelated 

to an audit (as these types of CAPs 

generally involve direct beneficiary 

harm); and receipt of one or more other 

types of noncompliance notices from 

CMS (for example, notices of 

noncompliance or warning letters). 

Additionally, consistent with the 

proposed changes to § 422.503(b), 

§ 422.508(c), § 423.504(b), and 

§ 423.508(e), we indicated that the 

withdrawal of Part C or D operations 

from some or all of an organization’s 

newly contracted service area prior to 

the start of a benefit year (through 

mutual termination or otherwise) is an 

indication of poor performance. Such a 

situation can arise when, for example, 

an organization, after it has signed its 

Medicare contract for the upcoming 

program year, loses a contract with a 

significant number or type of providers, 

jeopardizing its ability to provide its 

members adequate access to services. 

Also, an organization may suddenly face 

financial difficulties that threaten its 

ability to offer the benefit packages 

approved by us throughout the 

upcoming contract year. In such 

instances, we noted that we could 

simply leave the contract in place and 

take enforcement actions against the 

organization. However, under such an 

approach, we would knowingly be 

permitting beneficiaries to remain 

enrolled with an organization that 

cannot effectively deliver the benefit. 

Instead, we indicated our preference to 

act in the best interests of the 

beneficiaries by agreeing with the 

organization to terminate its contract 

and work with the organization to make 

certain that beneficiaries receive 

uninterrupted access to Medicare 

services through another MA 

organization, PDP sponsor, or original 

Medicare. We are adopting these 

proposed changes without further 

modification in this final rule. 

Comment: Several commenters 

expressed their support for our use of 

the past performance review authority 

to ensure that underperforming 

sponsors are not permitted to expand 

their participation in the Part C and D 

programs. 

Response: We appreciate the 

commenters’ support. 

Comment: Several commenters 

requested that CMS more clearly 

articulate the methodology it will apply 

to past performance reviews conducted 

under this regulatory provision. For 

example, commenters were interested in 

knowing the relative weights CMS will 


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be assigning to different types of 

compliance actions (such as, corrective 

action plan requests, warning letters) 

and whether we will afford 

organizations the opportunity to correct 

deficiencies before CMS makes past 

performance determinations. 

Response: We expect to make past 

performance methodology available 

through publication in our manuals. We 

believe that the manuals provide us and 

sponsors with the best available avenue 

for providing such detailed information 

and making updates to it as we continue 

to gain more experience with 

conducting past performance analysis. 

Given that, we note that the information 

on which we will base our past 

performance analysis has already been 

made available to organizations. For 

example, at any time an organization 

can review its own record of compliance 

correspondence received from us to get 

a sense of the degree to which the 

organization should be concerned about 

the likelihood that CMS would deny an 

application for a new contract. 

We believe that questions regarding 

corrective action opportunities are not 

relevant to our process for reviewing 

past performance in making application 

determinations. The purpose of the past 

performance review is to determine 

whether the sponsor has demonstrated, 

over a 14-month period, whether it has 

operated its Part C or D contract in a 

manner that suggests that it is generally 

meeting and capable of meeting program 

requirements and that new Medicare 

business would not jeopardize that 

status. While some organizations take 

corrective action to address any and all 

compliance issues prior to the 

expiration of the 14-month review 

period, such corrective action would not 

change the fact that during that period 

of time, the organization demonstrated a 

pattern of noncompliance that may raise 

questions about its ability to take on 

new Medicare business. 

Comment: Some commenters advised 

that the 14-month review period is too 

long, while others stated that a longer 

period (for example, 3 years) would 

provide a more comprehensive view of 

a sponsor’s contract performance. 

Response: We believe that the 14 

month look-back provides an adequate 

amount of time for us to review an MA 

organization’s or Part D sponsor’s 

performance and the choice of 14 

months as the look-back period was not 

arbitrary. As we noted previously, and 

in the proposed rule, 14 months covers 

the period spanning the start of the 

previous contract year to the time we 

receive applications for the following 

contract year. To shorten that time 

period to, say, 12 months would leave 

a gap in our past performance review. 

Similarly, limiting the period to the 14- 

month timeframe gives sponsors and 

organizations the opportunity and 

incentive to promptly establish a 

positive compliance track record so that 

the next CMS past performance review 

will find them eligible for additional 

Part C or Part D business. 

Comment: Several commenters asked 

that CMS indicate whether the 

withdrawal from all or part of a service 

area, non-renewal of one or more plans 

(on the Part C or Part D sponsor’s 

initiative), withdrawal of an application 

or bid, or termination of a contract after 

it has been executed would be counted 

against an organization for purposes of 

past performance analysis. 

Response: We would not consider a 

sponsor-initiated non-renewal of all or a 

portion of an MA or PDP sponsor 

contract as an indication of poor 

contract performance. (However, under 

separate regulatory authority sponsors 

that non-renew their contracts may not 

be permitted to reenter the program for 

a period of 2 years.) We would treat 

non-renewed plan benefit packages 

similarly, assuming the organization 

had met the Part C or D requirements for 

providing timely notice to us and our 

enrollees. We do not consider the 

withdrawal of an application for 

qualification as Medicare contractor or 

of a bid prior to the publication of the 

annual benchmark calculation as 

relevant to a performance evaluation. 

We do look unfavorably on 

organizations that withdraw bids after 

the benchmark has been announced. 

Also, we consider the termination of a 

contract for an upcoming benefit year 

after the organization has executed the 

contract as a failure to meet Part C and 

D program requirements. Accordingly, 

organizations should expect that these 

occurrences would be considered 

against them when we evaluate their 

past contract performance. 

Comment: Several commenters 

offered suggestions on factors CMS 

should take into consideration when 

developing and applying our past 

performance review methodology. 

These included accounting for 

distinctions between national and local 

organizations, beneficiary impact of 

noncompliance (or lack thereof), unique 

characteristics of SNP plans, and 

whether difficulties in an organization’s 

operation of a contract can be attributed 

to an entire organization or are limited 

to operation of only one or more of its 

contracts. 

Response: As noted previously, we 

plan to address issues raised by some of 

the commenters more fully in guidance 

issued through our manual update 

process. At this time, we can provide a 

general discussion of some of the 

principles we intend to apply to the 

development of our past performance 

methodology. We are cognizant of the 

variety of products offered by Medicare 

contractors, and when an element of our 

past performance evaluation is affected 

by the unique feature of a particular 

plan type, we will adjust the application 

of our methodology as appropriate. We 

also want to emphasize that we intend 

to be conservative in our 

determinations. We expect to use our 

authority under this provision to 

exclude only those organizations 

demonstrating a pattern of poor 

performance. Finally, we acknowledge 

that not all types of noncompliance will 

be given equal weight, and our 

methodology will assign weights to 

different measures based on factors such 

as beneficiary impact or program 

stability. 

Comment: A number of commenters 

suggested that CMS provide the results 

of its past performance analysis prior to 

the due dates for the submission of 

notices of intent to apply or for the 

applications for contract qualification. 

Response: We will explore the 

feasibility of providing a preliminary 

analysis in response to sponsors’ 

requests. However, we note that such a 

report would not be final, and in no case 

would even a preliminary report be 

available before December of each year. 

Comment: A number of commenters 

requested assurance that the past 

performance review described 

previously in this final rule and in the 

October 2009 proposed rule would not 

include information concerning a 

sponsor’s performance under contracts 

other than those governing Medicare 

managed care and prescription drug 

plan operations (such as, Medicaid, QIC 

contracts). 

Response: Absent extraordinary 

circumstances, we plan to limit our past 

performance review to the operations of 

organizations in the performance of 

their Part C and D contracts only. 

Comment: One commenter objected to 

CMS’ use of past performance analysis 

asserting that is equivalent to taking a 

second punitive action for a single 

instance of noncompliance. 

Response: In this final rule, we are 

clarifying the scope of our existing 

authority and we do not believe it is 

equivalent to an additional compliance 

or enforcement action taken against any 

of the organization’s existing Medicare 

contracts. Our denial of an application 

based on an applicant’s past contract 

performance is a reflection of our belief 

that an organization demonstrating 

significant operational difficulties 


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should focus on improving its existing 

operations before expanding into new 

types of plan offerings or additional 

service areas. Such a determination has 

no impact, punitive or otherwise, on a 

sponsor’s current Medicare contract 

rights and obligations. 

Comment: One commenter requested 

that organizations be permitted to attest 

that they will meet all Part C or D 

program requirements as of no earlier 

than January 1 of the upcoming contract 

year, as organizations are focused on 

enrollment and readiness activities prior 

to that date. 

Response: This comment concerns an 

aspect of the Part C and D application 

and contracting processes unrelated to 

our exercise of the past performance 

review authority. Thus, it is outside the 

scope of our proposal, and we will not 

address it here. 

4. Use of Data to Evaluate Continued 

Ability to Act as a Qualified Sponsoring 

Organization Under Parts C and D 

(§ 422.504, and § 423.505) 

In the October 22, 2009 proposed rule, 

we clarified our authority to find 

organizations or sponsors out of 

compliance with MA and Part D 

requirements. We noted that under the 

authority of Sections 1857(e)(1) and 

1860D–12(b)(3)(D) of the Act, the 

Secretary may add terms to the contracts 

with MA and Part D sponsors including 

terms that require the sponsor to 

provide the Secretary ‘‘with such 

information * * * as the Secretary may 

find necessary and appropriate.’’ 

Additionally, under that authority, CMS 

established § 422.516 and § 423.514, 

which support the submission of Part C 

and D Reporting Requirements. We 

clarified that the data acquired through 

the reporting requirements are often 

used for the purpose of monitoring an 

organization’s or sponsor’s continued 

compliance with MA and Part D 

requirements. We also explained that in 

some instances, we may use an outlier 

analysis to determine a MA 

organization’s or Part D sponsor’s 

performance relative to industry 

standards established by the 

performance of all the other 

organizations and sponsors as described 

earlier in the preamble in our discussion 

of the development of our policies 

concerning the awarding, monitoring, 

and enforcement of Medicare contracts. 

As part of the proposed rule, we 

added paragraphs § 422.504(m)(1) and 

(2) and § 423.505(n)(1) and (2) to make 

explicit our existing authority to find 

organizations or sponsors out of 

compliance with MA and Part D 

requirements when the organization’s or 

sponsor’s performance fails to meet 

performance standards articulated in 

statutes, regulations, and guidance or 

when an organization’s or sponsor’s 

performance represents an outlier 

relative to the performance of other 

organizations or sponsors. In this final 

rule, we adopt the provisions as 

proposed. 

Comment: Some commenters 

supported this provision, specifically 

the development of consistent 

performance data evaluation processes. 

Response: We appreciate the 

comments. 

Comment: Many commenters 

recommended that CMS not use outlier 

data to make compliance determinations 

for a variety of reasons. Some 

commenters believed that CMS should 

only use specific, previously articulated 

criteria to determine non-compliance. 

Other commenters stated that the outlier 

analysis is arbitrary, inconsistent, and 

capricious at least in part because it 

would result in CMS holding sponsors 

to standards that are developed simply 

by measuring sponsors’ performance 

relative to each other, not what is 

actually required to comply with Part C 

and D program requirements. One 

commenter noted that such an approach 

is inconsistent with the operation of a 

program where Medicare sponsor 

contracts are not awarded on a 

competitive basis. Still other 

commenters recommended that if an 

outlier analysis is used, it should only 

be used as a means by which CMS 

identifies plans in need of improvement 

not as a determination of noncompliance. 

Response: We appreciate these 

comments, but we maintain our belief 

that outlier analysis remains a valid 

method for identifying non-compliant 

plan sponsors and a valuable tool in our 

efforts to monitor hundreds of 

contracting organizations in a timely 

and effective manner. Technically, the 

Part C and D regulations require 100 

percent compliance with all program 

requirements. We acknowledge that it 

can be impractical to hold sponsors to 

such an absolute standard. When 

attempting to establish an acceptable 

level of noncompliance, it makes sense 

for us to compare a sponsor’s 

performance to that of its peers. Such 

outlier analysis gives us a sense of the 

general performance capabilities of a set 

of sponsors. From such an analysis it is 

reasonable, in most instances, for us to 

conclude that organizations whose 

performance trails that of other similarly 

situated sponsors are not making 

reasonable efforts to provide an 

acceptable level of service to their 

enrollees. As we noted in the discussion 

of our proposed rule, inherent in the use 

of outlier analyses to evaluate 

compliance is the application of the 

well-accepted principle that we should 

look to evolving industry standards to 

establish program requirements. 

We recognize our obligation, as both 

a business partner and a regulatory 

agency, to use the outlier analysis tool 

in a manner that is fair to sponsors and 

is legally supportable. For example, we 

want to reassure organizations that we 

understand that effective outlier 

analysis is concerned not just with 

which organizations’ performance 

scores are lower than others, but also 

with the degree to which some sponsors 

may trail their peers. Therefore, an 

outlier analysis does not by definition 

and in every case result in a finding of 

non-compliance. Also, we remind 

organizations that we have adopted over 

the last several years, a graduated 

system of compliance notices, and we 

expect that in the large majority of 

instances, we will make organizations 

aware of their non-compliance with an 

outlier-based standard through the 

lower-level types of notice. These are 

the types of notices issued in the earlier 

stages of CMS’ compliance efforts and 

would afford organizations reasonable 

opportunities to take corrective action. 

Finally, we are committed to publishing 

regularly outlier-based performance 

standards, as they are developed, in 

guidance materials, including our 

program manuals, HPMS memoranda, 

and our annual call letter, and to update 

these standards over time. Further, 

compliance communications to 

sponsors concerning an area of 

noncompliance where the basis for the 

finding relied on outlier analysis 

include an explicit description of the 

methodology employed to make such a 

determination. 

Comment: Many commenters 

requested that CMS compare like plans 

with respect to several identifiers, 

including: plan types (with particular 

consideration given to SNPs), size, 

market conditions, open vs. closed 

formularies, and age of enrollees. Some 

commenters noted that meaningful 

comparisons across sponsors might be 

difficult. 

Response: Where appropriate, we 

compare like sponsors and frequently 

take enrollment (both numbers and 

types of beneficiaries, such as, LISeligible) into consideration. Identifiers 

that the commenters mentioned are 

taken into consideration as part of our 

data analysis. Our goal is to do 

meaningful analysis that can aid us in 

identifying potential weaknesses. 

Comment: Several commenters were 

concerned with how CMS will conduct 

outlier analysis and requested that CMS 


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define and develop standardized 

methods for determining outliers. One 

commenter recommended that CMS 

work with the industry to establish 

methods for outlier analysis. Another 

commenter recommended that the 

methodology should include different 

weights assigned to measures based on 

the magnitude of beneficiary impact and 

program integrity. One commenter 

requested that the outlier analysis be 

done at the contract level as opposed to 

the plan benefit package (PBP) level. 

Another commenter recommended that 

CMS be specific about whether 

compliance action would be taken for 

first-time outliers or only for sponsors 

with a history of being an outlier. 

Response: We understand the 

importance of working with the 

industry to establish methodologies and 

do so where appropriate. For example, 

we have and will continue to share 

drafted or proposed plan rating (star 

ratings) measures and their analyses. 

Comments from sponsors are reviewed 

and considered as we finalize those 

measures. The Part C and D reporting 

requirements also undergo similar 

public comment periods. 

The issue of assigning different 

weights to measures is not relevant here 

as the proposed change concerns the use 

of outlier analysis for particular, not 

aggregated, operational requirements. 

We incorporate weighting into our 

analysis of sponsors’ overall contract 

performance. This analysis is typically 

done at the contract level at least in part 

because we collect data at that level, not 

the PBP level. 

As discussed previously, we account 

for whether a sponsor is a first-time or 

repeat outlier when it determines the 

type of compliance notice to issue. 

Depending on the circumstances, 

organizations identified as first-time 

outliers may receive only a notice of 

noncompliance, while those that are 

repeat outliers may receive a CAP 

request or be subject to an enforcement 

action. 

Comment: Several commenters urged 

CMS to make the outlier methodology 

available to all sponsors through, for 

example, the Call Letter or Technical 

Specifications. Many of these 

commenters requested an opportunity to 

review and comment on the 

methodology. A couple of commenters 

were concerned about CMS’ use of 

outlier analysis and being able to 

predict how other sponsors will perform 

to ensure that their own performance is 

aligned and compliant. 

Response: Where appropriate, we will 

make methodologies available to 

sponsors, as we discussed earlier in our 

response to comment on this proposal. 

An example of the importance we place 

on the need for clarity and transparency 

is the fact that we currently make 

available our methodologies in the 

technical specifications for the 

Reporting Requirements and the plan 

ratings (star ratings). In another 

example, we recently (January 2010) 

released an HPMS memo and 

incorporated into the Part D manual a 

comprehensive description of our 

outlier methodology for ensuring 

appropriate access to home infusion 

pharmacies. In an effort toward 

complete transparency, we also 

provided the underlying data and 

necessary information for Part D 

sponsors to conduct their own 

independent analyses on this topic. 

Comment: Many commenters noted 

that there are reasons other than noncompliance that may result in a sponsor 

being an outlier. Outlier, by definition, 

means that there will always be a 

sponsor underperforming. 

Response: We acknowledge that 

outlier status does not necessarily mean 

non-compliance. We review the list of 

statistical outliers and set thresholds on 

a number of factors for the purposes of 

identifying potential compliance 

problems. This is consistent with our 

goal to do meaningful analysis that can 

aid in identifying potential weaknesses. 

Most often, a sponsor will receive a 

request for information, as opposed to a 

compliance letter, to help us better 

understand why that particular sponsor 

was an outlier. These requests 

frequently result in the sponsor gaining 

a better understanding of our 

requirements and promote program 

improvement. 

Comment: There were a few 

comments on the validity of current 

analyses performed by CMS. Some 

commenters discussed their observation 

that the findings resulting from some of 

CMS’ outlier analyses methodology may 

penalize some organizations unfairly 

because—(1) the underlying data on 

which the analysis was based was 

flawed; or (2) analyses based on selfreported data may indicate that one 

sponsor is reporting data more 

accurately data than its peers. A 

commenter noted that the compliance 

letters that result from outlier analysis 

come months after the data has been 

collected and that there is little 

opportunity for an organization to 

correct its performance. A few 

commenters requested that CMS give 

sponsors the opportunity to appeal or 

explain the outlier status to CMS. 

Response: We are always open to 

information and feedback from sponsors 

on our analyses and make corrections to 

our compliance determinations where 

the new information supports such a 

step. We also note that we are 

developing requirements concerning 

sponsors submitting audited data to 

address the concerns about data 

accuracy that the commenters raise. 

Comment: One commenter believed 

that the annual audits and the outlier 

analyses appear to be duplicative. 

Response: We use audits, outlier 

analysis, and other methods to ensure 

compliance with program requirements 

and to help identify potential 

compliance problems. Audits and 

outliers analyses are two distinct 

monitoring methods that utilize 

different sources of information and 

apply different types of analyses to 

evaluate sponsors’ compliance with 

program requirements. Audits represent 

an in-depth review of selected sponsor’s 

documentation related to the operation 

of their Medicare contracts. Outlier 

analysis, by contrast, consists of an 

agency review of performance data 

(generated by CMS or the sponsor) 

across all contracting organizations 

which results in the identification of 

potential noncompliance and the need 

for further investigation. 

5. Compliance Programs Under Parts C 

and D (§ 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi)) 

In the October 2009 proposed rule, we 

proposed to modify the language at 

§ 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi) to explicitly provide 

clarification as to what constitutes an 

‘‘effective’’ compliance program. We also 

proposed clarifying language for each of 

the required elements of an effective 

compliance program in order to assist 

sponsoring organizations with 

implementing more effective 

compliance programs and to more 

clearly articulate our expectations. 

We proposed to add language to the 

first element at § 422.503(b)(4)(vi)(A) 

and § 423.504(b)(4)(vi)(A) to require that 

written policies and procedures must 

describe a commitment to comply with 

all Federal and State standards, 

compliance expectations as embodied in 

the standards of conduct, implement the 

operations of the compliance program, 

provide guidance to others, identify 

how to communicate compliance issues 

to compliance personnel, describe how 

compliance issues are investigated and 

resolved and include a policy of nonintimidation and non-retaliation. 

The second element requires a 

sponsoring organization to have a 

compliance officer and committee 

accountable to senior management. We 

proposed to add language at 

§ 422.503(b)(4)(vi)(B) and 

§ 423.504(b)(4)(vi)(B) that the 


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compliance officer must be employed by 

the sponsoring organization, and the 

compliance officer and committee must 

periodically report directly to the 

governing body and that body must be 

knowledgeable about the compliance 

program and exercise reasonable 

oversight over the implementation and 

effectiveness of the program. 

The third element requires the 

sponsoring organization to have an 

effective training and education 

program. We proposed to add language 

at § 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C) to specify several 

key groups and individuals (the chief 

executive or other senior administrator, 

managers, and governing body 

members) among the sponsoring 

organization’s employees who are 

required to have compliance training 

and education. We also proposed to add 

language that this training must occur at 

a minimum annually and must be made 

a part of the orientation for a new 

employee, new first tier, downstream 

and related entities, and new 

appointments of a chief executive, 

manager, or governing body member. 

The required compliance training must 

include training regarding the 

prevention and detection of fraud, waste 

and abuse. We proposed to add that 

providers who have met the 

requirement for fraud, waste and abuse 

training and education through 

enrollment into the Medicare program 

are deemed to have met that portion of 

the training and education requirement. 

We noted that, in some instances, a 

particular pharmacy or other provider 

may contract with dozens of MA or PDP 

plans, each of which is required by the 

existing language at 

§ 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C), read literally, to 

provide the required fraud, waste and 

abuse prevention and detection training 

to the pharmacy, or other provider, and 

its staff. Since we did not intend to 

require duplicative training, we offered 

two options in our proposed rule. One 

option was that the sponsoring 

organization ‘‘assures’’ or ‘‘obtains an 

assurance’’ that the first tier, 

downstream, and related entity has 

received such training. Another option 

was to leave existing language 

unchanged, but issue interpretive 

guidance on this point. We requested 

workable suggestions to assure that our 

objective is met, while eliminating 

unnecessary duplication. 

The fourth element requires a 

sponsoring organization to have 

effective lines of communication. We 

proposed to add language at 

§ 422.503(b)(4)(vi)(D) and 

§ 423.504(b)(4)(vi)(D) that requires that 

these lines of communication be 

confidential and accessible to all 

employees and allow for compliance 

issues to be reported anonymously and 

in good faith as issues are identified. 

The fifth element requires a 

sponsoring organization to enforce 

standards through well-publicized 

disciplinary guidelines. We proposed to 

add language at § 422.503(b)(4)(vi)(E) 

and § 423.504(b)(4)(vi)(E) that more 

specifically described that these 

guidelines must be implemented to 

include policies that articulate 

expectations for reporting issues and 

their resolution, identify noncompliance 

or unethical behavior, and provide for 

timely, consistent and effective 

enforcement of the standards when 

noncompliance or unethical behavior is 

detected. 

The sixth element requires a 

sponsoring organization to have 

procedures for internal monitoring and 

auditing. We proposed to add language 

at § 422.503(b)(4)(vi)(F) and 

§ 423.504(b)(4)(vi)(F) to more 

specifically describe that an effective 

system for routine monitoring and 

identification of compliance risks 

includes internal monitoring and audits 

and, as appropriate, external audits, in 

order to evaluate the sponsoring 

organization’s compliance with our 

requirements and overall effectiveness 

of the compliance program. We also 

proposed to add language that these 

audits should include the sponsoring 

organization’s first tier entities. 

The seventh element requires a 

sponsoring organization to have 

procedures for ensuring prompt 

responses to detected offenses. We 

proposed to add language at 

§ 422.503(b)(4)(vi)(G) and 

§ 423.504(b)(4)(vi)(G) to more 

specifically describe the 

implementation of a system for 

promptly responding to compliance 

issues as they are raised, investigating 

potential compliance problems 

identified in the course of selfevaluations and audits, correcting such 

problems promptly and thoroughly to 

reduce the potential for recurrence and 

ensuring ongoing compliance with our 

requirements. 

We are adopting all of these proposed 

changes into the final rule without 

further modification with the exception 

of changes made to 

§ 422.502(b)(4)(vi)(B), 

§ 423.504(b)(4)(vi)(B) and 

§ 423.504(b)(4)(vi)(C), to provide that 

the compliance officer must be an 

employee of the sponsoring 

organization, parent organization or 

corporate affiliate and clarify that he or 

she may not be an employee of a first 

tier, downstream or related entity of the 

sponsoring organization and must be 

accountable to the governing board of 

the sponsoring organization. In 

addition, at § 423.504(b)(4)(vi)(C)(3), we 

adopt a new regulation for the Part D 

program to specify that first tier, 

downstream, and related entities that 

have met the fraud, waste, and abuse 

certification requirements through 

enrollment into the fee-for-service 

Medicare program and accreditation as 

a durable medical equipment, 

prosthetics, orthotics, and supplies 

(DMEPOS) supplier are deemed to have 

met the fraud, waste and abuse training 

and educational requirements. 

We received the following comments 

on the first element, which requires 

written policies and procedures: 

Comment: Two commenters raised 

concerns about the resources necessary 

to satisfy our requirements related to 

written policies and procedures. One 

commenter stated that sponsoring 

organizations are currently spending 

significant time and resources drafting 

and redrafting policies and procedures 

and are still uncertain if these policies 

and procedures will cover the items we 

expect to be covered in requisite detail. 

Both commenters suggested that we 

release our audit worksheets which 

outline CMS’s expectations for the 

contents of policies and procedures, 

which would allow sponsoring 

organizations to tailor their policies and 

procedures accordingly. Additionally, 

one commenter suggested that CMS 

should not be dictating the scope or 

components of such policies and 

disagreed with our inclusion of more 

‘‘prescriptive standards’’ into the 

regulatory text and alternatively 

suggested that certain requirements be 

issued through subregulatory guidance. 

Response: Our proposals are intended 

to significantly strengthen our oversight 

of compliance programs, and provide 

more specificity and clarity to 

sponsoring organizations with regard to 

what we expect to see when we review 

a compliance program. We believe the 

proposals we have made are important 

changes and are necessary to maintain 

consistency and promote appropriate 

focus on these requirements and that 

going through the rulemaking process is 

the best way to promote these goals. We 

also believe that the proposed changes 

to the first element provide important 

information as to what we consider a 

framework for an effective compliance 

program. We do not intend to be 

prescriptive as to the choice of 

particular processes or procedures, only 

to provide the minimum amount of 

information we would expect to see in 

a comprehensive set of written policies, 


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procedures and standards of conduct. 

With respect to the comment regarding 

releasing audit materials, we must 

balance the goals of transparency 

regarding our audit program with the 

goals of conducting an effective 

evaluation of whether organizations 

have in fact instituted effective 

compliance programs (and not just 

‘‘paper’’ compliance programs). To the 

extent that sponsoring organizations are 

looking to tailor their policies and 

procedures for compliance programs to 

materials released by us, they should be 

looking to our regulations, including the 

changes made by this final rule, and any 

subregulatory guidance issued by CMS, 

and not documents related to our audit 

program, as these may only be a subset 

of CMS’ larger set of requirements. 

We received the following comments 

regarding our proposed revisions to the 

second element, which addresses the 

designation of a compliance officer and 

a compliance committee who report 

directly to the organization’s chief 

executive or other senior management: 

Comment: Commenters expressed 

concern with CMS’ proposal to require 

that the compliance officer, vested with 

day to day operations of the compliance 

program, be an employee of the 

sponsoring organization. Commenters 

recommended that CMS broaden this 

portion of the provision to permit the 

compliance officer to be employed by 

the sponsoring organization or an 

affiliate in its corporate group. These 

commenters indicated that ‘‘the entity 

who employs the compliance officer is 

a corporate structure issue that may 

have no effect or bearing on the issues 

of accountability and oversight.’’ One 

commenter further insisted that in 

instances when related entities are MA 

organizations and PDP sponsors who 

hold separate contracts with CMS, 

having one centralized compliance 

officer is not only effective and efficient, 

but it also promotes consistency with 

respect to the implementation of the 

compliance program across the 

contracting entities. Several commenters 

also stated that having the compliance 

officer at a parent or affiliated group 

level would not lessen the 

accountability of the compliance officer 

with respect to each entity. 

Response: We agree that having a 

compliance officer being employed at a 

parent company or corporate affiliate 

may not necessarily lessen the 

accountability of the compliance officer 

to the governing body of the sponsoring 

organization. Our proposal was 

intended to provide further clarity on 

how sponsoring organizations can meet 

the key requirement of having a 

compliance officer and compliance 

committee that is accountable to the 

governing body of the sponsoring 

organization. We have issued extensive 

subregulatory guidance on this issue, 

both in the 2007 call letter and in 

Chapter 9 of the Medicare Prescription 

Drug Benefit Manual (‘‘Chapter 9’’). This 

guidance was issued in part in response 

to us learning that sponsoring 

organizations were subcontracting the 

compliance officer function to their first 

tier, downstream and related entities. 

We do not view subcontracting that 

function as an acceptable alternative for 

a number of reasons, including the 

potential for conflicts of interest that 

would exist by virtue of the compliance 

function residing in a subcontracted 

entity that is being paid by the entity 

whose compliance the subcontractor is 

charged with monitoring. As a result of 

the comments received, we are 

modifying the language in this final rule 

to provide that the compliance officer 

must be an employee of the sponsoring 

organization, parent organization or 

corporate affiliate and to provide that 

the compliance officer may not be an 

employee of a first tier, downstream or 

related entity of the sponsoring 

organization. 

Comment: Proposed sections 

§ 422.503(b)(4)(vi)(B)(2) and 

§ 423.504(b)(4)(vi)(B)(2) specify that the 

compliance officer and committee must 

periodically report to the governing 

body of the sponsoring organization on 

the activities and status of the 

compliance program. One commenter 

emphatically supported CMS’ proposal 

to strengthen the compliance program 

by increasing the requirements with 

respect to interaction with the executive 

leadership and board members. One 

commenter recommended that CMS 

revise the language of this provision to 

state that the compliance officer and 

committee, ‘‘or their delegate’’, report 

directly to the governing body. Lastly, 

one commenter stated that although 

they supported CMS’ goal of ensuring 

sponsoring organizations’ senior 

leadership and governing body are 

informed of key developments, the 

commenter opposed CMS dictating 

internal reporting obligations and 

reporting structures. 

Response: We disagree with the 

suggestion to add ‘‘or their delegate’’ to 

the language at § 422.503 (b)(4)(vi)(B)(2) 

and § 423.504(b)(4)(vi)(B)(2), which 

would expand the scope of individuals 

who could provide periodic reports to 

the governing body of the sponsoring 

organization. The purpose of this 

provision is to ensure communication 

between the compliance officer, 

committee and the governing board. We 

do not intend that this reporting 

responsibility be delegated to someone 

other than the compliance officer as that 

would defeat the purpose of the 

proposed provision. Therefore, we will 

not be incorporating the commenter’s 

suggested change into the final rule. 

We also do not believe that the 

proposed regulatory language in this 

section results in CMS dictating to MA 

organizations and Part D sponsors their 

internal reporting obligations and 

reporting structures. The proposed 

language does not specify the means or 

manner in which the report should be 

communicated to the governing body, 

nor does it provide specific 

requirements as to how often such 

reports are made. 

We received the following comments 

concerning our proposed changes to the 

third compliance program element, 

which—(1) states that sponsoring 

organizations must establish and 

implement effective training and 

education between the compliance 

officer and the sponsoring 

organization’s employees, governing 

board, first tier, downstream and related 

entities; (2) specifies that this training 

and education must occur at a minimum 

annually and must be made a part of 

new employee orientation; and (3) 

provides deeming of fraud, waste and 

abuse educational requirements to first 

tier, downstream and related entities 

who have met the fraud, waste and 

abuse certification requirements though 

Medicare program enrollment: 

Comment: Some commenters stated 

that organizations should have the 

flexibility to modify and tailor the 

training for the governing body so that 

it is not a replication of the training 

needed for front line staff, and 

expressed specific concern with CMS 

requiring training of the governing body 

annually. Additionally, several 

commenters stated that requiring 

sponsoring organizations to conduct 

compliance training at new employee 

orientations and annually thereafter is 

administratively and financially 

burdensome, and may even result in 

organizations having to conduct such 

training on a weekly basis. Commenters 

made numerous recommendations, 

including providing sponsoring 

organizations with flexibility in 

determining the appropriate level and 

timing of training depending on the 

audience; modifying the education and 

training requirements to apply to only 

those involved in the administration of 

the Medicare Advantage and Part D 

lines of business within the 

organization; clarifying that the annual 

education and training requirement is 

limited to general compliance training, 

and does not include the specialized 


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training that sponsoring organizations 

have to implement in accordance with 

Chapter 9; and the suggestion that CMS 

develop a Web-based compliance 

training tool or certify an independent 

industry entity to provide consistent 

and efficient compliance training; and 

finally, providing additional 

clarification on the required training for 

downstream entities. 

Response: We believe that the 

proposed regulatory language allows 

organizations the flexibility to tailor the 

content of the training and many aspects 

of how the training is provided. We 

have not specified the manner in which 

the training would be provided at new 

employee orientations, or to senior 

leadership or members of the governing 

body upon their appointment to these 

positions. Organizations can decide to 

provide new employees with a copy of 

the organization’s compliance policies 

and procedures and ask new employees 

to attest that they have been provided 

with a copy and have read the material. 

We do not believe that such a 

requirement is overly burdensome or 

difficult for sponsoring organizations to 

implement. 

We also do not believe that it is 

appropriate to clarify in regulation text 

that we are referring to general versus 

specific compliance training, as 

discussed in Chapter 9. The proposed 

language makes no reference to the 

training being specialized and we 

believe that the regulatory language 

should be left general as the level of 

training and education will vary 

depending on the level and 

responsibilities of the person receiving 

the training. We believe that the 

proposal is sufficiently clear in its 

description of what is expected of the 

sponsoring organization in the 

implementation of its compliance 

training and education program and the 

requirements are reasonable. If we 

determine in the future that further 

guidance is necessary, we will issue 

subregulatory guidance. 

Lastly, in response to those 

commenters who suggested that CMS 

develop a Web-based compliance 

training tool, we have determined that 

additional analysis needs to be 

undertaken and additional information 

sought before providing guidance on 

how training of first tier, downstream, 

and related entities is to be provided 

and the content managed. Additional 

clarification will be issued in 

subregulatory guidance. 

Comment: Some commenters stated 

that requiring sponsoring organizations 

to conduct compliance training for all 

delegated entities (first tier, downstream 

and/or related) or insuring that all 

delegated entities conduct such training 

on their own imposes a significant 

burden on sponsoring organizations. 

Response: In response to those 

commenters who stated that requiring 

that first tier, downstream and related 

entities to receive compliance training is 

overly burdensome, we would like to 

reiterate that this is an existing 

requirement, not a proposed new 

requirement. We agree that duplicative 

training is inefficient and we believe 

that commenters have offered valuable 

suggestions. After reviewing these 

comments and recommendations, we 

have determined that additional 

analysis needs to be undertaken and 

additional information sought before 

providing guidance on how training of 

first tier, downstream, and related 

entities is to be provided and the 

content managed. Additional 

clarification will be issued in 

subregulatory guidance. 

Comment: Commenters also suggested 

striking the word ‘‘effective’’ from the 

language of this section which specifies 

that the sponsoring organization must 

establish, implement and provide 

‘‘effective’’ training and education. 

Alternatively the commenter requested 

that CMS at least clarify how we would 

determine if training were ‘‘effective’’ 

and clarify CMS’ definition of sufficient 

oversight. 

Response: The use of the term 

‘‘effective’’ is existing regulatory 

language and has already gone through 

notice and comment rulemaking. 

‘‘Effective’’ is not a new requirement, 

therefore, we do not believe it is 

necessary to remove the word ‘‘effective’’ 

from this regulatory provision. 

Comment: Commenters suggested that 

CMS consider revising the requirement 

that fraud, waste, and abuse training 

and education occur at least annually 

and be a part of the orientation for a 

new employee, new first tier, 

downstream and related entities, and 

new appointments to chief executive, 

manager or governing body member. 

Commenters believe that CMS should 

require that training only at the time of 

initial hire or when there are significant 

changes in the laws and regulations 

related to fraud, waste, and abuse. 

Response: We disagree and believe 

that annual training is a necessary 

component of an effective compliance 

program that addresses the detection, 

correction, and prevention of fraud, 

waste, and abuse in the MA and Part D 

programs. The intent of this regulation 

is to codify the existing CMS 

expectation that fraud, waste and abuse 

training be provided at a minimum on 

an annual basis, which is contained in 

Chapter 9 of the Prescription Drug 

Benefit Manual (Part D Program to 

Control Fraud, Waste, and Abuse). 

Chapter 9 can be viewed at: http:// 

www.cms.gov/ 

PrescriptionDrugCovContra/Downloads/ 

PDBManual_Chapter9_FWA.pdf. We 

recognize that Chapter 9 was 

specifically developed for Part D 

(prescription drug plan) sponsors. In 

previous guidance, we have directed 

MA organizations to apply the 

provisions of Chapter 9 to Part C 

(Medicare Advantage) programs as well. 

We are in the process of updating this 

document to specifically address any 

particular Part C measures for detecting 

and preventing fraud, waste, and abuse. 

Comment: Several commenters 

expressed support for our proposed 

revisions to § 422.503 (b)(4)(vi)(C)(2), 

which clarify that first tier, downstream, 

and related entities who have met the 

fraud, waste, and abuse certification 

requirements through enrollment into 

the fee-for-service Medicare program are 

deemed to have met the training and 

educational requirements for fraud, 

waste, and abuse under this rule. One 

commenter disagreed with the proposed 

revision. 

Response: We believe that the 

proposed regulatory language eliminates 

redundant certification made when 

these entities enroll in the Medicare 

program. We also wish to clarify that the 

reference to deeming in this regulation 

is distinct from the MA deeming and 

accreditation program described at 

§ 422.156, § 422.157, and § 422.158. 

Comment: A number of commenters 

recommended that CMS extend the 

regulatory change proposed for the Part 

C program at § 422.503(b)(4)(vi)(C) to 

the Part D program at 

§ 423.504(b)(4)(vi)(C). The commenters 

noted that Part D first tier, downstream, 

and related entities that have enrolled in 

the Medicare program as a supplier of 

Part B covered medications or as a 

supplier of durable medical equipment, 

prosthetics, orthotics, and supplies 

(DMEPOS) go through the same 

application and certification process as 

MA providers. They contend that 

including Part D providers in this 

deeming would ensure the requirements 

for Part D sponsors will be identical to 

those for MA organizations and would 

reduce unnecessary additional burden. 

Response: We agree with the 

commenters and have adopted a new 

regulation for the Part D program at 

§ 423.504(b)(4)(vi)(C)(3) to specify that 

first tier, downstream, and related 

entities who have met the fraud, waste, 

and abuse certification requirements 

through enrollment into the Medicare 

program accreditation as a DMEPOS 

supplier are deemed to have met the 


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training and educational requirements 

for fraud, waste, and abuse training. We 

wish to clarify that the reference to 

deeming in this regulation is distinct 

from the Part D deeming and 

accreditation program described at 

§ 423.165, § 423.168, and § 423.171. 

We received the following responses 

to our request for comments on whether 

or how to best revise the requirement 

that first tier, downstream, and related 

entities receive training in how to 

prevent and identify fraud, waste, and 

abuse to address the issue of duplication 

of training for providers or entities that 

contract with multiple MA 

organizations or Part D sponsors: 

Comment: Several commenters 

recommended requiring MA 

organizations and Part D sponsors to 

create training materials or approve first 

tier, downstream, and related entitycreated materials and require 

attestations that the training was 

provided to all appropriate parties. 

These commenters noted that in order to 

avoid duplicative training, all 

sponsoring organizations would be 

required to accept attestations from their 

first tier, downstream, and related 

entities that they completed training 

provided by any other sponsoring 

organization in order to fulfill this 

requirement. Commenters also 

suggested that another option to ensure 

consistent training content and 

minimize duplication is for CMS to 

create a standardized training and 

require all sponsoring organizations to 

use it for training their first tier, 

downstream, and related entities. 

Commenters also recommended that 

CMS permit first tier, downstream, and 

related entities to create and implement 

their own training programs and attest 

to their contracting MA organizations 

and/or Part D sponsors that they have 

fulfilled the training requirement. 

Response: We believe the commenters 

have offered valuable suggestions. After 

reviewing these comments and 

recommendations, we have determined 

that additional analysis needs to be 

undertaken and additional information 

sought before providing guidance on 

how training of first tier, downstream, 

and related entities is to be provided 

and the content managed. Additional 

clarification will be issued in 

subregulatory guidance. 

Comment: A few commenters 

requested that CMS provide more 

specificity regarding which entities 

must complete fraud, waste, and abuse 

training. These commenters believe that 

CMS should limit the training 

requirement for first tier, downstream 

and related entities to only staff of those 

entities that are involved in patient care 

and/or claims submission, and should 

not require administrative or retail 

clerk/cashier staff to complete the 

training. 

Response: The requirement for fraud, 

waste, and abuse training applies to all 

MA organization and Part D sponsor 

employees (including chief executive or 

other senior administrator, managers 

and governing body members) and first 

tier, downstream and related entities. 

We will issue additional clarification in 

subregulatory guidance. 

The fourth element requires a 

sponsoring organization to have 

effective lines of communication. We 

did not receive comments regarding this 

element. 

We received the following comment 

concerning the proposed revisions to 

the fifth compliance program element 

which details a sponsoring 

organization’s obligation to ensure its 

compliance program has well 

publicized disciplinary standards. 

Comment: The commenter requested 

that CMS provide guidance regarding its 

expectations as to sponsoring 

organization’s enforcement of 

disciplinary standards, and asked for 

clarification as to whether a policy 

identifying the different types of 

disciplinary actions a sponsoring 

organization may impose would be 

sufficient to meet the requirement. 

Response: We believe that our 

proposal is sufficiently detailed to 

provide sponsoring organizations with 

necessary guidance on how to 

implement an effective compliance 

program. 

We received the following comment 

regarding the proposed revisions to the 

sixth compliance program element 

concerning requirements for sponsoring 

organizations monitoring and 

identification of compliance risks. 

Comment A commenter requested 

that CMS specify that its reference to 

external audits, especially of first tier 

entities, does not require sponsoring 

organizations to hire an independent, 

external auditor to perform this function 

but rather that sponsoring organizations 

may undertake the auditing of these 

contractors through their internal audit 

units. 

Response: Our expectation, when 

referring to a sponsoring organization 

conducting an external audit of itself or 

a first tier entity, was that that 

sponsoring organization would utilize 

an auditor who is external of both the 

sponsoring organization and the first 

tier entity being audited. 

Comment: A commenter 

recommended that CMS share its 

preamble language that further defines 

the expectations for an effective 

compliance program with other areas of 

the Federal government, such as the 

Department of Defense, so that all 

government contractors will have the 

same compliance program expectations. 

Response: We believe that this 

comment is outside the scope of this 

regulation. 

The seventh element requires a 

sponsoring organization to have 

procedures for ensuring prompt 

responses to detected offenses. We did 

not receive comments regarding this 

element. 

6. Network Adequacy of Coordinated 

Care and Network-Based Private Fee-forService Plans Under Part C (§ 422.112) 

In the October 22, 2009 proposed rule 

(74 FR 54644), we requested comments 

on proposed criteria for determining 

whether an MA plan network meets the 

network availability and accessibility 

requirement in section 1852(d)(1) of the 

Act. As we discussed in the proposed 

rule, we have developed an automated 

system for reviewing network adequacy 

on a continuing basis based on the 

elements that we have determined 

reasonably reflect community patterns 

of health care delivery. As we noted in 

the proposed rule, our operational 

experience has demonstrated that the 

concept of community patterns of health 

care delivery provides a useful 

benchmark for measuring a proposed 

provider network, because it allows for 

varying geographical and regional 

conditions to be taken into 

consideration in determining what 

constitutes ‘‘reasonable’’ access in a 

given area. 

In the proposed rule, we described the 

elements of community patterns of 

health care delivery that we proposed to 

include in our evaluations of provider 

networks, and stated that our goal was 

to make the standard of community 

patterns of care more transparent and 

consistent across the country. 

Specifically, we proposed adding a new 

paragraph (a)(10) to § 422.112 to specify 

the factors comprising community 

patterns of health care delivery that we 

would use as a benchmark in evaluating 

a proposed MA plan health care 

delivery network. Under proposed 

§ 422.112(a)(10), these factors would 

include, but not be limited to— 

• The number and geographical 

distribution of eligible health care 

providers available to potentially 

contract with an MAO to furnish plan 

covered services within the proposed 

service area of the MA plans; 

• The prevailing market conditions in 

the service area of the MA plan— 

specifically, the number and 

distribution of health care providers 


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contracting with other health care plans 

(both commercial and Medicare) 

operating in the service area of the plan; 

• Whether the service area is 

comprised of rural or urban areas or 

some combination of the two; 

• Whether the MA plan’s proposed 

provider network meets Medicare time 

and distance standards for member 

access to health care providers 

including specialties; and 

• Other factors that we determine to 

be relevant in setting a standard for an 

acceptable health care delivery network 

in a particular service area. 

We proposed providing more detail 

about how we would operationalize 

these requirements through 

subregulatory guidance (for example, 

the annual Call Letter). We solicited 

comment on whether our proposed 

regulatory provisions are sufficiently 

clear and whether clarification should 

be provided through regulation or 

subregulatory guidance, such as the 

annual Call Letter. 

After considering all the timely 

comments we received on our proposal, 

we are adopting § 422.112(a)(10) 

without modification in this final rule. 

Comment: Many commenters 

expressed concern that the proposed 

CMS approach to evaluating network 

adequacy based on community patterns 

of care would be too limiting, and 

would not allow organizations sufficient 

flexibility to develop networks in rural 

areas or areas with unique conditions. 

Several commenters were concerned 

that CMS’ interpretation of what 

constitutes community patterns of care 

would result in an approach that would 

not adequately take into account special 

plan-specific factors, such as the size of 

a plan or the quality of its providers. 

Also, a number of commenters were 

concerned that unique characteristics of 

a particular community, such as 

provider willingness to contract, would 

not be captured in the CMS network 

adequacy standards. One commenter 

expressed concern that the proposed 

requirements for network adequacy 

appear to encourage a fee-for-service 

and fragmented care model based on 

geographic access rather than a defined 

network of high quality primary care 

practices, supported by a limited 

network of sub-specialists. One 

commenter was concerned that CMS 

would only use the prevailing 

community standard of care to evaluate 

network adequacy, citing as an example 

a plan with a network that did not meet 

the prevailing community standard of 

care but was nevertheless adequate or 

even better in terms of the access it 

actually provides health care services to 

enrollees. 

Response: In developing standards for 

network adequacy we chose the 

overarching principle of community 

patterns of care because it is a robust 

model that allows CMS the necessary 

flexibility to develop standards that can 

be adapted to the significant variations 

that exist in health care delivery in the 

United States. Our proposed regulation 

outlined the broad elements that we 

have found from years of experience to 

be relevant in evaluating a particular 

community pattern of care. However, 

we are cognizant of the fact that there 

exist a number of unique local 

circumstances related to such factors as 

geography, market conditions, and 

provider availability. Accordingly, this 

final rule codifies an approach to 

determining network adequacy that 

builds on our experience with 

evaluating health plan provider 

networks but is also flexible enough to 

adapt to evolving and unique local 

market conditions. The automated 

process we have established to assess 

network adequacy is likely to be refined 

as we gain more experience, and 

maintaining flexibility in our regulatory 

requirements for network adequacy 

supports this goal. We also note that the 

automated system we are using does not 

specify the providers with which a plan 

contracts. Rather, it furnishes a 

benchmark so we can determine if a 

plan’s provider network is adequate 

given the availability of providers in the 

area where the plan is being offered and 

the expected enrollment in the plan. In 

other words, our standards address the 

relative size and scope of an acceptable 

MA provider network given the 

community patterns of care. However, 

MA plans still have discretion to select 

the providers they contract with as long 

as that network is adequate to meet the 

health care needs of its enrollees. In 

addition, we will have an exceptions 

process by which plans can highlight 

special circumstances that affect their 

ability to meet our access standards. 

Comment: Many commenters had 

very detailed, specific questions about 

our automated system for assessing 

network adequacy, and much of this 

feedback has already been provided to 

CMS through other mechanisms. For 

example, one commenter asked for 

certain adjustments to the ratio of 

providers to beneficiaries. Other 

comments questioned how CMS would 

implement various features of network 

adequacy and whether they would be 

codified in regulations text. 

Response: As noted previously, we 

have developed and implemented 

automated systems to evaluate the 

network adequacy of MA plans. As part 

of that implementation, we have 

provided considerable subregulatory 

guidance regarding implementation of 

community patterns of care through this 

automated process. An example of this 

subregulatory guidance is the provision 

of time and distance standards 

(available on the CMS Web site) by 

category of health care provider for a 

number of rural and metropolitan 

counties throughout the United States. 

Because we did not propose to 

incorporate the technical specifics of 

our automated system into regulation 

text, we believe it is most appropriate to 

address specific technical suggestions in 

the context of implementing and finetuning the automated network adequacy 

system. 

Comment: Several commenters 

expressed concern about how CMS 

would implement time and distance 

standards for determining network 

access. One commenter asked that CMS 

be mindful of the impact of imposing 

time and distance standards equally 

among different types of providers. One 

commenter stated that the prevailing 30 

minute/30 mile access to services 

standards need to be fine-tuned 

specifically for urban, rural, and other 

medically underserved areas. Other 

comments included recommendations 

to establish separate and distinct 

network adequacy standards for Parts A 

and Part B services, as well as standard 

for measuring network adequacy in 

rural areas for services that are only in 

hospitals. 

Response: As noted in the October 22, 

2009 proposed rule, we have 

historically used the 30 minute/30 mile 

access to services as a rough standard 

for evaluating provider networks. 

However, we agree that this standard is 

not sufficiently nuanced to stand on its 

own, and does not fully address our 

needs. Our operational experience has 

demonstrated that the concept of 

community patterns of health care 

delivery furnishes a more useful 

benchmark for measuring a proposed 

provider network because it allows for 

varying geographical and regional 

conditions to be taken into 

consideration. 

Comment: One commenter asked 

CMS to consider Medicaid provider 

networks as part of the assessment of 

network adequacy for dual eligible 

integrated products. This commenter 

also suggested comparing contracting 

rates across plans serving duals as an 

additional measure of network 

adequacy. In addition, the commenter 

suggested that a comparison of the 

plan’s provider availability to those 

actually open to new Original Medicare 

enrollees might indicate the value of the 

plan to potential enrollees. Another 


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commenter asked that CMS include in 

its regulation defining network 

adequacy the following factors derived 

from the Medicaid access standards 

under § 438.206: (1) The mode of 

transportation used by Medicare 

beneficiaries, particularly those who are 

dually eligible and those who rely on 

transportation for the disabled; (2) 

whether the location furnishes physical 

access for enrollees with disabilities; 

and (3) delivery of services in a 

culturally competent manner. 

Response: We recognize that special 

needs plans (SNPs) that specifically 

serve the dual eligible population have 

unique requirements. It is for that 

reason that in 2011, SNPs that 

exclusively serve the dual eligible 

population will be required to have 

contracts with State Medicaid agencies 

where they operate. While 

transportation is not a Medicare covered 

benefit, it is our expectation that MA 

plans’ facilities are available and 

accessible to plan enrollees. 

7. Deemable Program Requirements 

Under Parts C and D (§ 422.156(b)(7), 

§ 422.156(f), § 423.165(b), and 

§ 423.165(f)) 

In the October 2009 proposed rule, we 

proposed to clarify what regulatory 

requirements are ‘‘deemable’’ for MA 

organizations that offer prescription 

drug benefit programs by modifying the 

language at § 422.156(b)(7) to refer to the 

list of deemable requirements for Part D 

sponsors set out at § 423.165(b)(1) 

through (b)(3). In addition, we proposed 

modification to § 422.156(f) and 

§ 423.165(f) to add language clarifying 

that CMS may use its statutory authority 

to impose intermediate sanctions and 

civil money penalties (CMPs), initiate 

contract terminations, and perform 

evaluations and audits of a sponsoring 

organization’s records, facilities and 

operations, notwithstanding our 

deeming provisions. We also proposed 

to remove language at § 423.165(b)(4) 

regarding programs to protect against 

fraud, waste and abuse from the items 

listed as deemable program 

requirements. After considering the 

comments we received in response to 

these proposals, we are adopting all of 

these proposals without further 

modification into this final rule. 

Comment: One commenter asked if 

CMS will create an avenue for 

accrediting organizations who are 

currently approved under the Medicare 

Advantage program to apply for 

deeming under the Prescription Drug 

program. 

Response: Our proposal did not 

address the process for becoming an 

accrediting organization. Any 

organization that wishes to be an 

accrediting organization for the 

Medicare Prescription Drug program 

must first apply and be approved by 

CMS in accordance with existing 

requirements. 

Comment: One commenter asked if 

we will define possible roles and 

responsibilities for accrediting 

organizations under the revised Part D 

monitoring and oversight audit program. 

Response: Our proposal did not 

address the Part D accrediting process 

and we do not intend to address this 

process in this final rule. We will 

evaluate whether or not there is a need 

to release more detailed information in 

the future through subregulatory 

guidance or other appropriate means. 

Comment: One commenter indicated 

that Part D plan sponsors have not been 

given information on accrediting 

organizations that could grant plans 

deemed status for Part D. The 

commenter further recommended that 

there be an opportunity to work with us 

to identify accredited organizations for 

pharmacy benefit manager operations in 

order to simplify the audit process. 

Response: Our proposal did not 

address the Part D accrediting process 

and we do not intend to address this 

process in this final rule. However, as of 

the date of the publication of this 

regulation, CMS has not approved any 

accrediting organizations to grant 

deemed status for Part D sponsors. We 

will evaluate whether or not there is a 

need to release more detailed 

information in the future through 

subregulatory guidance or other 

appropriate means. 

Comment: We received a few 

comments indicating that the regulatory 

provisions provided in this section 

should be further clarified either 

through rulemaking or subregulatory 

guidance. 

Response: We will evaluate whether 

or not there is a need to release more 

detailed information in the future 

through subregulatory guidance or other 

appropriate means. 

Comment: One commenter suggested 

that we provide clarification on the 

criteria we would use to determine 

whether to perform evaluations, 

conduct audits, or impose sanctions or 

civil money penalties relative to a 

sponsoring organization’s compliance 

with deemable requirements. 

Response: Our proposal did not 

intend to modify or affect the manner in 

which CMS conducts compliance 

evaluations, audits or the process for 

imposing intermediate sanctions. These 

processes are not directly affected by 

whether the underlying subject of the 

deficiency is a deemable requirement. 

Comment: One commenter 

encouraged us to consider adding 

additional deemable requirements based 

on differences between the Part D 

program and the Part C program. 

Response: We have been granted 

limited statutory authority regarding 

what specific requirements are 

deemable. Our proposals reflect our 

current statutory authority. 

Comment: One commenter requested 

that since the fraud, waste and abuse 

program was being removed as a 

deemable requirement we consider 

allowing ‘‘certification’’ from an external 

qualified source to serve in the deeming 

capacity. 

Response: We have been granted 

limited statutory authority regarding 

what specific requirements are 

deemable. We proposed modifications 

to our regulations to mirror our current 

statutory authority. To the extent the 

commenter is proposing that CMS 

consider ways of assessing an 

organization’s compliance with fraud, 

waste, and abuse requirements that 

suggestion would be outside the scope 

of this proposal. 

8. Modify the Corrective Action Plan 

(CAP) Process as It Relates to 

Procedures for Termination and 

Nonrenewal of a Part C or D Contract by 

CMS (§ 422.506(b)(3), § 422.510(c)(1), 

§ 423.507(b)(3), and § 423.509(c)(1)) 

In the October 2009 proposed rule, we 

proposed eliminating the existing 

language contained in regulations at 

§ 422.506(b)(3), § 422.510(c)(1), 

§ 423.507(b)(3), and § 423.509(c)(1) that 

require corrective action plans (CAPs) to 

be submitted for our approval prior to 

us issuing a notice of intent to terminate 

or nonrenew a contract. Instead, we 

proposed that the sponsoring 

organization be solely responsible for 

the identification, development, and 

implementation of its CAP and for 

demonstrating to us that the underlying 

deficiencies have been corrected within 

the time period afforded under the 

notice and opportunity for corrective 

action. 

We also proposed amending the 

existing language at § 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1) which sets forth the 

specific timeframes afforded sponsoring 

organizations for the development and 

implementation of a CAP prior to CMS 

issuing a notice of intent to terminate or 

nonrenew. Specifically, we proposed to 

afford sponsoring organizations with at 

least 30 calendar days to develop and 

implement a CAP, prior to issuing the 

notice of intent to terminate or 

nonrenew. CMS is adopting the 

proposed language into the final rule 


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with a few technical changes to 

§ 422.506(b)(3)(i) and (ii), 

§ 422.510(c)(1)(i) and (ii), 

§ 423.507(b)(3)(i) and (ii), and 

§ 423.509(c)(1)(i) & (ii). First, we are 

deleting the phrase ‘‘that formed the 

basis for the determination to nonrenew the contract’’ from the proposed 

revised regulations governing nonrenewals at § 422.506(b)(3)(i) and 

§ 423.507(b)(3)(i) and deleting the 

phrase ‘‘that formed the basis for the 

determination to terminate the contract’’ 

from the proposed revised regulations 

governing terminations at 

§ 422.510(c)(1)(i) and § 422.509(c)(1)(i). 

The reason for this revision is that, upon 

further consideration, we have 

concluded that this language is 

superfluous and has the potential to 

cause confusion concerning when CMS 

must provide notice and reasonable 

opportunity to correct deficiencies. 

Next, we are modifying 

§ 422.506(b)(3)(i), § 423.507(b)(3)(i), 

§ 422.510(c)(1)(i), § 423.509(c)(1)(i) to 

state that CMS will provide the 

sponsoring organization a ‘‘reasonable 

opportunity’’ of ‘‘at least 30 calendar 

days’’ to develop and implement a 

corrective action plan. This 

modification made the propose 

provision at § 422.506(b)(3)(ii), 

§ 423.507(b)(3)(ii), § 422.510(c)(1)(ii), 

and § 423.509(c)(1)(i) duplicative and 

unnecessary, therefore we are deleting 

that provision. 

These revisions do not alter the 

meaning and purpose of the proposed 

revised regulations and are strictly 

editorial changes. 

Comment: We received numerous 

comments regarding our proposal to 

modify the overall approach and 

timeframe sponsoring organizations are 

afforded for developing and 

implementing a CAP prior to CMS 

issuing a notice of intent to terminate or 

nonrenew. Although almost all 

commenters were supportive of CMS’ 

proposal to move to an outcome 

oriented approach for reviewing CAPs, 

some commenters believe that 30 days 

is not enough time for sponsoring 

organizations to develop and implement 

a CAP. Commenters provided several 

reasons to support this concern, 

including the fact that CAPs may 

involve complex and time consuming 

programming or modification of systems 

and that the proposed change could 

result in sponsoring organizations 

pursuing a more cursory or manual 

remediation rather than a fuller 

remediation. Other commenters 

recommended that rather than 

specifying a time period, CMS and 

sponsoring organizations should 

mutually agree on a time period that is 

best for completing a CAP. A few 

commenters expressed that 30 days was 

more than enough time to correct 

deficiencies and that the regulations 

need to state more clearly that the 

corrective action should be completed 

within the same 30-day period. 

Response: Our proposal specifically 

stated that the time period afforded 

sponsoring organizations would be ‘‘at 

least’’ 30 days, thereby proposing the 

minimum amount of time that CMS 

would afford a sponsoring organization 

to develop and implement a CAP. We 

believe our proposal is reasonable and 

accounts for those situations where we 

determine that longer periods of time 

are warranted to demonstrate correction 

(for example, when corrections must be 

made to electronic information 

systems). Our proposal does not intend 

to limit the development and 

implementation of a CAP to 30 days in 

all cases because we agree that there are 

some deficiencies of a complex or 

technical nature that may require 

additional time to rectify. 

Comment: A few commenters 

requested that CMS clarify how it will 

determine if a sponsoring organization 

has attained compliance (for example, 

what are CMS’ expectations and what 

supporting documents would we 

require in such situations to 

demonstrate compliance). 

Response: Our proposal to change to 

an outcome based approach is not 

making modifications in the current 

methodologies for assessing whether an 

entity is in (or out of) compliance with 

our requirements. For example, CMS 

currently conducts validation activities 

based on account management data and 

information, audit results, beneficiary 

complaints, sponsoring organization 

reporting requirements and performance 

data indicators to determine whether a 

sponsoring organization is in 

compliance with our requirements. We 

will continue to determine if the 

sponsoring organization in is in 

compliance with our statutory, 

regulatory and program requirements by 

utilizing these kinds of monitoring and 

oversight measures. The proposed 

language is only clarifying that for nonrenewal and termination actions, we 

will not be requiring the sponsoring 

organization to submit its corrective 

action plans for approval by us, but 

instead the sponsoring organization 

must submit proof that identified 

deficiencies have been corrected. 

Comment: One commenter suggested 

that if CMS retains the authority to 

reject a CAP based on the process used 

to fix the deficiency, the sponsoring 

organization should be allowed to 

submit its CAP to CMS for approval, 

and if not disapproved by CMS within 

a specified period, assume that the CAP 

is approved from a process perspective. 

Response: The commenter has 

misunderstood our proposal. We are 

proposing to modify the current CAP 

process to be entirely outcome oriented 

and we will no longer be requiring 

sponsoring organizations to submit 

corrective action plans for approval 

(that is, the process for how the plan 

goes about correcting its deficiencies 

will not be approved or disapproved by 

CMS). Rather, the process will be 

independently developed and 

implemented by the sponsoring 

organization and our focus will be on 

determining whether the deficiencies/ 

problems that created the need for the 

CAP have been corrected. 

Comment: A commenter requested 

that CMS not apply the 30-day CAP 

timeframe to ‘‘routine or ad-hoc audits.’’ 

Response: The procedures governing 

the corrective action plan process 

associated with routine or ad-hoc audits 

are not specified in regulation. To the 

extent, however, that we would initiate 

a termination or nonrenewal action 

against a sponsoring organization based 

on a routine or ad-hoc audit CAP, we 

would follow the procedures outlined in 

this regulation. 

Comment: A commenter 

recommended that sponsoring 

organizations, which are currently 

under a CAP, be allowed to engage the 

services of an independent auditor to 

evaluate whether the sponsoring 

organization is in compliance with 

CMS’ requirements. 

Response: Our proposed language was 

not intended to prevent a sponsoring 

organization from taking the initiative to 

use an independent auditor to help 

identify and correct underlying 

compliance deficiencies. 

9. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D (§ 422.756 and 

§ 423.756) 

In the October 2009 proposed rule, we 

proposed two changes to the regulations 

to provide additional tools to assist us 

in making the determination to lift an 

intermediate sanction as stated in 

§ 422.756(d)(3) and § 423.756(d)(3). 

First, we proposed providing CMS with 

the discretion to require a sponsoring 

organization, under an intermediate 

sanction, to hire an independent auditor 

to provide us with additional 

information that we will use to 

determine if the deficiencies upon 

which the sanction is based have 

actually been corrected and are not 

likely to recur. We also proposed an 

alternative proposal in which we would 


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grant sponsoring organizations the 

discretion to hire an independent 

auditor to evaluate the sponsoring 

organization’s compliance with our 

requirements and would afford the 

results of the independent auditor’s 

review some weight in our 

determination of whether the bases for 

the sanction have been corrected and 

are not likely to recur. After considering 

the comments we received in response 

to this proposal, we are adopting the 

proposal without modification, which 

provides CMS with the discretion to 

require a sponsoring organization, under 

an intermediate sanction, to hire an 

independent auditor. 

Second, we proposed changes to 

§ 422.756(d)(3) and § 423.756(d)(3) to 

provide CMS with the discretion to 

require a sponsoring organization, 

subject to a marketing and enrollment 

sanction, to go through a test period 

during which the organization could 

market and accept enrollments for a 

limited time in order for us to determine 

if the sponsoring organization’s 

deficiencies have been corrected and are 

not likely to recur. Additionally, we 

proposed to revise these provisions to 

provide that following the test period, if 

we determine the deficiencies that 

formed the basis for the sanction have 

not been corrected and are likely to 

recur, the intermediate sanction will 

remain in effect until such time that we 

are assured the deficiencies have been 

corrected and are not likely to recur. 

The sponsoring organization, in these 

instances, would not have a right to a 

hearing to challenge our determination 

to keep the sanction in effect. We are 

finalizing this proposal without 

modification. 

We also proposed deleting existing 

provisions at § 422.756(c) and 

§ 423.756(c) because these provisions 

are duplicative of the list of sanctions at 

§ 422.750(a) and § 423.750(a) and are 

unnecessary. In this final rule, we are 

adopting all of these proposals without 

further modification. 

Comment: CMS received numerous 

comments regarding the engagement of 

an independent auditor by a sponsoring 

organization under sanction by CMS, 

with most commenters supporting the 

alternative proposal in which CMS may 

allow the sponsoring organization the 

discretion to hire an independent 

auditor. Commenters provided various 

rationales for their support of the 

alternative proposal, including the 

potential financial and operational 

burden to sponsoring organizations 

when required to engage an outside 

auditor; that sponsoring organizations 

may already have the internal resources 

available to provide the information to 

CMS; and that absent standards, CMS 

could impose this requirement in an 

arbitrary and capricious manner. A 

commenter opposing both proposals 

because the commenter did not believe 

it was necessary for CMS to grant the 

sponsor the discretion to hire 

independent auditors, and that by 

allowing discretion to hire an 

independent auditor, a sponsoring 

organization that did not hire the 

auditor would then be viewed in a 

negative light. Finally, one commenter 

expressed concern with our alternative 

proposal that when an independent 

auditor was not required by CMS, but 

was retained by the sponsoring 

organization at their discretion, CMS 

would merit only ‘‘some weight’’ in the 

decisionmaking process to lift the 

sanction. Specially, the commenter 

recommended that the independent 

auditor’s evaluation should have the 

same standard of weight regardless of 

whether the independent auditor was 

required or was discretionary. 

Response: When a sponsoring 

organization has been sanctioned, the 

organization’s deficiencies have risen to 

a serious and significant level. We 

believe that we should have the 

flexibility to require the sponsoring 

organization to hire an independent 

auditor for the benefit of both us and the 

sponsoring organization. To ensure that 

the use of the independent auditor will 

be beneficial for the sponsoring 

organization and to us, we intend to 

consider the sponsoring organization’s 

ability to afford an independent auditor 

as well as the sponsoring organization’s 

ability to demonstrate through its own 

resources that it has corrected its 

deficiencies and they are not likely to 

recur. To determine whether or not we 

would require an independent auditor, 

we would check to see if the sponsoring 

organization was on our financial watch 

list as well as on the financial watch list 

of any of the States or commonwealths 

in which the sponsoring organization 

was licensed. Also, whenever a 

sponsoring organization is under 

sanction, we engage in ongoing 

discussions with its senior leaders and 

management. If we were considering the 

use of an independent auditor, we 

would discuss this with the sponsoring 

organization and solicit their feedback 

in order to fully comprehend the 

financial makeup and stability of the 

organization. 

As the proposed regulatory language 

reflected, this authority will not be 

exercised in all circumstances because 

we recognize that an independent 

auditor may not be needed or beneficial 

in all circumstances. For these reasons, 

we are maintaining the requirement in 

the final rule that when a sponsoring 

organization has been sanctioned CMS 

may require that the sponsoring 

organization hire an independent 

auditor. 

Comment: CMS received a number of 

comments requesting that CMS provide 

more clarification related to our use of 

the term independent auditor in our 

proposal, including providing a 

definition, minimum qualifications, and 

whether conflict of interest rules would 

apply. One commenter suggested that 

CMS provide a list of auditors for 

sponsoring organizations to choose 

from. Another commenter seemed to be 

concerned that an independent auditor 

is generally used in the context of a 

financial audit and referred to ‘‘Sarbanes 

Oxley’’ stating that it has fairly clear 

rules with regard to conflicts of interest. 

In that respect, commenters requested 

that CMS clarify what context it used 

the phrase ‘‘independent auditor.’’ 

Response: We intend that sponsoring 

organizations will choose the 

independent auditor. We will work with 

sanctioned organizations to determine if 

the independent auditor they are 

proposing is appropriate. Some basic 

examples, however, of standards that we 

will require for independent auditors 

are knowledge of the Part C and Part D 

programmatic requirements and 

experience evaluating an organization’s 

performance in the areas specific to the 

deficiencies. To the extent that one 

commenter was referencing financial 

audits under the Sarbanes Oxley Act of 

2002 (Pub. L. 107–204, 116 Stat. 745, 

enacted July 30, 2002), this proposal is 

not governed by the standards in 

Sarbanes Oxley. The type of audit 

contemplated by Sarbanes Oxley is a 

financial audit and not a program 

compliance audit. The audits proposed 

here would involve an independent 

evaluation of whether the sponsoring 

organization is in compliance with CMS 

requirements. We will evaluate whether 

or not there is a need to release more 

detailed information in the future 

through subregulatory guidance or other 

appropriate means. 

Comment: Several commenters 

requested that CMS provide standards 

for when an independent auditor would 

be needed. Commenters wanted clarity 

on when an independent auditor would 

be required, what types of issues the 

auditor would be called to review, and 

the parameters under which an auditor 

would perform its work. One 

commenter requested that we limit the 

focus of the audit to the bases for the 

sanction. 

Response: During the period of the 

sanction, we communicate regularly 

with the sponsoring organization and, 


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therefore, we intend to fully discuss 

with the sanctioned organization the 

basis for concluding an independent 

auditor is necessary prior to requiring 

the organization to retain the 

independent auditor. We intend to 

utilize the requirement in our proposal 

when we determine that an independent 

auditor would be beneficial, such as in 

situations where the deficiencies are 

highly technical in nature. Also, if the 

sanctioned organization is having 

difficulty demonstrating to us that its 

deficiencies have been corrected, an 

independent auditor can provide us 

with assurances that the deficiencies 

have in fact been corrected through a 

neutral third party evaluation. We 

intend to determine what areas the 

independent auditor should assess 

depending on the nature and extent of 

the deficiencies. We do not believe it is 

possible or appropriate to provide this 

information in regulation since each 

sanctioned organization may require a 

different assessment based on its 

particular deficiencies. With respect to 

the comment that the focus of the audit 

should be limited to the bases for the 

sanction, based on our experience, we 

believe the independent auditor would 

need the flexibility to broaden the 

assessment because new or related 

issues may arise in the period after the 

sanction is imposed that need to be 

evaluated in order to ensure that the 

deficiencies have been corrected and are 

not likely to recur. 

Comment: Several commenters were 

concerned with our comparison of the 

independent auditor in this requirement 

to the Corporate Integrity Agreements 

(CIA) used by the HHS Office of 

Inspector General (OIG) because 

information found under the CIA is not 

publicly disclosed, and the commenters 

believe that the results should be 

publicly disclosed. Commenters also 

stated that in the case of nursing homes, 

experience has shown that CIAs have 

not been effective and that nursing 

homes have not improved as a result of 

CIAs. 

Response: When a sponsoring 

organization is subjected to an 

intermediate sanction, this information, 

along with the bases for the sanction, is 

publicly disclosed through the CMS 

Web site. Additionally, the public 

subsequently is notified as to whether 

we have determined that these 

deficiencies have been corrected and are 

not likely to recur. We do not believe 

that there is any significant value in 

making the public aware of audit results 

related to an internal technical 

assessment of the correction of these 

deficiencies that may be relied on to 

make our ultimate determination. 

However, to the extent these documents 

would be required under existing law to 

be disclosed we fully intend to comply 

with those requirements. 

With regard to the commenters who 

were concerned about the overall 

effectiveness of using independent 

auditors to assist us in evaluating 

compliance, correcting the deficiencies 

is ultimately the responsibility of the 

sanctioned organization. Although, the 

independent auditor may consult with 

the sanctioned organization on the best 

way to fix its deficiencies, the main 

purpose of the independent auditor is to 

provide evidence and additional 

assurances which would assist us in 

making the determination that those 

deficiencies have been corrected. We 

intend that independent auditor results 

will be weighed with a host of other 

validation activities conducted by us 

and will not be the sole source of 

information concerning whether 

deficiencies have been corrected and are 

not likely to recur. 

Comment: One commenter stated that 

the audit findings of an independent 

auditor should be subject to attorneyclient privilege and that they would 

only be subject to release to CMS if the 

sponsoring organization waived the 

privilege. 

Response: We disagree with the 

commenter that results of the 

independent auditor are protected by 

attorney client privilege. The purpose of 

the independent auditor is to provide a 

neutral third party evidenced-based 

evaluation of whether a sanctioned 

organization is in compliance with CMS 

requirements. Attorney-client privilege 

is a legal concept which protects 

communications between an attorney 

and his or her client and keeps certain 

communications between the parties 

confidential. Independent audit findings 

are by no means necessarily subject to 

the attorney-client privilege and, in this 

case, the sole purpose of the audit being 

performed is to provide information to 

CMS. 

Comment: One commenter stated that 

CMS’ determination not to lift the 

sanction after the results of the 

independent audit should be appealable 

and such appeal is required by law. 

Response: There is no statutory right 

to appeal a decision by CMS to keep a 

sanction in effect. Appeal rights are 

afforded at the time the sanction is 

imposed. 

Comment: One commenter requested 

that we remove the language ‘‘not likely 

to recur’’ from the independent auditor 

requirement. The commenter stated that 

it was not general practice for an auditor 

to opine as to whether the deficiencies 

were not likely to recur. 

Response: We did not propose and do 

not intend to require the independent 

auditor to opine as to whether the 

deficiencies are not likely to recur. The 

independent auditor will perform an 

assessment to determine if the 

sponsoring organization is in 

compliance with our requirements and 

we would use that evaluation, along 

with other information provided by the 

sponsoring organization, to make our 

determination as to whether the 

deficiencies that formed the basis for the 

sanction have been corrected and are 

not likely to recur. The independent 

auditors report is evidentiary and not 

dispositive as to whether the 

deficiencies have been corrected and are 

not likely to recur. We make that 

determination. 

Comment: We also received a number 

of comments on the proposal that in 

instances where marketing or 

enrollment sanctions have been 

imposed, CMS may require a sponsoring 

organization to engage in a marketing or 

enrollment ‘‘test period’’ in order to 

assist CMS in making a determination as 

to whether the deficiencies have been 

corrected and are not likely to recur. 

Most commenters wanted more clarity 

regarding the parameters of the ‘‘test 

period,’’ including any limitation on 

enrollment during the test period, the 

duration, when it would be required 

and the level of performance required 

during the test period. 

Response: The details concerning 

implementing a test period will vary 

from organization to organization 

depending on the nature and extent of 

the deficiencies that formed the basis for 

the sanction and other factors such as 

the organization’s size, complexity of 

operations, etc. We intend to work 

closely with any sanctioned 

organization prior to establishing a ‘‘test 

period’’ and the organization will 

receive specific notice of the standards 

the organization must meet to 

demonstrate that its deficiencies have 

been corrected during the test period. 

Comment: Several commenters 

asserted that sanctioned organizations 

should be afforded appeal rights if, after 

the marketing and enrollment ‘‘test 

period,’’ CMS determines to keep the 

sanction in effect. 

Response: Under our proposed 

provision, the ‘‘test period’’ is a 

validation activity that will help us to 

determine that the deficiencies that 

formed the basis for the sanction have 

been corrected and are not likely to 

recur. For example, when we validate a 

sponsoring organization’s compliance 

with appeals and grievances 

requirements, we may perform an audit 

to test those areas. If the audit 


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demonstrates that the sponsoring 

organization has not corrected its 

deficiencies or that they are likely to 

recur, the sanction will remain in effect 

and the sponsoring organization cannot 

appeal that determination. Appeal rights 

are afforded at the time the sanction is 

imposed. 

Comment: Several commenters 

expressed concern that sponsoring 

organizations subject to a ‘‘test period’’ 

would be under heightened scrutiny 

and that CMS would have sole 

discretion to determine the point at 

which the sponsoring organization has 

corrected the basis for the sanction. One 

other commenter questioned the value 

of a ‘‘test period’’ as well as the 

independent auditor and seemed to 

equate these validation activities to a 

situation where the sponsoring 

organization has been issued a 

corrective action plan (CAP). 

Response: We intend to use a ‘‘test 

period’’ as one of a host of validation 

activities and we intend to work closely 

with any sanctioned organization prior 

to imposing a ‘‘test period’’ to ensure the 

sponsoring organization receives 

specific notice of the standards it must 

meet to demonstrate that its deficiencies 

have been corrected and are not likely 

to recur. We fully intend to subject all 

sponsoring organizations placed under a 

sanction to heightened scrutiny both 

during the sanction period and for some 

period afterwards to ensure that the 

deficiencies that formed the basis for the 

sanction are corrected and are not likely 

to recur. The ‘‘test period’’ requirement 

simply provides organizations under 

marketing/enrollment sanctions the 

same opportunity other organizations 

would have to demonstrate compliance 

with our standards for releasing the 

organization from the sanction during 

an established enrollment test period. 

The provision is not applicable to an 

organization that has been asked to 

implement a CAP and has not had a 

marketing and enrollment sanction 

imposed. This provision is limited to 

sponsoring organizations subject to 

intermediate sanctions. 

Comment: One commenter requested 

that CMS adopt alternative approaches 

for evaluating whether it is appropriate 

to lift a marketing and enrollment 

sanction imposed on a sponsoring 

organization when the deficiencies that 

led to the sanction are ones where CMS 

cannot appropriately evaluate the extent 

of remediation through a trial 

enrollment and marketing period. 

Response: We fully intend to continue 

to explore other ways to effectively 

validate whether deficiencies have been 

corrected while a sponsoring 

organization is under sanction. The test 

period proposal was intended to address 

the specific dilemma faced by CMS and 

the sponsoring organization when a 

sanctioned organization cannot market 

and enroll during the sanction period so 

as to demonstrate that the deficiencies 

have been addressed. 

Comment: One commenter suggested 

that CMS specify that any decision not 

to lift an intermediate sanction at the 

end of such ‘‘test period’’ is a separate 

decision from, and shall not 

automatically result in, an action to 

terminate a contract. 

Response: We do not intend to use the 

decision not to approve a sponsoring 

organization’s request to release the 

sanction, in and of itself, as a basis for 

reaching a determination to terminate a 

contract. Termination determinations 

must always meet our specific statutory 

and regulatory requirements. 

10. Termination of Contracts Under 

Parts C and D (§ 422.510(a) and 

§ 423.509(a)) 

In the October 2009 proposed rule, we 

proposed to delete the enumerated bases 

for termination contained at 

§ 422.510(a)(5) through (12) and 

§ 423.509(a)(5) through (11). We 

proposed to modify language at 

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

the language into two paragraphs with 

the first paragraph, (a)(1), listing the 

statutory bases for termination and the 

second paragraph, (a)(2), clarifying that 

a sponsoring organizations (i) failure to 

comply with our regulations, (ii) failure 

to meet performance standards; and/or 

(iii) participation in false, fraudulent, or 

abusive activities, may constitute a basis 

for CMS to determine that the 

sponsoring organization meets the 

requirements for contract termination in 

accordance with paragraph (a)(1). 

Based on the comments we received 

on the proposed rule, we have decided 

not to finalize our proposal and as an 

alternative to slightly modify existing 

regulations. First, we are finalizing the 

proposed modified language in 

provisions § 422.510(a)(1)–(3) and 

§ 422.509(a)(1)–(3) so that the regulatory 

text mirrors the statutory language. 

Second, we are finalizing proposed 

modified language for § 422.510(a)(4) 

and § 423.509(a)(4), which states that 

CMS may now terminate under this 

provision when Medicare, Medicaid, or 

other State or Federal health care 

programs are affected. Next we are 

finalizing our proposed deletion of 

existing § 422.510(a)(5) and 

§ 423.509(a)(5) because we believe that 

the provision is a basis for expedited 

termination and therefore 

inappropriately located in this part. We 

have decided to retain the remaining 

enumerated bases for termination that 

we previously proposed to delete at 

§ 422.510(a)(6) through (12) and 

§ 423.509(a)(6) through (11). We are, 

therefore, redesignating § 422.510(a)(6)– 

(12) and § 423.509(a)(6)–(11) as 

§ 422.510(a)(5)–(11) and § 423.509(a)(5)– 

(10) respectively. Finally, we are adding 

the two new proposed bases, with 

modified language, to the existing 

enumerated list at § 422.510(a)(12) and 

§ 423.509(a)(11) (failure to comply with 

regulatory requirements) and 

§ 422.510(a)(13) and § 423.509(a)(12) 

(failure to comply with performance 

standards). The discussion of these 

revisions is set forth in more detail 

below. 

Comment: A number of commenters 

expressed specific concerns about our 

proposed changes to § 422.510(a) and 

§ 423.509(a), namely our proposal to 

remove the enumerated standards for 

termination and proposal to mirror the 

statutory language. Commenters stated 

that the proposed language is too broad 

and vague, gives CMS unprecedented 

discretion and authority and invites 

arbitrary or inconsistently applied 

determinations by CMS. One 

commenter suggested that CMS 

maintain the existing language. 

Response: We disagree that the 

proposed changes to § 422.510(a)(1) 

through (3) and § 423.509(a)(1) through 

(3) provide CMS with unprecedented 

authority and discretion. The proposed 

language merely mirrors the authority 

provided to CMS through statute. We 

have, however, after considering all of 

the comments, decided to retain the 

existing provisions from § 422.510(a)(6) 

through (12) and § 423.509(a)(6) through 

(11) into the final rule. These examples 

of substantive bases are now 

redesignated as § 422.510(a)(5) through 

(11) and § 423.509(a)(5) through (10) 

respectively. 

Comment: A number of commenters 

expressed concern with the proposed 

language at § 422.510(a)(12) and 

§ 423.509(a)(11) (formerly 

§ 422.510(a)(2)(i) and § 423.509(a)(2)(i)) 

which provided that CMS may 

determine that a basis exists to 

terminate a sponsoring organization’s 

contract if the sponsoring organization 

fails to comply with any regulatory 

requirement contained in parts 422 or 

423. While one commenter strongly 

supported the proposed change, many 

commenters believed that the revision 

removed the ‘‘substantiality’’ or 

‘‘materiality’’ tests explicit or inherent in 

each of the existing requirements, and 

in effect it would allow CMS to 

terminate on the basis of a single 

instance in which a particular 

requirement is not met. 


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Response: We have considered the 

comments and have decided to remove 

the word ‘‘any’’ from the proposal to 

avoid confusion and have modified the 

regulatory text in the final version of the 

regulation to reflect this change. 

Adherence to all our regulatory 

requirements is important and 

necessary, but we acknowledge that in 

making a decision to terminate a 

contract, we would take into account 

the nature and extent of the failure to 

meet our regulatory requirements and 

the materiality of the requirement as 

compared to other requirements. 

Comment: A number of commenters 

also expressed concern about the 

proposed language at § 422.510(a)(13) 

and § 423.509(a)(12) (formerly 

§ 422.510(a)(2)(ii) and 

§ 423.509(a)(2)(ii)) supporting the use of 

outlier analysis to reach a termination 

decision. These commenters opposed 

this proposal and argued that it is 

inconsistent with law and unfair to 

equate outlier status to noncompliance. 

Another commenter stated that it was 

improper to make contract termination 

decisions based on a determination that 

a sponsoring organization is the lowest 

performer among a cohort when the 

organization may still be performing 

adequately. Some commenters stated 

that they needed more clarity on the 

specifics associated with the outlier 

standards and access to the data 

underlying these standards. 

Additionally, commenters asserted that 

the outlier standards are too vague of a 

standard to serve as a basis for contract 

terminations, particularly when CMS 

has not disclosed the relevant standards 

or methodology and organizations have 

not be notified in advance of these 

standards in order to be afforded an 

opportunity to improve. Two 

commenters recommended that CMS 

allow sponsoring organizations to 

appeal CMS findings as a result of 

outlier analysis. 

Response: Outlier analysis is an 

oversight mechanism by which we can 

more effectively focus our limited 

resources in determining which 

sponsoring organizations to target for 

further compliance analysis and 

assessment. We do not intend to use this 

analysis in and of itself as a basis to 

terminate a contract. Therefore, we have 

decided to remove this outlier language 

from the final rule, to avoid 

misunderstandings and confusion 

among sponsoring organizations 

concerning the use of this data to take 

termination actions. 

Comment: CMS proposed to modify 

language at § 422.510(a)(4) and 

§ 423.509(a)(4) (formerly 

§ 422.510(a)(2)(iii) and 

§ 423.509(a)(2)(iii)) to revise the 

agency’s existing regulatory authority to 

allow CMS to terminate a sponsoring 

organization when there is credible 

evidence that shows that the sponsoring 

organization has committed or 

participated in false, fraudulent or 

abusive activities affecting the 

Medicare, Medicaid, or other State or 

Federal health care programs. Two 

commenters on this proposed provision, 

one in support and the other opposing 

the provision, stated that CMS should 

not terminate contracts in cases where 

the employees committing the 

fraudulent acts have no involvement 

with the administration of the Medicare 

lines of business offered by the 

sponsoring organization. 

Response: Our proposal was not 

intended to indicate that we will 

terminate a contract in the case of 

employee fraudulent acts unrelated to 

Medicare, Medicaid, or other State or 

Federal health care programs. 

11. Request for Hearing Under Parts C 

and D (§ 422.662 and § 423.651) 

In the October 2009 proposed rule, we 

proposed to modify the language at 

§ 422.662(a) and § 423.651(a) stating that 

the sponsoring organization must file a 

request for a hearing in accordance with 

the requirements specified in the notice 

of the contract determination or 

intermediate sanction. This proposed 

change would ensure that the proper 

officials within CMS receive the request 

and are able act upon it in a timely 

manner. Current regulations at 

§ 422.662(a) and § 423.651(a) governing 

the hearing procedures require 

sponsoring organizations to file a 

request for a hearing on contract 

determinations with the Hearing Officer 

and to also file it with ‘‘any CMS office.’’ 

As we stated in the preamble to the 

proposed rule, we believe this 

procedure is ineffective and inefficient 

because it is likely to result in a request 

for hearing not being received by the 

appropriate officials within CMS. 

We also proposed a conforming 

change at § 422.662(b) and § 423.651(b) 

which governs the timeframes for filing 

the request for hearing to provide that 

the request must be filed within 15 

calendar days after receipt of the notice 

(versus the existing language which 

states 15 calendar days from the ‘‘date 

CMS notifies’’ the sponsoring 

organization of its determination). This 

proposed change was made to ensure 

consistency with the way deadlines are 

described in other regulatory provisions 

of parts 422 and 423 governing contract 

determinations or the imposition of 

intermediate sanctions (including 

related appeals processes). 

Since we received no comment on 

these sections, these changes are 

adopted without modification in this 

final rule. 

12. Burden of Proof, Standard of Proof, 

Standards of Review, and Conduct of 

Hearing (§ 422.660, § 423.650, § 422.676, 

and § 423.658) 

In the October 2009 proposed rule, we 

proposed to delete the references to 

‘‘substantial compliance’’ as a standard 

of review at hearing and delete the 

existing regulations which provide for 

an ‘‘earliest of’’ test from § 422.660 and 

§ 423.650. We also proposed to 

explicitly state that the preponderance 

of the evidence is the standard of proof 

that we believe applies during the 

appeal of a contract determination or 

intermediate sanction. We also 

proposed to delete the existing language 

contained at § 422.660(b) and 

§ 423.650(b) and replace it with 

language that provides that the 

sponsoring organization has the burden 

of proving by a preponderance of the 

evidence that our determination was 

inconsistent with the requirements of 

the applicable part. Additionally, we 

specified in our proposal that the 

applicable requirements are § 422.501 

and § 422.502 for the processes and 

standards for applicants for the MA 

program, § 423.502 and § 423.503 for 

applicants for the Part D program, 

§ 422.506 or § 422.510 for MA contract 

determinations, § 423.507 or § 423.509 

for Part D contract determinations, and 

§ 422.752 or § 423.752 for intermediate 

sanctions. 

We proposed to modify § 422.660(c) 

and § 423.650(c), which specified that 

the notice of any decision favorable to 

a Part C or D applicants appealing a 

determination that it is not qualified to 

enter into a contract with us must be 

issued by July 15th for the contract in 

question to be effective on January 1st 

of the following year. We proposed a 

change from the July 15th deadline to 

September 1st. 

Finally, we proposed to modify 

existing regulations at § 422.676(d) and 

§ 423.658(d) governing the conduct of 

the hearing to provide that, consistent 

with the burden of proof, during the 

hearing the sponsoring organization 

bears the burden of being the first to 

present its argument to the Hearing 

Officer according to any briefing 

schedule determined by the Hearing 

Officer. 

We are adopting all of the proposed 

changes as the final rule without further 

modification. 

Comment: Several commenters 

opposed CMS’ removal of the 

‘‘substantial compliance’’ standard 


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asserting that this standard was well 

established and well understood as 

opposed to the new language that CMS 

proposed, which these commenters 

stated was vague and unclear. 

Response: We disagree that the 

‘‘substantial compliance’’ standard is 

clear and easy to apply in making a 

determination. As explained in the 

preamble to the October 2009 proposed 

rule, the ‘‘substantial compliance’’ 

language has led to confusion among 

parties to the hearing, has been difficult 

for the Hearing Officer to apply, and 

does not reflect the nuances of the 

different legal standards provided in the 

Act for making contract determinations 

and imposing intermediate sanctions. 

Our proposal, which provided that the 

standard of review is whether CMS’ 

determination is inconsistent with the 

regulatory requirements for taking the 

underlying action (for example, 

application denial, non-renewal, 

termination or intermediation sanction) 

provides the requisite specificity to be 

applied by the hearing officer and the 

parties to these actions. We also believe 

the proposal properly focuses the 

hearing officer and all parties to the 

hearing on the correct standard, and the 

pertinent issue under review at the 

hearing. 

Comment: Several commenters 

expressed concern that the proposed 

changes result in the sponsoring 

organizations bearing the burden of 

proof in appeal proceedings and one 

commenter added that CMS’ proposal is 

inconsistent with the general rule 

articulated by the Supreme Court that 

the party seeking to take action 

ordinarily bears the burden of 

persuasion and cited to Schaffer v. 

Weast, 546 U.S. 49 (2005). 

Response: The commenters have 

misunderstood the scope of our 

proposals because we did not propose a 

change as to which party bears the 

burden of proof. Existing regulations 

explicitly state that the sponsoring 

organization bears the burden of proof. 

Also, we believe that the commenter is 

mistaken in its reading and 

interpretation of the ruling in Shaffer v. 

Weast. In that case, the Supreme Court 

held that the burden of proof in an 

administrative hearing is properly 

placed upon the party seeking relief 

(‘‘[T]he burdens of pleading and proof 

with regard to most facts have been and 

should be assigned to the plaintiff who 

generally seeks to change the present 

state of affairs and who therefore 

naturally should be expected to bear the 

risk of failure of proof or persuasion.’’) 

In our appeal proceedings, the party 

seeking relief is the sponsoring 

organization, thereby making it 

appropriate for that party to bear the 

burden of proof. Thus, existing 

regulations which require that the 

sponsoring organization bear the burden 

of proof are consistent with the legal 

precedent cited by the commenter. 

Comment: One commenter requested 

that CMS provide a definition for the 

‘‘preponderance of the evidence 

standard.’’ 

Response: The preponderance of the 

evidence standard is a well established 

and defined legal standard. To make a 

showing by the preponderance of the 

evidence, one must show that it is more 

likely than not that the fact that the 

claimant seeks to prove is true. 

Comment: Some commenters opposed 

changing the notification date from July 

15th to September 1st. Some 

commenters noted that notification by 

September 1 of a favorable 

determination would not leave a 

sponsor with sufficient time to prepare 

for the upcoming year given that 

sponsors are permitted to start 

marketing for the upcoming year on 

October 1. One commenter 

recommended moving the application 

deadline to March to allow for adequate 

preparation of the application and 

suggested that adequate preparation 

may reduce the number of appeals. 

Response: In most cases, we do not 

believe a favorable determination issued 

by the CMS hearing officer will be 

rendered as late as September 1st. 

However, moving the notification date 

of the favorable determination from July 

15th to September 1st affords applicants 

that receive a favorable decision the 

opportunity to be sponsors in the 

contract year for which they applied. In 

all instances, this regulatory change 

works to the benefit of sponsors. 

We believe that sponsors are given 

adequate time and instruction to 

complete the application. We believe 

changing the application due date 

would not significantly impact the 

number of appeals. 

13. Expedited Contract Terminations 

Procedures (§ 422.510, § 423.509, 

§ 422.644, § 423.642, § 422.664, and 

§ 423.652) Under Parts C and D 

In the October 2009 proposed rule, we 

proposed to delete the references to 

expedited terminations based on false, 

fraudulent or abusive activities and 

severe financial difficulties contained in 

the termination procedures at 

§ 422.510(b)(2)(i), § 423.509(b)(2)(i), 

§ 422.510(c)(2) and § 423.509(c)(2) and 

in the appeal procedures at 

§ 422.644(c)(2), § 423.642(c)(2), 

§ 422.664(b)(2) and § 423.652(b)(2). We 

proposed to modify these provisions 

instead to reflect the more general 

statutory language concerning our 

ability to take an expedited termination 

when we determine that a delay in 

termination caused by adherence to the 

required procedures would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the 

sponsoring organization. We are 

adopting our proposal to include this 

statutory language, and based on the 

comments we have decided to retain 

and amend the two existing bases for 

expedited termination currently located 

at § 422.510(a)(4) & (a)(5) and 

§ 423.509(a)(4) &(a)(5). 

Comment: We received several 

comments on our proposals. 

Commenters were concerned that our 

proposal was overly broad, lacked 

specificity and that there were no 

examples of situations where we would 

pursue an expedited termination. 

Additionally, a few commenters were 

concerned that a sponsoring 

organization might be subjected to an 

expedited termination for a single, 

isolated incidence of non-compliance 

and that sponsoring organizations 

would not be afforded the opportunity 

for a hearing before the termination took 

effect. 

Response: After considering all of the 

comments we received, we have 

decided to retain the two existing 

examples for when CMS may pursue an 

expedited termination as well as 

incorporate the statutory language into 

the final rule. 

The existing regulation references 

§ 422.510(a)(5) and § 423.509(a)(5) as 

one example of a situation where CMS 

would pursue and expedited 

termination, but it is also listed as a 

basis for termination. In the proposed 

regulation, we proposed removing this 

instance as a basis for termination, 

thereby removing its associated 

reference in expedited termination. We 

believed that this language created some 

confusion because it intertwines a basis 

for termination (that is, failure to make 

services available) with the statutory 

standard for making an expedited 

termination. Based on the comments we 

received, however, we see that the 

reference to this basis provided 

sponsoring organizations with a clear 

example of the instances under which 

CMS may decide to take an expedited 

termination. In order to resolve this 

issue, we have decided to add the 

language from § 422.510(a)(5) and 

§ 423.509(a)(5) to the regulatory 

provisions on expedited terminations in 

the final rule. We have decided to 

finalize our proposal to delete this 

language as a basis for termination 

because we maintain that the 

circumstances in this provision would 


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lead CMS to pursue an expedited 

termination. 

The second example in the existing 

regulation references § 422.510(a)(4) and 

§ 423.509(a)(4) which concerns 

situations where there is credible 

evidence that a sponsoring organization 

committed or participated in false, 

fraudulent or abusive activities affecting 

the Medicare, Medicaid, or other State 

or Federal health care programs, 

including the submission of false or 

fraudulent data. Based on the comments 

we received, this reference also 

provided sponsoring organizations with 

a clear example of the circumstances 

under which CMS may decide to take an 

expedited termination. Therefore, we 

have decided to retain the reference to 

§ 422.510(a)(4) and § 423.509(a)(4) as a 

basis for expedited termination. 

Finally, we are moving forward with 

our proposal to incorporate the statutory 

language in the revised regulations 

governing expedited termination, 

thereby permitting CMS to expedite a 

termination if we determine that a delay 

in termination caused by adherence to 

the required procedures would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the 

sponsoring organization. We do not 

agree that our proposal to include the 

statutory language is overly broad or 

vague, and believe that by retaining the 

two existing examples, it provides 

sponsoring organizations with some 

guidance on the types of issues that 

might lead CMS to pursue an expedited 

termination while still allowing us the 

flexibility we need to ensure we can act 

quickly in situations where adherence 

with the standard termination 

procedures would pose an imminent 

and serious risk to the health of 

Medicare beneficiaries. 

14. Time and Place of Hearing Under 

Parts C and D (§ 422.670 and § 423.655) 

In the October 2009 proposed rule, we 

proposed adding new language to 

§ 422.670(b) and § 423.655(b) to state 

that either the sponsoring organization 

or CMS may request that a hearing date 

be postponed by filing a written request 

no later than 5 calendar days prior to 

the scheduled hearing, and that when 

either the sponsoring organization or 

CMS requests an extension, the Hearing 

Officer must provide a one-time 15- 

calendar day postponement, and 

additional postponements may be 

granted at the discretion of the Hearing 

Officer. We also proposed revising the 

language in § 422.670(a) and 

§ 423.655(a) to provide that the CMS 

Hearing Officer schedule a hearing to 

review a contract determination or the 

imposition of an intermediate sanction 

within 30 calendar days after the 

‘‘receipt of the request for the hearing.’’ 

This change was made to ensure 

consistency with the way deadlines are 

described in other regulatory provisions 

of parts 422 and 423 governing contract 

determinations or the imposition of 

intermediate sanctions (including 

related appeals processes). We are 

adopting all the proposed changes into 

the final rule without further 

modification with the exception of the 

timeframes outlined in § 422.670(b) and 

§ 423.655(b) as set forth below. 

Comment: Several commenters 

questioned CMS’ proposal to allow 

sponsoring organizations or CMS to 

request an extension for the hearing by 

filing a written request no later than 5 

calendar days prior to the scheduled 

hearing. Most commenters believed that 

allowing requests for extensions until 5 

days prior to the scheduled hearing 

would not allow enough time for 

sponsoring organizations to change 

travel arrangements and commenters 

proposed different timeframes they 

thought would be more suitable. 

Response: We agree with the 

commenters concerns and have decided 

to extend the timeframe for requesting 

an extension to the hearing date from 5 

calendar days to 10 calendar days prior 

to the scheduled hearing in our final 

rule. 

Comment: One commenter raised 

concerns that there may be times when 

an automatic, 15-day extension may not 

be workable due to previous 

commitments on the part of the Hearing 

Officer or non-requesting party and 

suggested CMS add language to the 

requirement to allow for an alternate, 

mutually agreed upon hearing date if 

the Hearing Officer or the nonrequesting party is not available on the 

hearing date that would otherwise result 

from postponement. 

Response: We believe that the 

addition of such language is not 

necessary because current regulations at 

§ 422.670(b)(1) and (2) and 

§ 423.670(b)(1) and (2) already provide 

that the Hearing Officer has the 

authority on his or her own motion, to 

change the time and place for the 

hearing. 

15. Discovery Under Parts C and D 

(§ 422.682 and § 423.661) 

In the October 2009 proposed rule, we 

proposed to delete the formal discovery 

process contained in § 422.682 and 

§ 423.661. In the December 5, 2007 

Federal Register (72 FR 68700), we 

published a final rule with comment 

period that finalized our revisions to 

§ 422.682 and § 423.661 to provide for a 

formal discovery process prior to 

hearing. However, based on our 

experience since the promulgation of 

this rule, we do not now believe a 

formal discovery process is necessary or 

appropriate for these kinds of 

proceedings. In addition, the existing 

timeframe in which the hearing 

normally must take place, 30 calendar 

days after request for a hearing, does not 

easily accommodate a formal discovery 

process. We also proposed to amend 

§ 422.682 and § 423.661 to require that 

witness lists and documents be 

identified and exchanged at least 5 

calendar days prior to the scheduled 

hearing. We are adopting § 422.682 and 

§ 423.661 without further modification 

into this final rule. 

Comment: Several commenters 

opposed CMS’ removal of the formal 

discovery process from regulations. 

Commenters specifically stated that 

deleting discovery is a violation of their 

due process rights, and would deny 

sponsors the only opportunity they have 

to obtain the full breadth of information 

they are entitled to for a fair hearing. 

One commenter stated that the 

discovery process is the appropriate 

forum for the sponsoring organization to 

learn of the criteria CMS used in 

reaching its decision and that 

sponsoring organizations have a 

statutory right under 5 U.S.C. 552 to this 

information. 

Response: We disagree with the 

commenters who stated that the removal 

of discovery from regulations is a 

violation of their due process rights and 

a violation of their statutory right to 

obtain information in this manner. Our 

hearings are informal administrative 

proceedings and as the court held in 

Lopez v. U.S., ‘‘[t]here is no general 

constitutional right to discovery in 

administrative proceedings’’ Lopez v. 

U.S., 129 F.Supp.2d 1284 (2000). Also, 

we do not believe that finalizing our 

proposal to remove discovery will create 

unequal or prejudicial treatment that 

will lead to a violation of due process. 

Both CMS and sponsoring organizations 

will be equally limited to producing and 

receiving witness lists and documents 

that must be exchanged at least 5 

calendar days before the hearing. Also, 

we do not believe that full discovery for 

sponsoring plans is required to receive 

the necessary information from us for 

adequate and proper preparation for the 

hearing. Prior to the hearing, we will 

have already provided sponsoring 

organizations the specific information 

relied upon by CMS in reaching the 

determination which they are appealing. 

In cases of contract terminations or 

intermediate sanctions, we will have 

previously provided the specific basis 

for the determination within the notice 


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of intent to terminate or impose 

intermediate sanctions. Therefore, we 

believe that a witness list and 

documents are sufficient to meet the 

evidentiary needs of the parties. 

Additionally, any prior decisions of 

hearing officers are public record, and 

therefore, obtainable by sponsoring 

organizations. Sponsors have numerous 

statutory rights under 5 U.S.C. 552 

which govern the agency’s disclosure of 

public information; agency rules, 

opinions, orders, records, and 

proceedings. The removal of the 

discovery process does not circumvent 

the rights provided to the public under 

5 U.S.C. 552. 

Comment: One commenter also 

requested that if CMS moves forward 

with the proposal to eliminate the 

formal discovery process that we revise 

our proposal to include a list of the 

specific documents to be shared and to 

indicate the action that will result when 

the required documents are not shared 

prior to the hearing. 

Response: Appeal proceedings will 

vary dependent on what type of 

determination is being appealed and we 

cannot possibly specify which 

documents would be necessary in each 

and every type of case. Also, if 

documents are not shared prior to the 

hearing, it is within the discretion of the 

hearing officer to determine what the 

consequences of that action or inaction 

for the parties to the hearing. 

16. Review by the Administrator Under 

Parts C and D (§ 422.692(a) and 

§ 423.666(a)) 

In the October 2009 proposed rule, we 

proposed revisions to the language at 

§ 422.692(a) and § 423.666(a) to provide 

that the sponsoring organization may 

request review by the Administrator 

within 15 calendar days after ‘‘receipt of 

the hearing decision.’’ In addition, we 

revised the language at § 422.692(c) and 

§ 423.666(c) governing the notification 

of Administrator determination to state 

that the Administrator must notify both 

parties of his or her determination 

regarding review of the hearing decision 

within 30 calendar days after ‘‘receipt of 

the request for review’’ (versus the 

existing language which provides 

within 30 calendar days of ‘‘receiving 

the request for review’’). These changes 

were made to ensure consistency with 

the way deadlines are described in other 

regulatory provisions of parts 422 and 

423 governing contract determinations 

or the imposition of intermediate 

sanctions (including related appeals 

processes). We received no comment on 

this section, and are adopting these 

changes without modification. 

17. Reopening of an Initial Contract 

Determination or Decision of a Hearing 

Officer or the Administrator Under Parts 

C and D (§ 422.696 and § 423.668) 

In the October 22, 2009 proposed rule, 

we proposed revising the regulations 

governing the reopening of an initial 

contract determination or decision of a 

Hearing Officer or the Administrator 

under Parts C and D by replacing the 

language ‘‘initial determination’’ with 

‘‘contract determination’’ in the section 

headings of § 422.696 and § 423.668 and 

in the text of § 422.696(a) and 

§ 423.668(a). We noted that the term 

‘‘initial determination’’ is not used 

elsewhere in Subpart N (Contract 

determinations and appeals). We 

received no comment on our proposals 

and are adopting these changes without 

modification. 

18. Prohibition of MA and Part D 

Applications for 2 Years After a Mutual 

Termination (§ 422.503(b)(6) and 

§ 423.504(b)(6)) 

In the October 22, 2009 proposed rule, 

we proposed prohibiting an MA 

organization or Part D sponsor, as a 

condition of the consent to a mutual 

termination, from applying for new 

contracts or service area expansions for 

a period of 2 years, absent 

circumstances that warrant special 

consideration as provided under section 

1857(c)(4)(A) of the Act. Specifically, 

under Part D, we proposed modifying 

§ 423.508 by adding paragraph (e), 

which states that as a condition of the 

consent to a mutual termination, CMS 

requires as a provision of the 

termination agreement language 

prohibiting the Part D sponsor from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. Similarly, in 

§ 423.504(b), we proposed adding a new 

paragraph (b)(6) stating that 

organizations may be qualified to apply 

for new contracts to the extent that they 

have not terminated a contract by 

mutual consent under which, as a 

condition of the consent, the Part D 

sponsor agreed that it was not eligible 

to apply for new contracts or service 

area expansions for a period of 2 years 

per § 423.508(e). We also proposed 

redesignating the current § 423.504(b)(6) 

to § 423.504(b)(7). 

Similar modifications were proposed 

for the MA regulations. Specifically, we 

proposed modifications to § 422.508 by 

adding paragraph (c), which states that 

as a condition of the consent to a mutual 

termination, we require as a provision of 

the termination agreement language 

prohibiting the MA organization from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. Similarly, in section 

§ 422.503(b), we added a new paragraph 

(b)(7), stating that organizations may be 

qualified to apply for new contracts to 

the extent that they have not terminated 

a contract by mutual consent under 

which, as a condition of the consent, the 

MA organization agreed that it was not 

eligible to apply for new contracts or 

service area expansions for a period of 

2 years per § 422.508(c). 

In proposing these changes, we noted 

that in practice, a voluntary nonrenewal 

of a contract by a Part D sponsor or MA 

organization is not dissimilar from an 

organization requesting and being 

granted a mutual termination of their 

contract under § 422.503 and § 423.508. 

Under § 422.506(a)(4) and 

§ 423.507(a)(3), if a sponsor voluntarily 

nonrenews a contract, we cannot enter 

into a contract with the organization for 

2 years unless there are special 

circumstances that warrant special 

consideration, as determined by CMS. 

The primary difference between a 

nonrenewal and a mutual termination is 

often timing. For a nonrenewal request 

to take effect at the end of the current 

contract year, it must be received by us 

on or before the first Monday in June 

(the bid deadline), as specified in 

§ 423.507(a)(2)(i) and § 422.506(a)(2)(i). 

However, once an organization submits 

a bid, it can no longer voluntarily 

nonrenew its contract for the following 

year. Rather, the Part D sponsor or MA 

organization must request a mutual 

contract termination. The later in the 

year the organization requests such a 

mutual termination for the following 

contract year, the more disruptive and 

difficult the process becomes. In the 

October 2009 proposed rule, we noted 

that this is particularly true if a request 

for a mutual contract termination occurs 

once plan information has become 

publicly available, marketed to 

beneficiaries, and beneficiaries have 

been given the opportunity to enroll. 

These late terminations create 

significant disruption for beneficiaries 

and for us. Similarly, even greater 

disruption results from mutual 

terminations requested to take effect 

during the course of a contract year. 

In light of the disruptions that may 

occur, we proposed that a termination 

by mutual consent, which involves a 

termination by an MA organization or a 

Part D sponsor as well as by us, be 

considered a termination of a contract 

for purposes of the 2-year ban on 

entering into new contracts under 

section 1857(c)(4)(A) of the Act, which 


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is incorporated for Part D under section 

1860D–12(b)(3)(B) of the Act. 

After considering the comments we 

received in response to these proposals, 

in this final rule, we are adopting our 

proposals without modification. 

Comment: One commenter stated that 

it is important to inform beneficiaries 

immediately when—(1) their plan is not 

in compliance with CMS requirements; 

(2) sanctions have been implemented; or 

(3) a plan is prohibited from applying 

for new contracts or service area 

expansions for a 2-year period. By 

notifying beneficiaries immediately of 

these situations, they will be afforded 

more time to plan. Immediate 

notification will increase the likelihood 

that the information will not be lost in 

the extraordinary amount of information 

given during the open enrollment 

period. The commenter recommended 

that CMS strengthen compliance in 

general in order to hold plans 

accountable through CMS monitoring 

and oversight. 

Response: Although mutual 

terminations are often requested when a 

contract is, or will soon be, out of 

compliance with CMS requirements, a 

mutual termination can occur even 

when there is no current or expected 

compliance violation. Our proposed 

revision to this portion of the regulation 

only addresses the period of time during 

which a mutually terminated sponsor 

would be precluded from applying for a 

new or expanded contracts. As a result, 

this comment addressing the issue of 

beneficiary notice concerning Part C and 

D plan performance is outside the scope 

of the proposed regulatory change. 

Comment: One commenter stated that 

it did not support the proposal for a 2- 

year ban because market conditions can 

create the need for contract terminations 

and service area reductions. The 

commenter requested that CMS allow 

flexibility on market re-entry based on 

environmental conditions and 

appropriate negotiations with and 

approval by the agency. 

Response: Terminations can cause 

beneficiary confusion and disruption. 

Additionally, if a sponsor responds to 

market conditions through the 

nonrenewal process, a 2-year 

application ban would apply. 

Accordingly, we believe it is reasonable 

and appropriate to apply the same 2- 

year application ban in situations when 

a sponsor terminates a plan after the 

nonrenewal deadline. We also note that, 

the proposed regulation changes 

preserve our authority to permit affected 

organizations to submit applications in 

less than 2 years when special 

consideration is warranted. 

Comment: One commenter stated that 

it did not oppose the proposed changes, 

but requested that CMS clarify that the 

2-year moratorium is based on a 

sponsoring organization terminating all 

of its MA or Part D contracts, not a 

subset of each line. 

Response: The regulation as proposed 

would apply to a licensed legal entity 

that mutually terminated any of its MA 

or PDP contracts. A complete exit from 

either program by an organization is not 

required for CMS to invoke the 2-year 

application prohibition. 

Comment: One commenter requested 

additional clarity regarding 

‘‘nonrenewal’’ and ‘‘mutual termination.’’ 

The commenter urged CMS to be 

especially cautious about any 

presumption by CMS that termination 

may be due to some type of poor 

performance. The commenter stated that 

it is possible that after the first week in 

June a plan will determine that it is not 

feasible to continue with the contract. 

The commenter included the example of 

a State-initiated dramatic midyear 

reduction in payment for Medicaid 

services in a dually integrated product. 

The commenter also stated that the 

references in § 422.508 to § 422.510 

seem to imply some type of failure to 

perform. The commenter supported 

providing adequate notice of 

terminations to beneficiaries, but 

suggested that a 60-day timeframe may 

be adequate for end-of-year 

terminations. The commenter indicated 

that the 2-year prohibition against 

applying for new contracts or services 

areas is reasonable given the language 

‘‘absent circumstances warranting 

special consideration.’’ The commenter 

stated that an example of such a 

circumstance should include the 

situation of when a plan is trying to be 

responsive to state purchasing 

initiatives on behalf of dual eligibles. 

Response: With this proposal, we 

were not addressing whether a sponsor 

is a poor performer. Rather, the proposal 

was intended to make the consequences 

to a sponsor of a mutual contract 

termination the same as that for a nonrenewal. Without this change, a plan 

might opt for a mutual termination 

rather than the less disruptive nonrenewal in order to avoid the 2-year ban. 

Additionally, the existing 2-year ban on 

non-renewing sponsors is not meant to 

address those sponsors’ performance, 

although it may help us to identify good 

business partners. The 2-year 

application ban, as it has been applied 

to non-renewing organizations and, 

once this proposed change is adopted by 

CMS, to mutually terminating 

organizations, is intended to ensure 

continuity in the Part C and D programs 

by imposing longer-term consequences 

on sponsors that might otherwise make 

annual decisions to exit and re-enter the 

programs. 

Comment: A commenter asked CMS 

to clarify that this change applies only 

to mid-year mutual terminations and 

not to a plan electing to non-renew with 

ample notice to CMS (such as at the 

time of bid submission or per nonrenewal guidance). 

Response: Consistent with 

§ 422.506(a)(4) and § 423.507(a)(3), the 

2-year ban already applies to sponsors 

electing to nonrenew. The proposed 

regulatory change is an effort to extend 

the application of that rule to the 

analogous situation of a mutual contract 

termination, regardless of the effective 

date of that termination. 

Comment: Commenters stated that 

while they understood the importance 

of the change, they would encourage 

CMS to be flexible as there may be 

instances where an MAO will conduct 

the right level of due diligence on its 

providers, yet a provider may 

experience a disruption that causes the 

organization to withdraw. The 

commenters stated that there is 

significant merit in those instances of an 

MAO acting in the best interest of 

Medicare beneficiaries and not 

effectuating the new plan or contract. 

Response: Regardless of the degree of 

due diligence performed prior to 

contracting, the sponsor assumes all 

risks associated with complying with an 

MA or PDP contract, including a 2-year 

ban on new contracting resulting from a 

mutual termination. Also, as indicated 

in the proposed rule, CMS will retain 

the authority to accept applications 

where special consideration is 

warranted. 

Comment: A commenter asked how 

this provision would be applied if an 

acquisition or merger is pending. 

Response: The acquiring sponsor 

should assume that it is acquiring all the 

Medicare contract assets and liabilities 

of the selling organization, including a 

2-year ban on new applications. 

Comment: A commenter stated that 

plans should be allowed to terminate 

prior to the start of the benefit year if an 

adequate network cannot be obtained. 

The commenter also stated that if the 

termination occurs after the start of 

open enrollment, CMS should wait 30 

days and allow beneficiaries to make 

their own elections before assigning 

them to an alternate plan. Additionally, 

it was suggested that there should be a 

mechanism in place to make sure that 

a plan cannot use termination as a tool 

to shift beneficiaries into a higher cost 

plan offered by the terminating sponsor. 


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Response: This comment does not 

concern the proposed application of the 

2-year ban on mutually terminated 

sponsors. We will not address the 

comment as it is outside the scope of the 

proposed change. 

Comment: A commenter stated that 

there are a variety of circumstances, 

including but not limited to the loss of 

an adequate network that may be 

beyond the control of the plan but force 

it to withdraw a contract. Such 

withdrawal may be in the best interest 

of the beneficiaries. Therefore, overall 

plan performance should not be judged 

on this one factor. If a plan can remedy 

the issue for the following contract year 

it should be allowed to re-contract. The 

commenter suggests that this issue be 

looked at on a case-by-case basis. 

Response: This provision does not 

address whether a sponsor is a poor 

performer. Rather, the provision is 

intended to make the consequences of a 

mutual contract termination the same as 

those for a nonrenewal. The 2-year ban 

on nonrenewing sponsors is not meant 

to address those sponsors’ performance; 

rather, it is intended to ensure 

continuity in the Part C and D programs 

by imposing longer-term consequences 

on sponsors that might otherwise make 

annual decisions to exit and re-enter the 

programs. 

Comment: One commenter asked if 

CMS intends to apply this provision to 

all types of applications regardless of 

plan type or geographic location. 

Response: In the context of voluntary 

nonrenewals, our policy has been to 

apply this prohibition based on plan 

type and service area (for example, nonrenewal of a PFFS contract does not 

prohibit the same organization from 

applying immediately for an MA–HMO 

contract for the same service area). We 

anticipate applying the same policy to 

mutual terminations. 

B. Changes To Strengthen Beneficiary 

Protections 

This section includes provisions 

aimed at strengthening beneficiary 

protections under Parts C and D. Under 

Part D, we address proposals in the area 

of eligibility and enrollment policy, 

transition period requirements, 

coordination of benefits policy, 

retroactive claims adjustment 

reimbursements and recoveries, and use 

of standardized technology. We also 

finalize Part D rules regarding 

timeframes and responsibility for 

making redeterminations. Under Part C, 

we finalize rules to— 

• Authorize us to annually establish 

limits on member cost sharing; 

• Prohibit PPO, PFFS, and MSA plans 

from using compliance with voluntary 

prior notification procedures in 

determining cost-sharing amounts; 

• Establish new requirements for 

organization determinations; and 

• Offer two definitional revisions. 

We also finalize Part C and D 

marketing requirements by 

distinguishing marketing materials from 

enrollee communications materials and 

mandating the use of standardized 

marketing material language and format 

to ensure clarity and accuracy among 

plan documents. We also clarify notice 

requirements, and require that 

sponsoring organizations disclose 

information concerning the 

organization’s performance and 

compliance deficiencies to enable 

beneficiaries to make informed choices. 

This information is detailed in Table 2. 

TABLE 2—PROVISIONS TO STRENGTHEN BENEFICIARY PROTECTIONS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Broker & Agent Requirements under Parts C 

and D.

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

Beneficiary Communications Materials under 

Parts C and D.

Subpart V ................... § 422.2260, 

§ 422.2262.

Subpart V ................... § 423.2260 

§ 423.2262. 

Required Use of Standardized Model Materials under Parts C and D.Subpart V ................... § 422.2262 ................. Subpart V ................... § 423.2262. 

Extend the mandatory minimum grace-period 

for failure to pay premiums.

Subpart B ................... § 422.74 ..................... Subpart B ................... § 423.44. 

Maximum allowable out-of-pocket cost 

amount for Medicare Parts A and B services.

Subpart C ................... § 422.100 ................... N/A ............................. N/A. 

Maximum allowable cost sharing amount for 

Medicare Parts A and B services and prescription drugs.

Subpart C ................... § 422.100 ................... Subpart C ................... § 423.104. 

Prohibition on prior notification by PPO, 

PFFS, and MSA plans.

Subpart A ................... § 422.2 § 422.4, 

§ 422.105.

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

Requirements for LIS eligibility: expand the 

deeming period for LIS-eligible beneficiaries to cover at least 13 months.

N/A ............................. N/A ............................. Subpart P ................... § 422.773(c)(2). 

Expand auto-enrollment rules to entire LISeligible population.N/A ............................. N/A ............................. Subpart B ................... § 423.34. 

Special Enrollment Period (SEP) Policies ..... N/A ............................. N/A ............................. Subpart B ................... § 423.38. 

Transition Process ......................................... N/A ............................. N/A ............................. Subpart C ................... § 423.120(b)(3). 

Sponsor responsibility for retroactive claims 

adjustment reimbursements and recoveries.

N/A ............................. N/A ............................. Subpart J ................... § 423.464. 

§ 423.466. 

§ 423.800. 

Time Limits for Coordination of Benefits ....... N/A ............................. N/A ............................. Subpart J ................... § 423.466. 

Pharmacy use of Standard Technology (ID 

cards) under Part D.

N/A ............................. N/A ............................. Subpart C ................... § 423.120. 

Allow members in stand-alone Part D plans 

to be temporarily out of area for up to 12 

months.

N/A ............................. N/A ............................. Subpart B ................... § 423.44. 

Prohibit mass SPAP reenrollments during 

plan year.

N/A ............................. N/A ............................. Subpart J ................... § 423.464(e). 

Non-Renewal Public Notice 60-day non-renewal beneficiary notification requirement.Subpart K ................... § 422.506 ................... Subpart K ................... § 423.507. 


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TABLE 2—PROVISIONS TO STRENGTHEN BENEFICIARY PROTECTIONS—Continued 

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Notice of Alternative Medicare Plans ............. Subpart K ................... § 422.5(a)(2)(ii) ........... Subpart K ................... § 423.507(2)(ii). 

Timeframes and Responsibility for making 

Redeterminations under Part D.

N/A ............................. N/A ............................. Subpart M .................. § 423.590. 

Requirements for Requesting Organization 

Determinations.

Subpart M .................. § 422.568 ................... N/A ............................. N/A. 

Organization Determinations under Parts C .. Subpart M .................. § 422.566 & § 422.568 N/A ............................. N/A. 

Refine/clarify definitions related to authorized 

representatives.

Subpart M .................. § 422.561, § 422.574 

& § 422.624.

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

Sponsors may be required to disclose to enrollees compliance and performance deficiencies.Subpart C ................... § 422.111(g) ............... Subpart C ................... § 423.128(f). 

Revise definition of ‘‘service area’’ to exclude 

facilities in which individuals are incarcerated.

Subpart A ................... § 422.2 ....................... N/A ............................. N/A. 

1. Broker and Agent Requirements 

Under Parts C and D 

In the preamble to our October 22, 

2009 proposed rule, we recognized the 

important role that agents and brokers 

play in assisting beneficiaries with 

accessing and understanding plan 

information, making informed choices, 

and enrolling them in Medicare health 

plans. However, we also stated our 

continuing concern about the inherent 

financial incentives independent agents 

and brokers have when selling Medicare 

products. For this reason, while not 

proposing any specific changes in the 

October 2009 proposed rule, we 

solicited comments suggesting ideas for 

effectively providing Medicare health 

plan and drug plan information and 

enrollment assistance that ensures 

beneficiaries select the plan that best 

meets their needs, including whether 

additional changes are needed in 

recently established requirements 

relating to plan sponsors’ use of agents 

and brokers. We specifically requested 

comments regarding the tools we 

currently use (for example, our print 

publications and our online resources) 

to assist beneficiaries with their health 

care decisions; whether State Health 

Insurance Assistance Programs (SHIPs) 

have the capacity to serve significantly 

more Medicare beneficiaries; and the 

effectiveness of limiting the use of 

independent agents and brokers by MA 

organizations and PDP sponsors to 

certain times of the year, specifically, 

the open enrollment period (OEP) and 

annual enrollment period (AEP), or to 

selected groups of beneficiaries. 

Comment: Several commenters 

provided very specific suggestions for 

an enrollment broker demonstration. 

Comments we received on an 

enrollment broker demonstration 

included suggestions for guiding 

principles that should govern such a 

demonstration as well as 

recommendations on specific features 

that should be included. Some 

commenters expressed the concern the 

proposed enrollment broker 

demonstration would prevent plans 

from continuing to use plan-employed 

agents. Other commenters 

recommended that independent agents 

and brokers be permitted to make 

referrals and receive a referral fee, with 

the enrollment broker merely assisting 

with actual enrollment. One commenter 

suggested that the demonstration 

initially focus on one State that already 

uses a third party enrollment assistance 

approach for Medicaid managed care 

plan enrollment as a pilot. The same 

commenter provided a very detailed 

plan for how the commenter believed an 

enrollment broker demonstration should 

work. Under this suggested plan, the 

enrollment broker would receive 

applications, record oral scope of 

appointment confirmations, conduct 

third-party enrollment verification calls, 

and conduct general marketing activities 

providing high-level, standardized 

general information on plan options. 

The enrollment brokers would refer 

beneficiaries with detailed questions or 

needing more tailored plan 

presentations to plan-employed agents. 

The commenter also expressed concerns 

about the enrollment broker 

demonstration, suggesting that 

coordination and communication 

between the enrollment broker, plans, 

and beneficiaries would be crucial to 

the success of the demonstration; the 

ability to assure the quality of 

information provided to beneficiaries 

would be important; and enrollment 

broker training would also be a critical 

component of the program. This 

commenter suggested that CMS solicit 

additional input from MA plans on 

operational and information issues 

involved with effective communication, 

coordination, and training. The 

commenter also had concerns about the 

role an enrollment broker would play in 

the disenrollment process. 

Response: We thank the commenters 

for this feedback and will consider it as 

we continue to improve our tools for 

assisting beneficiaries with their health 

care decisions and as we continue to 

assess the impact of our current rules 

regarding independent agents/brokers. 

Comment: A number of commenters 

provided us with responses to our 

request for comments on the idea of 

limiting the use of agents and brokers to 

the AEP and OEP, or to selected groups 

of beneficiaries. The majority of these 

commenters expressed concerns that 

limiting the use of agents and brokers in 

this way could disadvantage age-ins, 

dual-eligibles, and those eligible for the 

low-income subsidy. They believe 

strongly that these limits would 

decrease the service and support that 

beneficiaries depend on to understand 

plan benefits and make enrollment 

decisions. They also indicated that 

CMS’ current support tools are not 

sufficient to replace the function that 

agents and brokers serve. 

Commenters also indicated that 

limiting the use of agents and brokers to 

certain times of the year is not feasible 

given that plans use agents and brokers 

throughout the year and that current 

CMS oversight of agents and brokers is 

sufficient. Along these same lines, one 

commenter supported the view set forth 

in the proposed rule preamble that 

sufficient time has yet not passed to 

fully evaluate the impact of the new 

marketing requirements codified by 

CMS following enactment of the 

Medicare Improvements for Patients and 

Providers Act of 2008 (MIPPA). Several 

commenters suggested that limiting the 

use of agents and brokers to the AEP 


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and OEP or to select beneficiary groups 

would, in fact, result in increases of the 

marketing abuses we are trying to 

eliminate and would force good agents 

out of business, leaving behind agents 

only interested in short-term gains. 

Several commenters provided 

alternatives to limiting the use of agents 

and brokers to the OEP and AEP or with 

selected groups. The suggested 

alternatives can be grouped into three 

categories—(1) Recommendations to 

strengthen current rules, processes, and 

oversight of agents and brokers; (2) 

Recommendations to require better 

collaboration among stakeholders; and 

(3) Recommendations that may require 

regulatory changes. 

Recommendations for strengthening 

current rules, processes, and oversight 

of agents and brokers included— 

• Strengthening agent and broker 

education/training; 

• Creating a Medicare license and 

industry designation that all agents 

must have in order to sell Medicare 

products; standardizing agent 

compensation by geographic area; 

• Creating and requiring the use of a 

‘‘replacement/suitability’’ form that 

agents would use when moving a 

beneficiary to a new plan; 

• Strengthening CMS surveillance 

efforts; 

• Stabilizing CMS’ guidance in this 

area by limiting the frequency of future 

policy changes; and 

• Tightening our current rules 

regarding the use of independent agents 

and brokers. 

Commenters’ recommendations for 

requiring better collaboration with 

stakeholders included— 

• Working with plans, advocates, and 

associations to develop alternatives; 

• Creating a list of agents/brokers 

prohibited from selling Medicare plans 

that would be shared with all 

stakeholders; 

• Providing more support to and 

coordination with the States; and 

• Periodically publishing best 

practices. 

Additional recommendations that 

may require regulatory or statutory 

changes included— 

• Requiring plans to share 

information on agent misconduct and 

terminations; 

• Creating uniform compensation 

rates for MA plans and PDPs; 

• Requiring agents and brokers to 

register with the National Insurance 

Producer Registry (NIPR); 

• Precluding agents from selling MA 

plans or PDPs or selling to LIS 

beneficiaries; 

• Allowing a one-time ‘‘new 

enrollment payment’’; and 

• Renewal compensation for all 

subsequent moves (regardless of plan 

type change). 

Commenters also recommended— 

• Rescinding ‘‘lock-in’’; 

• Limiting agent/broker involvement 

in marketing, but not limiting their 

involvement to certain periods during 

the year; 

• Shortening the AEP; and 

• Eliminating the additional three 

month OEP for MA plans at the 

beginning of the year and applying the 

enrollment period uniformly to MA 

plans and PDPs. 

A number of commenters also 

provided recommendations with respect 

to our question about whether and how 

to expand the role of SHIPs. Almost all 

of these commenters expressed concerns 

about SHIP funding, capacity, and 

capability. They expressed concern 

about— 

• Inadequate funding; 

• The fact that SHIPs’ reliance on 

volunteers limits their ability to fully 

replace the role of independent agents 

and brokers; 

• The lack of capacity of existing 

SHIP networks to service entire States; 

and 

• The lack of knowledge by SHIP 

volunteers about plans in every local 

market within a State. 

Several commenters suggested that by 

limiting plan options and standardizing 

benefits, SHIP counselors would be 

better able to handle questions from 

beneficiaries about plan differences. 

Other commenters suggested that by 

strengthening SHIP networks, their 

capacity could also be expanded. 

Response: While we did not propose 

any changes to our regulations 

governing plans’ use of independent 

agents and brokers to sell Medicare 

plans in our October 22, 2009 proposed 

rule, we appreciate the thoughtful ideas 

and recommendations commenters 

offered. We recognize the important role 

agents and brokers play in assisting 

beneficiaries with accessing and 

understanding plan information, making 

informed choices, and enrolling them in 

Medicare health plans. However, we 

still have concerns about the inherent 

financial incentives independent agents 

and broker have when selling Medicare 

products. We recently implemented 

regulations (§ 422.2274 and § 423.2274) 

intended to reduce agent and broker 

incentives to enroll beneficiaries in 

plans inappropriately. We continue to 

agree with the commenter that 

suggested it is still too soon at this time 

to fully evaluate whether these new 

rules have achieved MIPPA’s goal of 

creating incentives for agents and 

brokers to assist beneficiaries with 

selecting plans based on their health 

care needs. As we continue to monitor 

and evaluate our marketing rules and 

oversight activities, we will evaluate the 

need for any future notice and comment 

rule making. 

2. Beneficiary Communications 

Materials Under Parts C and D 

(§ 422.2260, § 422.2262, § 423.2260, and 

§ 423.2262) 

In the October 22, 2009 proposed rule, 

in implementing sections 1851(h) and 

1860D–1(b)(1)(vi) of the Act, we 

proposed narrowing the definition of 

the term ‘‘marketing materials’’ at 

§ 422.2260 and § 423.2260 to exclude a 

new proposed category of ‘‘current 

enrollee communications materials,’’ 

which we proposed defining to include 

either situational materials or 

beneficiary specific customized 

communications. We proposed this 

change in order to streamline the review 

and approval of beneficiary 

communication notices to current 

members. 

Specifically, we proposed revising 

§ 422.2260 and § 423.2260 to exclude 

from the definition of marketing 

materials communications targeted to 

current enrollees that are customized or 

limited to a subset of enrollees or a 

specific situation, or that involve claims 

processing or other operational issues. 

In the preamble to the proposed rule, we 

cited the following examples of the 

types of materials that would be 

excluded from our proposed revised 

definition of ‘‘marketing materials’’: Part 

D explanations of benefits (EOBs); 

notifications about claims processing 

changes or errors; and other one-time or 

situational, beneficiary specific letters to 

current enrollees. 

In addition, we proposed to revise 

§ 422.2262 and § 423.2262 to specify 

that, while the current enrollee 

communications excepted from the 

definition of marketing materials would 

not be subject to the statutory 

requirement that they be submitted to 

CMS for review and approval prior to 

use, we retained the right to review such 

materials, and their use could be 

disapproved (or disapproved subject to 

modification) by CMS. 

In this final rule, we adopt these 

provisions with some modification. For 

reasons discussed below, we have in 

this final rule revised paragraph 

§ 422.2260(5) (vii) to retain materials 

about membership rules and 

procedures, which we are calling 

‘‘membership activities’’ (for example, 

materials on rules involving 

nonpayment of premiums, confirmation 

of enrollment or disenrollment, or nonclaim specific notification materials) in 


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the definition of marketing materials 

subject to CMS prior approval. In 

addition, we have added a new 

paragraph § 422.2260(6) to expressly 

exclude from the definition of marketing 

materials ad hoc customized or 

situational enrollee communications. 

Comment: A number of commenters 

supported our proposal to modify the 

definition of the term ‘‘marketing 

materials’’ to distinguish materials used 

to market to new potential enrollees 

from current enrollee communication 

materials. However, these commenters 

raised an ambiguity in our proposed 

revision to the definition of marketing 

materials at § 422.2260(5)(vii) and 

§ 423.2260(5)(vii). These commenters 

noted that, as written, the revised 

paragraph (5)(vii) merely defines 

‘‘current enrollee communications 

materials’’ without making it clear that 

such materials are excluded from the 

revised definition of marketing 

materials. 

Response: We agree that, as written, 

the proposed revisions to the definition 

of marketing materials did not make it 

sufficiently clear that we were 

excluding customized or situational 

current enrollee communications from 

the definition of marketing materials, 

and that certain materials directed at 

current members should still be 

included in the definition. Accordingly, 

as noted above, in response to these 

comments, we have revised paragraph 

§ 422.2260(5) (vii) to retain materials 

about ‘‘membership activities’’ (such as, 

materials on rules involving nonpayment of premiums, confirmation of 

enrollment or disenrollment, or nonclaim specific notification materials) in 

the definition of marketing materials. In 

addition, we have added a new 

paragraph § 422.2260(6) to specifically 

exclude from the definition of marketing 

ad hoc customized or situational 

enrollee communications from the 

definition of marketing materials. 

Comment: Several commenters 

suggested that, in the absence of a clear 

definition of claims processing or 

operational issues, we should define the 

terms ‘‘situational’’ and ‘‘beneficiary 

specific’’ narrowly. Several commenters 

requested that we specify those 

situations where beneficiary 

communications would be considered 

current enrollee communications 

materials and be excluded from the 

proposed revision to the definition of 

marketing materials. These commenters 

also suggested that we allow operational 

letters that pertain to enrollment, 

disenrollment and appeals issues to be 

excluded from the definition of 

marketing materials. Some commenters 

suggested that we specify that any 

materials excluded from the definition 

of marketing materials are not subject to 

the Medicare Marketing Guidelines’ 

requirements that plans include certain 

plan mailing statements on envelopes 

regarding the contents of the materials 

enclosed within. In addition, these 

commenters requested additional 

guidance regarding how we intend to 

operationalize the process for review 

and approval of situational enrollee 

communications that would, if the 

proposed provisions were finalized as 

proposed, be outside CMS’s current 

marketing review and approval 

processes. 

Response: We disagree that it is 

necessary, and do not believe it would 

be appropriate, to attempt to specify in 

the regulations text an exhaustive listing 

of enrollee communications that are not 

considered marketing materials per our 

revised definition of the term 

‘‘marketing.’’ Our intent is to define 

these exclusions from the definition of 

marketing materials narrowly to include 

communications that are either 

customized or intended for a subset of 

current enrollees and which deal with 

specific situations or cover memberspecific claims processing or other 

operational issues. Our intent was not to 

exclude from the definition of marketing 

materials communications that are used 

more broadly or that convey information 

about plan benefit structures. As noted 

previously, in response to earlier 

comments and this comment, we have 

revised our proposed definition of 

current enrollee communications 

materials in the final rule to add a new 

§ 422.2260(6) to better describe our 

intent in the proposed rule, and now 

refer to these materials as ‘‘ad hoc 

enrollee communications materials.’’ 

The final definition encompasses 

materials that are targeted to current 

enrollees; are customized or limited to 

a subset of enrollees; do not include 

information about the plan’s benefit 

structure; and apply to a specific 

situation or cover member-specific 

claims processing or other operational 

issues. We envision that ad hoc enrollee 

communications materials could 

include the following types of materials; 

• Communications about a shortage 

of formulary drugs due to a 

manufacturer recall letter. 

• Letters to communicate that a 

beneficiary is receiving a refund or is 

being billed for underpayments. 

• Letters describing member-specific 

claims processing issues. 

Although we mentioned the Part D 

EOB in the preamble to the October 

2009 proposed rule as an example of a 

customized current enrollee 

communications material in the 

preamble to our proposed rule, in light 

of the comments we received on the 

scope of the exemption from the 

marketing definition, we no longer 

believe that example was appropriate, 

particularly given the importance of our 

review of EOB templates. Thus, under 

this final rule, we will continue to 

require submission and approval of EOB 

templates through the CMS marketing 

review and approval process as part of 

the new definition of marketing 

materials, and distinguish this general, 

regularly issued notice from documents 

pertaining to the processing of an 

individual claim. We intend to provide 

further guidance on the types of 

marketing materials that would be 

considered ad hoc enrollee 

communications materials, as well as 

any alternate processes for their review 

and approval, in the Medicare 

Marketing Guidelines. 

Comment: One commenter suggested 

that all prospective and current member 

materials be submitted to CMS as file 

and use materials so that there is a 

centralized and consistent place for 

beneficiary communication to be 

housed within CMS. This commenter 

suggested, as an alternative, that the 

plan develop internal processes to 

monitor materials for consistency with 

CMS requirements rather than filing 

those materials with CMS. We note that 

MA organizations and PDP sponsors 

already have the responsibility to 

ensure, from a monitoring and 

compliance perspective, that their 

marketing materials are complete, 

accurate, and consistent with marketing 

rules. A few commenters suggested that 

we require plans to submit a report on 

beneficiary communications and audit 

these communications periodically to 

ensure that plans are not engaging in 

inappropriate beneficiary marketing 

practices, and that we retain oversight 

responsibilities for these materials. 

Response: As stated previously, we 

have revised the definition of 

‘‘customized current enrollee 

communications materials’’ in this final 

rule such that it covers a narrow class 

of ad hoc, customized beneficiary 

communications materials. We will 

provide more information about 

alternative review and approval 

processes for customized current 

enrollee communications materials in 

the Medicare Marketing Guidelines. We 

note that we periodically audit 

marketing materials. We will also 

ensure that ad hoc enrollee 

communications materials meet all 

relevant requirements and are reviewed, 

approved, and used appropriately. 

Comment: One commenter 

recommended that we extend our 


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current waivers of marketing review and 

approval requirements for employer 

group waiver plan marketing materials 

to employer group waiver plan 

enrollment materials. Some other 

commenters requested that our current 

regulations concerning review and 

approval of marketing materials be 

expanded to apply to third party 

entities, as these commenters believe 

third party entities tend to send 

inaccurate or incorrect information to 

beneficiaries. 

Response: These comments address 

our exercise of employer group waiver 

authority, and accordingly are outside 

the scope of this rulemaking, and not 

addressed in this final rule. 

3. Required Use of Standardized Model 

Materials Under Parts C and D 

(§ 422.2262 and § 423.2262) 

In order to reduce variability of 

marketing materials and to ensure 

documents are more accurate and 

understandable to beneficiaries, we 

proposed, under the authority of 

sections 1851(h) and 1860D–1(b)(1)(vi) 

of the Act, to move toward greater 

standardization of the information 

provided in plan marketing materials. 

Specifically, we proposed revising 

§ 422.2262 and § 423.2262 to require 

that MAOs and PDP sponsors use 

standardized marketing material 

language and format, without 

modification, in every instance in which 

we provide standardized language and 

formatting. We noted that we will 

provide MAOs and PDP sponsors with 

standardized marketing materials 

through the annual Call Letter, Health 

Plan Management System (HPMS) 

memoranda, or other guidance 

documents. We believe this change will 

ensure beneficiaries receive more 

accurate and comparable information to 

make informed decisions about their 

health care options, as well as lead to 

increased efficiencies and greater 

consistency in our marketing material 

review protocols and processes. In this 

final rule, we adopt these provisions as 

proposed. For the upcoming 2011 plan 

year, we plan to update some of our 

current standardized documents later 

this spring through guidance, but we are 

unlikely to standardize new types of 

documents. For 2012 and future years, 

we will consider and explore 

standardizing additional forms and 

materials. 

Comment: Several commenters 

strongly supported our proposed rule to 

require MAOs and PDP sponsors to use 

standardized language and formats in 

marketing materials in instances where 

we provide them. Other commenters 

supported this proposal but urged CMS 

to use consumer research and testing to 

determine the terms and features 

consumers want and the best ways to 

disclose that information to assist 

beneficiaries with making informed 

decisions about their health care 

options. 

Several commenters suggested we 

collaborate with the industry, advocates, 

and State agencies to develop 

standardized models, or convene a 

workgroup to explore ways of 

improving the wording of model 

materials. In addition, some of these 

commenters suggested, as an alternative, 

that we solicit document examples and 

suggestions from plans regarding the 

creation of standardized materials and 

establish from these examples best 

practices for model language, content, 

and format. 

Response: Given the support for our 

proposed requirement, we are adopting 

it as set forth in the proposed rule. We 

agree with the commenters’ 

recommendations that CMS should 

research and consumer test 

standardized model marketing 

materials, when practical, as well as 

engage in dialogue with the industry, 

advocates and State agencies as part of 

our efforts to standardize more 

marketing model materials. As we did 

when we reissued the standardized 

annual notice of change/evidence of 

coverage (ANOC/EOC) models for 

contract year 2010, we intend to 

continue to consumer test our marketing 

materials, as practical, to ensure that 

they accurately describe plan benefits 

and assist beneficiaries with making the 

best health care decisions for their 

particular needs. As part of the process 

of revising the standardizing ANOC/ 

EOC models, we also conducted 

listening sessions with the industry to 

solicit input on improving standardized 

documents. We received a great deal of 

useful information as a result of those 

sessions, which we believe was critical 

to improving the consumer friendliness 

of those models. In addition, we will 

continue to provide opportunities for 

external stakeholders to comment on 

draft versions of model documents prior 

to finalizing them. 

Comment: Many commenters 

requested clarification on whether, in 

developing standardized model 

marketing materials, we will continue to 

allow plans the flexibility to modify 

model documents to accurately convey 

specific or unique plan information. 

Many commenters argued that our 

existing models do not adequately 

capture the range of variation in plan 

types and benefits and that 

standardizing additional models could 

impede effective communications with 

members and potentially lead to 

beneficiary confusion. 

These commenters also expressed 

concern that without such flexibility 

and space for free form text, plans will 

be unable to adequately capture the 

nuances and unique features of the 

various plan types. Commenters 

specifically indicated that it was 

imperative for us to allow flexibility 

within standardized models for special 

needs plans (SNPs), cost plans, point-ofservice (POS) plans and employer group 

plans. A few commenters requested the 

option to waive standardized language 

for SNPs, or to develop separate 

standardized documents for these plans 

if we do not provide sufficient 

flexibility within standardized models. 

A commenter suggested that CMS 

develop documents specifically for lowincome subsidy (LIS) eligible 

beneficiaries and that we provide 

documents translated into non-English 

languages, as well as documents in 

Braille. 

Response: We agree that standardized 

materials should be sufficiently tailored 

to the intended recipients to relay plan 

information as clearly as possible. 

Accordingly, we intend to continue to 

allow plans flexibility to accurately 

convey specific plan information. As 

with the current ANOC/EOC 

standardized models, we will permit 

plans to capture the unique features and 

nuances of their various plan types and 

plan benefits through variable text, as 

appropriate. Our requirement to use 

standardized models when we make 

them available does not change this 

practice; we are simply moving toward 

standardizing more marketing 

documents. 

We will consider how best to provide 

information to LIS-eligible individuals 

as we standardize models. With regard 

to providing translated materials, our 

Medicare Marketing Guidelines 

currently require plans to provide 

translated and alternative format 

documents to beneficiaries. Specifically, 

plans are required to translate materials 

in service areas where at least ten 

percent of the population speaks a nonEnglish language as its primary 

language. In addition, plans must make 

basic enrollee information available to 

individuals with disabilities (for 

example, visually impaired 

beneficiaries) and must ensure that 

information about their benefits is 

accessible and appropriate for Medicare 

beneficiaries who have disabilities. 

To ensure that beneficiaries 

understand materials translated into a 

non-English language, we require that 

plans translating their marketing 

materials into other languages use 


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standardized language. For example, 

plans translating materials into Spanish 

or Cantonese should use a standard 

Spanish or Cantonese language resource 

(such as, ‘‘Real Academia Espan ̃ ola’’ 

[Royal Spanish Academy], the most 

widely-recognized institution 

responsible for regulating the Spanish 

language). 

Comment: Several commenters 

suggested we clearly identify the 

documents we intend to standardize, 

while two commenters suggested we 

limit the documents we intend to 

standardize. One commenter wanted 

clarification on what ‘‘when specified by 

CMS’’ means. In addition, many 

commenters urged us to release 

standardized documents to plans early 

in the year to allow plans sufficient time 

to disseminate plan information to 

beneficiaries. 

Response: In addition to the ANOC/ 

EOC, we indicated in the 2009 Call 

Letter that we intended to standardize 

the Part D explanation of benefits (EOB), 

pharmacy directory, provider directory, 

plan formulary, and transition notice. 

We are currently in the process of 

consumer testing and revising some of 

these models to include plain language. 

With regard to the comment about 

what ‘‘when specified by CMS’’ means, 

as with the ANOC/EOC, CMS will 

specify which documents must be used 

without modification through guidance 

documents such as the annual Call 

Letter or HPMS memoranda. Finally, we 

are committed to releasing final 

standardized models as early as possible 

in the year in order to permit plans 

sufficient time to prepare and 

disseminate those documents to 

beneficiaries for the following contract 

year. 

Comment: A commenter suggested 

that, as an alternative to our proposed 

requirement that plans use standardized 

documents as specified by CMS, we 

should allow for review of requested 

changes to standardized language 

similar to our review of hard copy 

change requests for the Summary of 

Benefits. 

Response: We disagree with the 

commenter’s suggestion. As stated 

elsewhere in this preamble, we believe 

standardization leads to improvements 

in accuracy, comparability, and 

understandability, as well as increased 

efficiencies and greater consistency in 

our marketing material review protocols 

and processes. Permitting hard copy 

changes would undermine our efforts to 

reduce variability in marketing 

materials. In addition, we believe that 

we can address the commenter’s 

concerns by permitting plans to use 

variable text fields throughout 

standardized documents so that they 

accurately reflect unique plan 

information. 

Comment: One commenter 

understood and appreciated the need to 

standardize models but was concerned 

that requiring a standardized format 

limits options, may expand the length of 

current model documents, and could 

potentially drive up costs of printed 

materials. 

Response: We believe the benefits of 

increased standardization outweigh the 

commenter’s concerns. The move 

toward standardizing more documents 

will reduce the variability and errors in 

marketing materials, and will ensure 

that standardized documents provide 

more accurate, understandable, and 

comparable information across plans, 

thereby helping beneficiaries to make 

the best possible health care decisions 

for their particular needs. 

4. Involuntary Disenrollment for Failure 

To Pay Plan Premiums Under Parts C 

and D (§ 422.74 and § 423.44) 

We proposed to amend the 

regulations at § 422.74(d)(1) and 

§ 423.44(d)(1) regarding disenrollment 

for nonpayment of premiums to require 

a minimum grace period of 2 months 

before any involuntary disenrollment 

occurs, in order to provide adequate 

time for organizations to respond to 

instances in which individuals fail to 

pay their premiums, and for affected 

enrollees to take steps to remedy the 

situation and avoid disenrollment. 

Furthermore, we proposed to codify 

existing subregulatory guidance 

regarding the beginning of the grace 

period for Part D. In this final rule, we 

adopt these provisions as proposed. 

Comment: Several commenters 

supported our proposed regulatory 

revision to increase the length of the 

minimum grace period and further 

requested that CMS exempt 

beneficiaries from having to pay plan 

premiums if the organization fails to 

request payment of the premiums in a 

timely manner. Another commenter 

supported this change and further 

recommended that CMS also require 

plans to provide for exceptions in cases 

of financial hardship or other special 

circumstances. 

Response: We appreciate the support 

for this proposal and are adopting it as 

proposed. Although we do not believe 

that it is appropriate to exempt 

beneficiaries from paying premiums for 

periods of coverage based on late 

notification, we strongly encourage 

plans to work with such individuals to 

implement payment plans where 

financial hardship could be involved. 

Also, we note that a change in policy 

with respect to an individual’s eventual 

obligation to pay his or her premiums is 

not within the scope of this rulemaking. 

Comment: Another commenter who 

supported the proposed regulatory 

revision further requested that CMS 

develop a method for beneficiaries to 

engage CMS in resolving premium 

payment disputes, such as whether 

individuals who qualify for the Part D 

low income subsidy or are enrolled in 

a state pharmaceutical assistance 

program (SPAP) owe plan premiums, in 

addition to disputes regarding 

individuals who experience problems 

with premium withhold from their 

Social Security benefits. 

Response: Although there is no formal 

CMS administrative process for dealing 

with these issues, we do play an 

important role in resolving premium 

payment disputes through our existing 

casework procedures. CMS caseworkers 

often deal directly with individuals who 

have their premiums withheld from 

their SSA benefit payment, and we also 

work with plans to resolve both 

premium issues involving individuals 

or groups of enrollees, such as the LIS 

population in a plan. We also facilitate 

discussions between plans and SPAPs 

about such payment issues. We will 

continue to look at ways to better 

address these issues. 

Comment: One commenter supported 

the change and recommended that the 

2-month grace period begin the first of 

the month for which the enrollee is 

delinquent and not from the point of 

notification. 

Response: Current regulations state 

that the grace period begins the first day 

of the month for which the premium is 

unpaid. Subregulatory guidance 

(§ 50.3.1 of Chapter 2 of the Medicare 

Managed Care Manual and § 40.3.1 of 

Chapter 3 of the Medicare Prescription 

Drug Benefit Manual) further clarifies 

that the premium is ‘‘unpaid’’ only after 

the member is notified of, or billed for, 

the actual premium amount due. We 

clarified that the grace period not begin 

prior to the member being notified of 

the delinquency was established to 

ensure that members have the full grace 

period in which to resolve the premium 

payment issue. We agree with the 

commenter that the grace period should 

begin the first day of the month for 

which the enrollee is delinquent, but 

only if the organization has previously 

requested payment of the premium and 

has provided the member an 

opportunity to pay. Accordingly, in this 

final rule, we are revising § 422.74(d)(1) 

and § 423.33(d)(1) to include the 

requirement that the grace period begin 

on the first day of the month for which 

the premium is unpaid or the first day 


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of the month following the date on 

which premium payment is requested, 

whichever is later. 

Comment: Several commenters 

representing plans opposed the 

proposed change. One commenter 

contended that the change would not 

result in a reduction in disenrollments 

and requested that CMS instead 

maintain the minimum 1-month grace 

period and allow organizations to offer 

a longer grace period at their discretion. 

Another commenter cited the potential 

costs that may be incurred by 

organizations to make systems 

enhancements and to modify current 

administrative processes, policies, and 

procedures. Another commenter feared 

lengthening the minimum grace period 

from 1 month to 2 months would 

potentially expose the organization to 

increased financial liability. 

Response: We believe that providing 

additional time for individuals to pay 

their premiums will assist a great 

number of individuals in meeting their 

financial obligations and avoid 

disenrollment. As discussed in the 

preamble to the October 22, 2009 

proposed rule (74 FR 54657), under 

current rules, individuals may have less 

than a month a resolve payment 

delinquencies. Thus, we believe this 

proposal will provide a valuable 

beneficiary protection, particularly in 

view of the significant potential gap in 

coverage that could result from such a 

disenrollment, given that in many cases 

an individual may not be able to reenroll until the following annual 

election period. It will also help to 

reduce the number of situations where 

individuals pay their premiums shortly 

after their disenrollments take effect but 

the plan has already submitted a 

disenrollment transaction. 

Many organizations currently offer a 

grace period in excess of the one month 

minimum that is currently required. As 

such, the impact of the proposed change 

is limited to those organizations that 

have chosen to implement the minimum 

requirement. For these organizations, 

we believe any administrative costs that 

may result from changing from a one 

month to a two month grace period are 

fully justified by the benefits to be 

gained by both the organization and its 

members by providing a more 

reasonable time frame for all parties to 

resolve premium payment issues and 

avoid disenrollment. With respect to the 

financial liability issue, we also note 

that the proposed change would not 

affect an organization’s ability to pursue 

collection of past due premium 

payments from current and former 

members. 

Comment: One commenter requests 

that CMS change the requirement for 

issuing disenrollment notices, stating 

that a timeliness standard of 5 or 7 days 

would be more manageable than the 

current three business day requirement. 

Response: The 3-day requirement 

referred to by the commenter is not for 

provision of the disenrollment notice; 

rather, it is the deadline for 

organizations to submit the ensuing 

disenrollment transaction to CMS. This 

timeframe was established to provide 

adequate time for data to be transmitted 

to CMS to ensure the timely processing 

of any necessary auto-enrollments for 

those individuals who receive the Part 

D low income subsidy. Therefore, we 

are not adopting this suggestion. 

Comment: One commenter requested 

that CMS clarify that the grace period 

applies only to members for whom CMS 

makes payment to the organization. 

Response: Our interpretation of this 

comment was that it was intended to 

address situations where a plan’s 

enrollment records may not 

immediately match CMS records, and 

thus there is some question as to 

whether an individual is enrolled in the 

plan. Given that the plan has 

determined the beneficiary eligible for 

the plan, has notified the beneficiary of 

the enrollment, has submitted the 

enrollment to CMS and the discrepancy 

in the enrollment record is not caused 

by any action of the beneficiary but 

instead is an issue to be resolved 

between CMS and the plan, we believe 

it would be appropriate for the same 

grace period policies to apply to such a 

beneficiary as to a confirmed plan 

enrollee. 

5. Maximum Allowable Out-of-Pocket 

Cost Amount for Medicare Parts A and 

B Services (§ 422.100) 

In our October 22, 2009 proposed 

rule, under the authority of sections 

1852(b)(1)(A), 1856(b)(1), and 1857(e)(1) 

of the Act, we proposed to amend 

§ 422.100(f)(3) by adding a new 

paragraph (f)(4) to specify that all local 

MA plans must establish a maximum 

out-of-pocket (MOOP) liability amount 

inclusive of all Medicare Parts A and B 

services, the amount of which would be 

set annually by CMS. We also noted 

that, under our proposal to require that 

a MOOP amount be established for local 

MA plans, the MOOP limit for local 

preferred provider organization (PPO) 

plans would be inclusive of all innetwork and out-of-network beneficiary 

cost sharing. As discussed in the 

proposed rule, we believe that requiring 

the inclusion of such a limit in plan 

design is necessary in order not to 

discourage enrollment by individuals 

who utilize higher than average levels of 

health care services (that is, in order for 

a plan not to be discriminatory in 

violation of section 1852(b)(1) of the 

Act). 

In the preamble to our October 22, 

2009 proposed rule, we generally 

described the process we have 

established to comprehensively review 

the proposed cost sharing of each plan 

benefit package and determine if MA 

plans’ cost sharing designs—both in 

terms of aggregate expected out-ofpocket cost-sharing and particular costsharing amounts for certain health care 

services—discriminate against those 

beneficiaries with higher than average 

health care needs. We noted in the 

preamble to the proposed rule that we 

have annually established, through 

subregulatory guidance, a voluntary 

maximum out-of-pocket limit on Parts A 

and B services that, if adopted by an MA 

plan, would allow the plan greater cost 

sharing flexibility than it would 

otherwise receive absent the voluntary 

MOOP. We also noted that we have 

identified certain health care services 

that beneficiaries with higher than 

average health care needs are likely to 

need (for example, in-patient hospital, 

dialysis, skilled nursing facility (SNF), 

mental health services, Part B drugs and 

home health care) and described our 

process for conducting outlier analyses 

by which we consider the distribution 

of cost sharing levels submitted by MA 

organizations to identify levels in the 

upper end of the range for the purpose 

of reviewing whether cost sharing levels 

for submitted benefit designs are 

discriminatory. We believe these efforts 

have resulted in reduced discriminatory 

cost sharing and improved the 

transparency of plan design. For 

example, in contract year 2010, about 

39.2 percent of all non-employer MA 

plans representing about 3 million MA 

enrollees adopted the voluntary MOOP 

limit on beneficiary cost sharing. 

In the preamble to the proposed rule, 

we stated our intent to use a similar 

method for establishing a mandatory 

MOOP amount for Parts A and Part B 

services for all local MA plans as we 

used to establish the voluntary MOOP 

limit for contract year 2010. Therefore, 

the MOOP would be set by CMS at a 

certain percentile of fee-for-service 

(FFS) beneficiary out-of-pocket 

spending. We also noted that we set the 

voluntary MOOP limit at the 85th 

percentile of FFS spending for contract 

year 2010 but could set the limit at a 

different percentile or through a 

modified approach as determined by us 

in future years. We also proposed to 

continue to furnish information to MA 

organizations on our methodology and 


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the amounts for acceptable MOOP 

amounts on a timely basis through the 

annual Call Letter or Health Plan 

Management System (HPMS) 

memoranda. We solicited comments on 

this approach. 

After considering the comments we 

received on this issue, we are finalizing 

§ 422.100(f)(4) largely as proposed but, 

as discussed in greater detail below, are 

adding a new paragraph (f)(5) to address 

concerns raised by commenters about 

applying our proposed MOOP amount 

to PPO out-of-network services. 

Specifically, we are specifying in 

paragraph (f)(5) that the mandatory 

MOOP amount under paragraph (f)(4) 

would only apply to PPO network 

services, while a higher catastrophic 

maximum would apply to both in- and 

out-of-network liability. In setting a 

higher catastrophic maximum, we will 

take into consideration standard 

practices in commercial benefit design 

as well as protecting beneficiaries who 

use out-of-network providers. 

Comment: Several commenters noted 

that a MOOP amount protects 

beneficiaries from catastrophic medical 

costs and supported our proposal. 

Another commenter noted that it was 

important that all Parts A and B services 

be included in the MOOP amount. 

Another commenter supported our 

proposal on the grounds that it will 

bring an element of standardization to 

the MA program. 

A number of Medicare Advantage 

organizations (MAOs) expressed 

concern that Original Medicare does not 

have a MOOP and argued that it would 

therefore not be equitable to require one 

for MA plans. These commenters were 

also concerned that a mandatory MOOP 

would increase plans’ costs and result 

in increased premiums for beneficiaries, 

particularly if the dollar limit is too low. 

Some commenters were also concerned 

that a mandatory MOOP amount would 

result in adverse selection, with ‘‘sicker’’ 

Medicare beneficiaries dropping out of 

Original Medicare and selecting MA 

plans. One commenter advocated that 

we continue our current process of 

allowing voluntary MOOP limits with a 

more stringent review for plans that do 

not adopt the voluntary MOOP limit. 

Response: As discussed in the 

proposed rule, we believe that requiring 

the inclusion of a MOOP limit is an 

important step to ensure that 

individuals who utilize higher than 

average levels of health care services are 

not discouraged from enrolling in MA 

plans that do not have such a limit in 

place. Given that regional PPO plans are 

required by statute to have such a 

liability limit in place, and a substantial 

number of local plans have adopted one 

voluntarily, we were concerned that 

high cost enrollees would be 

discouraged from enrolling in MA plans 

that did not include a MOOP limit. We 

believe that requiring a mandatory 

MOOP limit does not unduly 

disadvantage MA plans relative to 

original Medicare. We note that 

beneficiaries in original Medicare have 

the option of selecting between two 

Medigap policies, K and L, that afford 

them an annual cap on out-of-pocket 

expenses (currently at $4,600). In 

addition, enrollees in the original 

Medicare program can select among 

other Medigap polices that limit their 

cost-sharing liability for Parts A and B 

services. As noted previously, a 

significant number of MA plans have 

already successfully designed benefit 

packages that include MOOP limits and 

have continued to effectively compete 

in the marketplace. 

We agree, however, that retaining a 

voluntary MOOP amount that is lower 

than the mandatory maximum we have 

proposed would preserve current 

incentives for further reducing enrollee 

out-of pocket liability. Therefore, in 

addition to establishing a mandatory 

MOOP amount, we also plan to 

continue our current policy of offering 

MA plans the option of establishing a 

lower voluntary MOOP amount in 

exchange for more flexibility in costsharing thresholds than available for 

plans that adopt the higher mandatory 

MOOP for contract year 2011. Under 

this approach, the voluntary MOOP 

amount would be set at an amount 

lower than the mandatory MOOP, and 

would therefore not disadvantage those 

MA plans that have adopted the 

voluntary MOOP in previous contract 

years. We would in effect establish two 

sets of Parts A and B service costsharing thresholds under this approach, 

one applicable to plans selecting the 

higher, mandatory MOOP amount, and 

the other applicable to those choosing 

the lower, voluntary MOOP. To incent 

plans to adopt the lower MOOP amount, 

we would allow plans greater cost 

sharing flexibility for Parts A and B 

services if they adopt the lower, 

voluntary MOOP. We plan to articulate 

this voluntary MOOP policy through 

subregulatory guidance such as the 

annual Call Letter or a similar 

document. 

Comment: Several commenters were 

concerned that a mandatory MOOP 

amount should not be set so high as to 

discourage low income individuals from 

joining MA plans. Other commenters 

recommended that we ensure that the 

MOOP amount is low enough to benefit 

low income individuals. One 

commenter also expressed concern that 

a MOOP limit may disadvantage smaller 

local plans compared to larger plans, 

potentially resulting in those smaller 

plans being priced out of the MA 

market. One commenter recommended 

that we use a fixed benchmark for the 

MOOP amount, rather than the 85th 

percentile of expected FFS spending 

cited in the preamble to our proposed 

rule, as the cut-off established for 

contract year 2010, which they believe 

would still be too high an amount for 

low income enrollees. Another 

commenter supported a cut-off at a 

higher percentile of FFS to ensure that 

plans do not have to increase their 

premiums or, alternatively, that the 

MOOP amount be set no lower than 

$7,500 in order not to affect the 

sustainability of the MA program. 

Another commenter supported a 

mandatory MOOP amount, but argued 

that plans should be allowed to 

establish their own MOOP amounts. 

Response: In establishing the 

mandatory MOOP amount, we will be 

cognizant of the balance we must strike 

between affording beneficiaries 

reasonable protection from high out-ofpocket expenses and our desire that the 

MA program remain viable for health 

plans and beneficiaries. We will 

carefully assess the impacts of the 

MOOPs we establish, annually adjusting 

the limit as necessary based on the 

previous year’s experience, as well as 

other factors as appropriate, to ensure 

that this balance is maintained. As 

noted previously, we believe the 

approach of establishing a higher, 

mandatory MOOP amount and a lower, 

voluntary MOOP amount will allow us 

to better strike this balance. 

Comment: A couple of commenters 

did not believe their systems would 

support tracking of out-of-pocket 

expenses relative to a mandatory MOOP 

limit, and that the imposition of one 

would therefore introduce a significant 

new administrative burden. One 

commenter argued that we should 

furnish additional funding to MA plans 

due to the costs of implementing a 

mandatory MOOP amount. 

Response: We recognize that those 

plans that have not already voluntarily 

introduced a MOOP may need to invest 

resources in ensuring their systems are 

designed to implement this 

requirement. We believe, however, these 

costs need to be weighed against the 

benefits of ensuring that MA plan 

designs without a MOOP limit do not 

discourage enrollment by high cost 

individuals. 

Comment: Several commenters 

requested clarification regarding the 

applicability of our proposed 


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requirement to establish a mandatory 

MOOP amount to MA plans. 

Response: Because a statutory MOOP 

requirement is already in place with 

respect to regional PPO plans, we 

proposed applying the new mandatory 

MOOP requirement only to local MA 

plans in our proposed rule. While we 

now believe regional PPOs should be 

subject to the same requirements with 

respect to a MOOP as local MA plans, 

since our proposed rule did not give MA 

organizations offering regional PPOs an 

opportunity to comment on such a 

proposal, we will need to address this 

discrepancy in future notice-andcomment rulemaking. However, we note 

that regional PPOs will have the option 

of implementing any mandatory or 

voluntary MOOP amounts we establish 

for local MA plans. 

Comment: A number of commenters 

recommended that we announce the 

mandatory MOOP amount, and the 

methodology we use to set it, as early as 

possible in the year preceding the 

contract year in which we will apply 

that amount (for example, in the 

Advance Notice of Methodological 

Changes). Another commenter 

recommended that this information be 

provided in our annual Call Letter. 

Response: As specified in the 

preamble to the proposed rule, we 

intend to continue to furnish 

information to MA organizations on our 

methodology and the amounts for 

acceptable out-of-pocket caps on a 

timely basis through the annual Call 

Letter or a similar guidance docunent. 

Comment: Two commenters were 

concerned that the mandatory MOOP 

would apply to all in- and out-ofnetwork PPO services, and contended 

that such an arrangement could lead to 

a reduction in the number of PPOs 

offered given the potential increase in 

plan costs that would result. One of 

these commenters believed including 

cost-sharing applicable to out-ofnetwork plan covered services will 

undermine incentives to use preferred 

providers that are central to the design 

of a PPO. 

Response: As stated in the proposed 

rule, we believe that some protection 

against out-of-pocket liability should 

apply to enrollee cost-sharing for both 

in- and out-of-network services covered 

by PPOs. However, we agree with the 

concerns of the commenter highlighting 

the effect a single MOOP applying to all 

services would have on incentives to 

use preferred providers. In addition, for 

reasons of beneficiary transparency and 

consistency, we believe that local PPOs 

should be subject to the same type of 

MOOP requirements as regional PPOs, 

which have a different MOOP for outof-network cost-sharing than that which 

applies to use of PPO in-network 

services. Therefore, we are revising 

§ 422.100 by adding a new paragraph (5) 

that specifies that, in addition to the 

MOOP for Medicare Parts A and B 

services that all local MA plans will be 

subject to—which would apply only to 

the use of network providers—all local 

PPO plans must also establish a total 

catastrophic limit on beneficiary out-ofpocket expenditures for both in-network 

and out-of-network Parts A and B 

services consistent with the 

requirements applicable to regional 

PPOs at § 422.101(d)(3). This total 

catastrophic limit will be no greater 

than an annual limit set by CMS. In 

addition, we will also offer local PPO 

plans the option of implementing any 

voluntary MOOP amount CMS 

establishes for local MA plans. 

Comment: One commenter requested 

clarification regarding whether all 

Medicare Parts A and B services would 

be included in the MOOP amount. 

Response: As noted in the preamble to 

our proposed rule, cost-sharing for all 

Parts A and B services would be 

included in the MOOP amount. Such 

cost-sharing includes any plan 

deductibles applicable to Parts A and B 

services, but excludes monthly plan 

premiums. 

Comment: A commenter argued that 

since States pay cost sharing for 

members of dual-eligible special needs 

plans (SNPs), there is no need to apply 

a MOOP to these plans. Another 

commenter contended that dual-eligible 

SNPs cannot charge their enrollees a 

premium as a practical matter, which 

would further disadvantage this plan 

type if they were required to implement 

our MOOP limit. Another commenter 

recommended that we provide guidance 

on how the MOOP will apply to SNP 

enrollees, particularly those in dualeligible SNPs. This commenter was 

specifically interested in guidance 

regarding what States’ obligation would 

be with respect to premiums and cost 

sharing, as well as the actual out-ofpocket liability for a dual-eligible SNP 

enrollee. Additionally, this commenter 

was concerned that dual-eligibles may 

experience an unnecessary reduction in 

supplemental benefits if our final 

requirement does not clearly distinguish 

what these individuals actually pay as 

out-of-pocket costs versus what 

Medicaid should pay. 

Response: We disagree with 

comments recommending that SNPs be 

exempted from MOOP requirements. 

Dual-eligible individuals entitled to 

have their cost sharing paid by the State 

and enrolled in a SNP may experience 

midyear changes in their Medicaid 

eligibility. In those cases, these 

individuals may be required to directly 

pay the plan cost sharing that otherwise 

would be the obligation of the State. 

Accordingly, we will not exempt SNPs 

from the requirement that they 

implement a MOOP amount as 

established annually by CMS. 

Comment: Another commenter 

recommended exempting employer 

plans from our MOOP requirements 

because such a benefit design would be 

inconsistent with the benefits employer 

plans currently offer. 

Response: We disagree with this 

commenter that such a regulatory 

exception is warranted. The same 

considerations involving discrimination 

against high cost enrollees could also 

apply in the employer plan context, 

particularly if the employer allows more 

than one plan option. In exceptional 

cases in which CMS agrees that a waiver 

of this rule would be in the interest of 

Medicare beneficiaries served by an 

employer group, CMS could consider 

waiving the regulations through the 

employer group waiver authority under 

section 1857(i) of the Act. Employer 

plans will therefore be subject to the 

regulatory MOOP requirement finalized 

in § 422.100(f)(4) that applies to all MA 

plans. 

6. Maximum Allowable Cost Sharing 

Amount for Medicare Parts A and B 

Services and Prescription Drugs 

(§ 422.100, and § 423.104) 

In our October 22, 2009 proposed 

rule, we proposed to amend our 

regulations on the general requirements 

related to Medicare Advantage (MA) 

benefits and qualified prescription drug 

coverage to expressly authorize us to 

establish cost sharing thresholds for 

individual services below which cost 

sharing will be considered nondiscriminatory. 

For Part C plans, we proposed to 

annually review bid data to determine 

specific cost sharing levels for Medicare 

A and B services below which we 

would not consider there to be a 

discriminatory effect, and therefore may 

be approved in an MA benefit package. 

Specifically, we proposed amending 

§ 422.100 by adding a new paragraph 

(f)(5) to specify that cost sharing for 

Medicare A and B services may not 

exceed levels annually determined by 

us to be discriminatory. 

Similarly, for Part D plans, we 

proposed to annually review bid data to 

determine acceptable cost sharing tiers 

for benefit packages offering nondefined standard prescription drug 

coverage. To this end, we proposed 

revising § 423.104(d)(2) by adding a new 

paragraph (iii) to specify that tiered cost 


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sharing for non-defined standard benefit 

designs may not exceed levels annually 

determined by us to be discriminatory. 

We also explained in the preamble to 

the proposed rule that we would furnish 

information to MA organizations and 

Part D sponsors on our methodology 

and the cost sharing thresholds for the 

following contract year based on the 

prior year’s bids, and on a timely basis 

either through the annual Call Letter or 

Health Plan Management System 

(HPMS) memoranda. We solicited 

comments on this approach, including 

the extent to which we provided 

sufficient clarity on how we would 

determine whether cost-sharing levels 

are discriminatory. 

After considering comments we 

received on this issue, we are adopting 

proposed § 422.100(f)(5) (which, in light 

of the new subparagraph (f)(5) discussed 

above, is recodified as subparagraph 

(f)(6)) and § 423.104(d)(2) with minor 

revisions made in response to comments 

discussed below that are intended to 

clarify that limits will only be 

established for those Parts A and B 

services specified by CMS. We note that 

section 3202 of the Patient Protection 

and Affordable Care Act (PPACA) (Pub. 

L. 111–148) ‘‘Benefit Protection and 

Simplification’’ will apply to MA plans 

offered in 2011. Section 3202 of PPACA 

specifies that, unless a specified 

exception applies, the cost sharing 

charged by MA plans for chemotherapy 

administration services, renal dialysis 

services, and skilled nursing care may 

not exceed the cost sharing for those 

services under Parts A and B. Where 

these new limits apply, they will 

constitute an absolute limit on costsharing for the service in question by 

operation of statute, and we will not set 

limits under this final rule. After the 

publication of this rule, we will issue 

clarifying guidance concerning section 

3202 and other provisions of PPACA 

that impact this regulation. 

Comment: A number of commenters 

supported our proposed requirement to 

specify that cost sharing for Medicare A 

and B services may not exceed levels 

annually determined by us to be 

discriminatory. One of these 

commenters supported us in continuing 

our current approach to applying a 

discrimination test. 

A number of commenters opposed our 

proposed requirement to establish 

individual Parts A and B service 

category cost-sharing thresholds, 

suggesting that individual service 

category thresholds would result in 

higher premiums. Other commenters 

believed that cost-sharing limits would 

present significant additional 

administrative costs for plans. A 

number of commenters contended that 

individual service category thresholds 

would limit the availability of unique 

benefit designs and, consequently, limit 

beneficiary choice. One commenter 

argued that we should not limit plans’ 

ability to use cost sharing as a tool to 

encourage beneficiary choice of cost 

effective and clinically appropriate 

services. Another commenter 

recommended that, rather than adopting 

cost-sharing thresholds, we should 

evaluate other options for identifying 

and preventing discriminatory benefit 

designs, such as evaluating the 

prevalence of utilization control 

mechanisms (for example, prior 

authorization) on services frequently 

used by patients with a particular highcost conditions. 

Response: We believe establishing 

individual service cost-sharing 

thresholds is necessary to ensure that 

beneficiaries who utilize higher than 

average levels of health care services 

will not be discouraged from enrolling 

in MA plans with cost-sharing in excess 

of thresholds set by CMS and that our 

proposal to set specific amounts in 

advance improves the transparency of, 

and comparability between, plan 

choices for beneficiaries. 

We are therefore finalizing our 

proposal to allow us to annually set cost 

sharing thresholds for Medicare Parts A 

and B services. 

In establishing service category costsharing thresholds, we will be cognizant 

of the balance we must strike between 

affording beneficiaries reasonable 

protection from high out-of-pocket 

expenses that could discourage 

enrollment and our desire that the MA 

program remain viable for health plans 

and beneficiaries. We will carefully 

assess the impacts of the cost-sharing 

thresholds we establish, annually 

adjusting the limits and the particular 

Parts A and B services that are subject 

to such limits as necessary based on the 

previous year’s experience and other 

factors as needed, to ensure that this 

balance is maintained. As we have in 

previous years, we plan initially to 

establish cost-sharing thresholds for 

those Parts A and B services that we 

have, through a number of years of 

experience with plan benefit reviews, 

identified as particularly likely to have 

a discriminatory impact on sicker 

beneficiaries. Specifically, under our 

current cost sharing review process 

which has developed from our past 

experience in reviewing benefit 

packages we focus our review on 14 

service categories we have identified a 

particularly likely to have 

discriminatory impact on ‘‘sicker’’ 

beneficiaries: inpatient catastrophic (90) 

days, inpatient short stay (10 days), 

inpatient mental health (15 days), SNF 

(42) days, home health (37) days, 

physician mental health visits, renal 

dialysis (156) visits, Part B drugs, 

chemotherapy, radiation, DME, 

equipment, prosthetics, supplies and 

diabetes tests. 

As discussed elsewhere in this 

preamble, in addition to establishing a 

mandatory maximum out-of-pocket 

(MOOP) limit on overall cost-sharing for 

Parts A and B services, we also plan to 

continue our current policy of offering 

MA organizations the option of adopting 

a lower voluntary MOOP with greater 

flexibility in Parts A and B cost sharing 

than available for MA plans that meet 

only the higher mandatory MOOP. 

Under this approach, the voluntary 

MOOP would be set at an amount lower 

than the mandatory MOOP and would 

therefore not disadvantage those MA 

plans that have adopted the voluntary 

MOOP in previous contract years. In 

implementing thresholds for 

discriminatory cost-sharing for 

individual services, we plan to establish 

two sets of Parts A and B service costsharing thresholds, one applicable to 

plans choosing the higher, mandatory 

MOOP, and the other applicable to 

those choosing the lower, voluntary 

MOOP. We plan to articulate the costsharing thresholds associated with the 

lower, voluntary MOOP through 

subregulatory guidance such the annual 

Call Letter or similar guidance 

document. 

In establishing cost-sharing 

thresholds, we will consider an MA 

organization’s need to use cost-sharing 

as a tool for preventing overutilization 

of services. While we have not been 

provided evidence that this requirement 

would increase plans’ administrative 

costs, we also note that MA 

organizations will be able to account for 

any increased administrative costs in 

their annual bids. Finally, with respect 

to the comment about reviewing prior 

authorization, we believe that 

establishing cost-sharing thresholds is a 

more efficient and effective method for 

eliminating discriminatory MA plan 

designs. 

Comment: One commenter questioned 

our authority to impose individual 

service category thresholds, and urged 

us to withdraw our proposal. 

Response: We disagree with this 

commenter. As discussed in the 

preamble to the October 22, 2009 

proposed rule, our proposal relies upon 

the authority in section 1852(b)(1) to 

ensure that an MA plan would not 

substantially discourage enrollment by 

certain MA eligible individuals and our 

authority under section 1857(e)(1) of the 


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Act, under which we may add 

‘‘necessary and appropriate’’ contract 

terms; and, with respect to MA plan cost 

sharing, the authority in section 

1856(b)(1) of the Act, under which we 

may establish MA standards by 

regulation. 

Comment: Some commenters sought 

clarification on how we will address 

cost sharing thresholds with regard to 

dual-eligible special needs plans (SNPs). 

These commenters specifically asked 

whether we would exempt dual-eligible 

SNPs from our proposed establishment 

of mandatory Parts A and B service 

thresholds, since States pay dualeligibles’ cost sharing. These 

commenters argued that our proposed 

requirement could force dual-eligible 

and chronic care SNPs to charge a 

premium, thus making their plans 

unattractive to dual-eligibles and other 

low-income enrollees. 

Response: We disagree with 

commenters recommending that dual or 

chronic care SNPs should be exempted 

from our service category cost-sharing 

thresholds. As long as a plan has at least 

some enrollees subject to all of a plan’s 

cost-sharing amount, those enrollees 

could still be discouraged from 

enrolling or continuing their enrollment 

in the plan given particularly high costsharing for specific services. Even those 

SNPs that exclusively serve dualeligible enrollees entitled to have their 

cost sharing paid by the Medicaid 

program can include some individuals 

who lose their Medicaid status midyear 

and become subject to plan cost sharing 

which would no longer be paid by the 

Medicaid program. Plans should not 

establish excessive cost-sharing 

regardless of whether the State is 

responsible for beneficiaries’ costsharing. We are therefore not exempting 

SNPs from the mandatory MOOP and 

cost sharing limits that apply to other 

MA plans. 

Comment: One commenter asked us 

to consider exempting employer plans 

from our cost-sharing threshold 

requirements, arguing that such a 

requirement would complicate their 

efforts to offer their current and retired 

employees parallel coverage. 

Response: We disagree with this 

commenter. The nature of employer 

arrangements varies greatly. In some 

cases, an employer may offer more than 

one MA plan option, and one or more 

of those plans may still discourage 

enrollment by certain beneficiaries 

through their benefit design. Also, in the 

case of an employer plan, if a 

compelling reason exists for an 

exemption from the limits in this final 

rule, and if we determine an exemption 

would be in the best interests of 

beneficiaries, employers could request a 

waiver of these limits under the 

employer waiver authority. 

Comment: Some commenters 

recommended that we establish cost 

sharing thresholds for Parts A and B 

services as soon as possible prior to the 

bid submission deadline (for example, 

in the Call Letter or Advance Notice of 

Methodological Changes) and provide 

stakeholders with an opportunity to 

provide comments regarding the 

thresholds and the methodology used to 

arrive at those thresholds. Some 

commenters representing non-plan 

stakeholders also requested that we 

provide this information via means 

other than the HPMS, since only plans 

have access to HPMS and advocates and 

other non-plan entities would like to 

receive the information we share with 

plans via HPMS. Another commenter 

recommended that we permit MA 

organizations to resubmit a bid and 

benefit package if the initial bid is 

rejected due to a finding by CMS of 

discriminatory cost sharing. 

Response: As stated in the preamble 

to the proposed rule, we intend to 

furnish information to MA organizations 

and Part D sponsors on our 

methodology and the cost sharing 

thresholds for the following contract 

year on a timely basis either through the 

annual Call Letter or similar guidance 

document. We will consider ways of 

disseminating this information through 

other means to ensure that all 

stakeholders have an opportunity to 

comment and note that we generally 

post draft Call Letters to the CMS Web 

site to ensure broad public availability. 

With regard to opportunities to resubmit 

bids and benefit packages, given that we 

expect to provide guidance regarding 

cost-sharing thresholds prior to bid 

submission, we do not anticipate the 

need to allow plans to resubmit bids or 

benefit packages if their submissions are 

inconsistent with published guidance. 

As part of our review of submitted bids 

and benefit packages, we may contact 

plans to give them the option of 

modifying their bids and benefit 

packages if we have made a 

determination that the proposed plan 

benefit package or cost sharing contains 

discriminatory amounts not outlined in 

published guidance. 

Comment: One commenter 

recommends that cost-sharing limits, 

and the service categories to which they 

apply, remain stable from year-to-year. 

Response: We intend to implement 

cost-sharing thresholds carefully to 

ensure the right balance of ensuring 

against discriminatory effects of high 

cost-sharing and continued viability of 

the MA program. While we believe 

stability in the thresholds and the 

particular services to which those 

thresholds are applied is important, we 

also believe it is necessary to allow 

ourselves the flexibility to build on 

‘‘lessons learned’’ each year, and to 

reevaluate both the thresholds and the 

Parts A and B service categories to 

which they apply, to account for any 

statutory changes in Original Medicare 

cost-sharing limits as well as other 

changes to the MA program, and refine 

our approach accordingly to maintain 

such a balance. 

Comment: Some commenters believed 

that we were not clear in the proposed 

rule regarding whether we would set 

cost sharing thresholds for all Parts A 

and B service categories, or only for 

selected categories identified as 

potentially discriminatory. These 

commenters requested further 

clarification on our intended approach. 

Response: As we have done in the 

context of benefits review in previous 

years, we intend to focus on service 

categories particularly likely to have a 

discriminatory impact on sicker 

beneficiaries. Initially, we will focus on 

the service categories we have targeted 

historically in our benefit review. We 

expect to refine our approach over time 

in order to achieve the right balance 

between plan choice and protection 

from high out-of-pocket costs. We 

intend to build on our experience, and 

potentially make modifications to the 

list of Parts A and B service categories 

to which we would apply cost-sharing 

thresholds. 

Comment: A couple of commenters 

recommended that, in setting costsharing limits, CMS consider enrollees’ 

cost-sharing both before and after 

members reach any deductible that may 

apply. 

Response: We will consider whether 

to take plan deductibles into account as 

part of our methodology to establish 

cost-sharing thresholds. 

Comment: One commenter requested 

clarification on how we will establish 

cost sharing thresholds based on the 

previous year’s experience. One 

commenter urged that the thresholds 

not be adjusted based on current year 

data. 

Response: As described in the 

preamble to our proposed rule, we 

intend to review the prior year’s bid 

data, as well as actuarial equivalency 

relative to Original Medicare, to identify 

cost sharing outliers and establish a 

reasonable threshold. With this 

information, and other factors we may 

identify as we gain experience in 

establishing these thresholds, we will 

annually set cost-sharing thresholds as 

described in this preamble. We do not 


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anticipate that these levels will need to 

be changed after bids have been 

submitted. However, as previously 

noted, we will conduct a review of 

submitted bids and we reserve the right 

to address discriminatory cost sharing 

or benefit design we identify in these 

post bid reviews by asking the plan to 

either modify or withdraw its bid to 

resolve discriminatory cost sharing. 

Comment: One commenter 

recommended that service category 

thresholds be set at fixed dollar 

amounts. 

Response: We understand that 

copayment amounts are more 

transparent and predictable for 

beneficiaries than coinsurance, and will 

attempt to establish thresholds as 

copayment amounts rather than 

coinsurance percentages where 

appropriate. Given the fact that original 

Medicare employs coinsurance 

percentages in its cost-sharing, there 

may be cases, in which we may limit the 

coinsurance percentage that can be 

imposed. 

Comment: One commenter 

recommended that we not set a cost 

sharing maximum for routine services, 

such as physician visits and lab 

services, where there is limited financial 

liability, or for durable medical 

equipment (DME), where they argue that 

any particular cost-sharing maximum 

would invariably penalize one subset of 

enrollees. One commenter 

recommended that we establish 

thresholds on a per day, per stay, and 

per benefit period basis for SNF and 

inpatient services. Another commenter 

recommended that any threshold for 

Part B drugs apply to all Part B covered 

drugs. 

Response: We disagree that physician 

visits and lab services should 

necessarily be exempt from cost-sharing 

maximums, though we currently do not 

contemplate imposing limits in such 

cases, and would only do so to the 

extent that we saw cost-sharing imposed 

that had a discriminatory effect. As 

stated previously, we initially will focus 

on those service categories we have 

historically identified as particularly 

likely to have a discriminatory impact 

on sicker beneficiaries and will refine 

our approach as needed and in line with 

our ultimate goal of eliminating 

discriminatory benefit designs. We 

welcome the feedback provided by other 

commenters with regard to DME, SNF 

and Part B drug copayments and will 

consider these recommendations as we 

finalize our methodology and 

thresholds. 

Comment: Several commenters 

supported the proposal to review Part D 

plan bids to determine acceptable costsharing tiers for benefit designs that 

deviate from the standard benefit 

package. One commenter indicated that 

this would bring a level of 

standardization to plans and make it 

easier for them to compare out-of-pocket 

expenses. 

Response: We appreciate the 

comments. 

Comment: Several commenters 

wanted to limit Part D cost sharing to a 

total maximum out-of-pocket amount. 

Response: We do not believe that a 

regulatory overall liability limit for Part 

D would be practical or appropriate 

given the current design of Part D 

benefits (such as, the coverage gap). We 

also note that, under the Part D benefit, 

there is protection afforded to a 

beneficiary once they enter into the 

catastrophic phase of the benefit where 

there is nominal cost sharing. 

Comment: One commenter wanted us 

to establish clear and definitive limits 

on cost sharing. Another commenter 

wanted us to consider the overall 

affordability of cost sharing that is 

imposed on non-low-income (LIS) 

Medicare beneficiaries. The commenter 

argues that this is particularly important 

when considering a plan design in 

which preferred formulary tiers do not 

include equally safe and effective drugs 

for the beneficiary’s medical condition. 

Another commenter wanted us to take 

into account separate rules for cost 

contracts with HMOs under section 

1876. Additionally, another commenter 

wanted clarification on how we will 

review plans with more than or fewer 

than a three tier benefit design. This 

commenter suggested that all tiers may 

not exceed levels determined by CMS to 

be discriminatory. 

Response: We appreciate these 

comments. It is important to note that 

we review both formularies and benefit 

designs to ensure that a sponsor’s 

prescription drug offering under Part D 

is not discriminatory. We have designed 

our yearly formulary reviews to ensure 

that all Part D plan formularies include 

a wide representation of drugs used to 

treat the Medicare population. As part 

of this review, we focus on identifying 

formularies with drug categories that 

may substantially discourage enrollment 

of certain beneficiaries, for example if 

the formulary places drugs in 

nonpreferred tiers without including 

commonly used therapeutically similar 

drugs in more preferred positions. As 

part of our yearly review of submitted 

benefit designs, we compare like plans 

to each other for the purpose of ensuring 

non-discriminatory cost-sharing. 

Specifically, we perform an analysis of 

cost sharing at the tier level, to look for 

outliers. The outlier analysis considers 

plan type (basic versus enhanced), 

tiering structure (for example, the 

number and type of tiers), and any 

differences among MA–PDs (including 

cost plans) and between MA–PDs and 

PDPs. When outliers are identified, we 

conduct negotiation calls with the 

relevant plan sponsors to ensure the 

cost sharing outliers are reduced prior to 

bid approval. We also require cost 

sharing levels for preferred tiers to be 

lower than cost sharing levels for 

nonpreferred tiers. 

Comment: A commenter expressed 

concern that when coverage of a 

nonformulary drug is secured on appeal, 

the cost sharing under the nonpreferred 

tier can approximate, or even exceed, 

the negotiated price of the drug. 

Response: The price charged to the 

beneficiary cannot exceed the 

negotiated price. The requirements 

related to qualified prescription drug 

coverage at § 423.104(g)(1) make clear 

that Part D sponsors are required to 

charge beneficiaries the lesser of a 

drug’s negotiated price or applicable 

copayment amount. 

Comment: Several commenters 

opposed setting cost sharing maximums, 

claiming that this will result in higher 

premiums for beneficiaries. One 

commenter asserted that CMS’ proposal 

will limit the ability of Part D sponsors 

to design plans that provide choices for 

additional or richer benefits in other 

areas important to beneficiaries. For 

example, they argue that establishing 

maximum Part D brand cost-sharing 

levels will impact the ability to offer $0 

copayment for generic drugs; therefore, 

ultimately inhibiting the greater 

affordability and access. A commenter 

contended that our proposal fails to 

consider a plan design that is associated 

with a robust formulary. The commenter 

believes that such a plan should have 

the flexibility to impose higher member 

cost sharing, particularly for 

nonpreferred drugs, compared to a 

formulary that meets minimum 

requirements and, coupled with low 

premium which may be attractive to 

those with minimal drug utilization 

who seek protection from potential 

future changes in health status. 

Response: In determining a maximum 

cost sharing amount for a tier above 

which we will view the plan’s benefit 

design as discriminatory, we attempt to 

strike a balance between appropriate 

coverage under the benefit and the 

potential affect on the premium. As part 

of our benefit design review, and 

consistent with previous reviews, we 

consider all beneficiaries under the 

plan, and not just those beneficiaries 

expected to have limited utilization. 

Therefore, any actuarially-equivalent 


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cost sharing arrangement is reviewed, 

along with the rest of a plan’s benefit 

design, to ensure that it does not 

discriminate against certain Part D 

eligible individuals. This sometimes 

results in a sponsor not being able to 

support higher member cost sharing 

amount under a robust formulary design 

for nonpreferred drugs or being able to 

support zero dollar generics. However, 

these cases are usually the exception 

since our review is designed to ensure 

the maximum utility of the benefit 

design for potential enrollees. 

Comment: One commenter wanted 

CMS to prohibit the use of both 

copayment and coinsurance tiers under 

nonstandard Part D benefit designs. 

Response: We disagree with the 

commenter and believe such a 

prohibition would unnecessarily limit 

plan design. Moreover, we believe that 

such a proposal is beyond the scope of 

this proposed rule, which addresses the 

authority of CMS to establish limits on 

cost sharing for purposes of determining 

whether or not such cost sharing is 

discriminatory. Our proposal did not 

address whether nonstandard benefit 

designs utilizing coinsurance are 

discriminatory. 

Comment: One commenter wanted us 

to require that at least one drug within 

each therapeutic class be on each tier. 

Response: We believe that such a 

proposal is beyond the scope of this 

proposed rule, which only addresses the 

authority of CMS to establish limits on 

cost sharing for purposes of determining 

whether or not such cost sharing is 

discriminatory. We also note that due to 

the varying number of drugs that may be 

available in a therapeutic class, this 

proposal may require many exceptions 

and be impractical to implement. 

Comment: Several commenters 

expressed concern about our specialty 

tier policy. A few commenters want us 

to eliminate the exemption from tiering 

exceptions for specialty tiers. Another 

commenter asserted that drugs in the 

specialty tier are so expensive, an 

argument could be made that specialty 

tier coinsurance above 25 percent is 

excessive. Another commenter argues 

that the use of specialty tiers is a 

discriminatory practice that targets 

individuals who have medical 

conditions that necessitate use of 

expensive medications. 

Response: We appreciate the 

commenters’ concern in this area, which 

is one we will continue to study. Any 

revisions to the specialty tier policy will 

be done in future rulemaking. We note 

specifically that the commenters’ 

request for us to eliminate the 

exemption from tiering exceptions for 

specialty tiers is outside of the scope of 

this proposal. We also note that we have 

only allowed a higher coinsurance 

percentage greater than 25 percent for 

specialty tiers under alternative 

prescription drug coverage designs with 

decreased or no deductibles. Thus, 

overall, consistent with statutory and 

regulatory requirements, a basic 

alternative design must be actuarially 

equivalent to the defined standard 

benefit design. 

Comment: One commenter wanted us 

to study the effects of high out-of-pocket 

costs, improve drug pricing disclosure, 

prohibit plans from changing the price 

of drugs, notify beneficiaries when a 

drug price is going to increase, ensure 

that Part D plan sponsors inform 

beneficiaries how to get medications 

free or at lower prices, and end 

discriminatory practice cost sharing. 

Response: We appreciate the 

commenter’s concerns over price 

fluctuations that may result in changes 

in cost sharing under a Part D plan 

benefit design that includes coinsurance 

and the effects that these changes may 

have on beneficiaries enrolled in these 

plans. However, several of these 

comments are outside of the scope of 

the proposed rule, which addresses our 

ability to establish threshold levels for 

cost sharing above which we would 

determine such cost sharing to be 

discriminatory. Moreover, we note that 

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

commonly known as the ‘‘Noninterference provision,’’ we are 

prohibited from interfering in the 

negotiations among drug manufacturers, 

pharmacies, and sponsors of 

prescription drug plans (PDPs), and 

from requiring a particular formulary or 

price structure for the reimbursement of 

a covered Part D drug. Therefore, we do 

not have the authority to prohibit plans 

from changing the price of drugs. 

Comment: Several commenters 

wanted information on discriminatory 

cost sharing made available through Call 

Letter and other public means, and want 

such information to be made available 

timely so that it can be taken into 

account prior to bidding. 

Response: We appreciate the 

commenters’ concern that we be as 

transparent and timely as possible with 

our guidance in this area. We will strive 

to make this information available as 

early as possible for sponsors to begin 

constructing their bids for the 2011 

contract year. 

Comment: One commenter stated that 

if a plan sponsor offers a plan design 

with zero co-payment amounts for 

certain mail order prescription drugs, it 

should be required to offer the same cost 

sharing at retail pharmacies. 

Response: This comment is outside 

the scope of the proposed rule, which 

does not revise our level playing field 

policy between mail and retail drug 

offerings. We refer the commenter to 

section 50.2 of Chapter 5 of the 

Medicare Prescription Drug Benefit 

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

PrescriptionDrugCovContra/Downloads/ 

Chapter5.pdf for our current policy in 

this area. 

7. Prohibition on Prior Notification by 

PPO, PFFS and MSA Plans Under Part 

C (§ 422.2, § 422.4, and § 422.105) 

In our October 22, 2009 proposed 

rule, we stated that we have become 

increasingly concerned about the use of 

prior notification by PPO and PFFS 

plans as a condition for lower cost 

sharing. Program experience has 

demonstrated that such prior 

notification provisions are confusing to 

beneficiaries, misleading in terms of 

cost-sharing transparency, and in some 

instances, are used inappropriately as a 

form of prior authorization. In the GAO 

report titled ‘‘Medicare Advantage: 

Characteristics, Financial Risks, and 

Disenrollment Rates of Beneficiaries in 

Private Fee-for-Service Plans (GAO–09– 

25),’’ the GAO stated that some PFFS 

plans it reviewed ‘‘inappropriately used 

the term prior authorization rather than 

pre-notification in the informational 

materials they distributed to 

beneficiaries, which may have caused 

confusion about beneficiaries’ financial 

risks.’’ We have determined that the 

complexity of cost-sharing designs using 

prior notification has made it more 

difficult for both enrollees and 

providers to understand the enrollee’s 

cost sharing obligation in advance of 

receiving services. Therefore, in order to 

reduce the complexity of MA plans’ cost 

sharing designs and improve 

transparency for both enrollees and 

providers, we proposed to prohibit PPO 

plans (for out-of-network services) and 

PFFS plans from providing for lower 

cost sharing where prior notification 

rules have been satisfied. Specifically, 

we proposed to revise § 422.4(a)(1)(v) 

and (a)(3) to provide that PPO and PFFS 

plans will be prohibited from 

establishing prior notification rules 

under which an enrollee is charged 

lower cost sharing when either the 

enrollee or the provider notifies the plan 

before a service is furnished. We are 

adopting § 422.4(a)(1)(v) and (a)(3) 

without further modification in this 

final rule. 

In our October 22, 2009 proposed 

rule, we also proposed to prohibit MSA 

plans from establishing prior 

notification rules. We believe that prior 

notification rules established by MSA 


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plans are also confusing to enrollees of 

those plans and have similar negative 

effects as those described above for PPO 

and PFFS plans. Accordingly, we 

proposed to modify § 422.4(a)(2) such 

that MSA plans will also be prohibited 

from establishing prior notification rules 

under which an enrollee is charged 

lower cost sharing when either the 

enrollee or the provider notifies the plan 

before a service is furnished. We are 

also adopting § 422.4(a)(2) without 

further modification in this final rule. 

Finally, the October 22, 2009 

proposed rule discussed similar 

concerns about beneficiary confusion in 

connection with PPO plans that 

included a POS-like benefit. As we 

noted in the October 22, 2009 proposed 

rule and the Medicare Program entitled 

Establishment of the Medicare 

Advantage Program, published in the 

January 28, 2005 Federal Register (70 

FR 4617 through 4619), we had stated 

that PPOs could offer a POS-like benefit 

under which beneficiary cost sharing 

would be less than it would otherwise 

be for non-network provider services, 

but still might be greater than it would 

be for in-network provider services, 

provided an enrollee follows 

preauthorization, pre-certification, or 

prenotification rules before receiving 

out-of-network services. For the same 

reasons discussed above, we determined 

that this approach is confusing, and is 

subject to abuse as a prior authorization 

mechanism for non-network services. 

Therefore, in order to reduce the 

complexity of PPO plans’ cost sharing 

designs and improve transparency for 

both enrollees and providers, we 

proposed in our October 22, 2009 

proposed rule to prohibit PPO plans 

from offering such a POS-like benefit. 

Specifically, we proposed to revise the 

definition of POS in § 422.2 and 

§ 422.105(b), (c), and (f) to indicate that 

only HMOs may offer a POS benefit. 

The proposed change is consistent with 

section 1851(a)(2)(A)(i) of the Act, 

which states that an HMO may include 

a POS option. We are adopting 

§ 422.105 without further modification 

in this final rule and revising § 422.2 as 

described below. 

Comment: Several commenters 

supported our proposals to prohibit PPO 

plans (for out-of-network services), MSA 

plans, and PFFS plans from establishing 

prior notification rules and prohibit 

PPO plans from offering a POS-like 

benefit. Some of the commenters 

indicated that these practices are 

confusing and misleading and penalize 

members who are not able to give prior 

notification or who were unaware of the 

option. Some commenters also 

indicated that they found several plans 

that charge exorbitant cost-sharing (up 

to 75 percent) for expensive items such 

as durable medical equipment when 

prior notification requirements have not 

been met. A number of commenters 

opposed our proposals to prohibit PPO 

plans (for out-of-network services), MSA 

plans, and PFFS plans from establishing 

prior notification rules and prohibit 

PPO plans from offering a POS-like 

benefit. Other commenters stated that 

these practices permit plans to alert the 

enrollee in advance of receiving a 

service that it may not be covered; 

reduce enrollees’ cost sharing 

obligations when obtaining covered 

services from out-of-network providers; 

enable plans to better monitor and 

oversee members’ use of out-of-network 

providers, thus allowing plans to assess 

and expand their provider networks; 

and identify those plan members who 

may qualify for plan disease 

management and case management 

programs. One commenter indicated 

that MA plan premiums likely would 

increase if this cost control technique 

were eliminated. Commenters opposed 

to CMS’ proposals provided several 

recommendations for addressing our 

concerns about prior notification rules 

and POS-like benefits. Commenters’ 

recommendations included retaining 

existing policies; enforcing the existing 

requirement (for example, requiring 

greater clarity in enrollee materials) to 

address concerns raised in the proposed 

rule; requiring PPO plans with POS-like 

benefit to better describe the costsharing amounts under each set of 

circumstances that may arise; requiring 

plans to more clearly describe the 

distinction between prior authorization 

and prior notification, and expressly 

identify those covered services subject 

to each process; and encouraging 

providers’ outreach to plans to confirm 

prior authorization/notification 

provisions and members’ cost sharing 

obligations. 

Response: We agree with the 

commenters supporting our proposals to 

prohibit PPO plans (for out-of-network 

services), MSA plans, and PFFS plans 

from establishing prior notification rules 

and prohibit PPO plans from offering a 

POS-like benefit. As we stated in the 

October 2009 proposed rule, we believe 

that prior notification is confusing to 

beneficiaries, misleading in terms of 

disclosure of cost-sharing, and in some 

instances, used inappropriately as a 

form of prior authorization. Also, the 

complexity of cost sharing designs using 

prior notification and POS-like benefits 

has made it more difficult for both 

enrollees and providers to understand 

the enrollee’s cost sharing obligation in 

advance of receiving services. 

We acknowledge the concerns raised 

by commenters who opposed our 

proposals. However, we believe that 

most of these concerns can be addressed 

if the plan takes an active role to 

educate enrollees and providers about 

their right to request a written advance 

coverage determination from the plan, 

in accordance with Subpart M of Part 

422, before an enrollee receives a 

service in order to confirm that the 

service is medically necessary and will 

be covered by the plan. These MA plans 

should clearly explain the process for 

requesting a written advance 

determination in member materials and 

respond to requests from enrollees and 

providers on a timely basis. Plans may 

also encourage enrollees and providers 

to request advance coverage 

determinations prior to receiving costly 

services. These MA plans can also use 

requests for advance coverage 

determinations as a tool to identify 

enrollees who may qualify for disease 

management and case management 

programs or who require further care 

coordination. Plans can use the claims 

data submitted by non-network 

providers to expand their provider 

networks as well as identify those 

enrollees who would benefit from 

disease management and case 

management. We do not believe that 

prohibiting prior notification rules and 

POS-like benefits will lead to higher MA 

plan premiums. We believe that 

prohibiting PPO plans (for out-ofnetwork services), MSA plans, and 

PFFS plans from creating prior 

notification rules and PPO plans from 

offering a POS-like benefit will reduce 

the complexity of these plans’ costsharing designs and improve 

transparency for both enrollees and 

providers. Accordingly, we are adopting 

the proposals as set forth in the October 

2009 proposed rule. 

We are making a technical correction 

to the definition of point-of-service 

(POS) in § 422.2 in this final rule. We 

are deleting the word ‘‘additional’’ from 

the definition since it no longer applies 

to the definition of a POS benefit option. 

8. Requirements for LIS Eligibility 

Under Part D (§ 423.773) 

In the October 22, 2009 rule, we 

proposed amending the length of the 

period for which individuals are redeemed eligible for the full low income 

subsidy to conform § 423.773(c)(2), with 

guidance we issued in section 40.2.2 of 

Chapter 13 of the Medicare Prescription 

Drug Benefit Manual. As we noted in 

the October 2009 proposed rule, we 

review data from State Medicaid 


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Agencies and the Social Security 

Administration (SSA) every year to 

determine whether individuals 

currently deemed eligible for the 

subsidy should continue to be deemed 

(that is, ‘‘re-deemed’’) eligible for the 

subsidy. These data, which are sent in 

July and August every year, allow us 

sufficient time to update individuals’ 

records in our systems, if necessary, and 

to make appropriate notifications if an 

individual is losing deemed status for 

the subsequent calendar year. 

We also noted that when we review 

data in July and August, we also 

identify individuals who are newly 

eligible for Medicaid, a Medicare 

Savings Program, or SSI, and deem them 

eligible for LIS for the remainder of the 

current calendar year. In addition, we 

also re-deem these individuals for the 

subsidy for the next calendar year, 

because we do not have sufficient time 

in the final months of the year to 

conduct a separate re-deeming process 

for them. Moreover, if we waited to redeem these beneficiaries after the start 

of the next calendar year, they could 

incur greatly increased premium 

liability and cost sharing amounts at the 

start of the new calendar year than they 

would have otherwise. 

To address these issues, we proposed 

to amend § 423.773(c)(2) to indicate that 

the deeming will be, at a minimum, for 

the following periods: If deemed status 

is determined between January 1st and 

June 30th of a calendar year, the 

individual is deemed subsidy eligible 

for the remainder of the calendar year. 

If deemed status is determined between 

July 1st and December 31st of a calendar 

year, the individual is deemed subsidy 

eligible for the remainder of the 

calendar year and the next calendar 

year. We have found that this policy 

promotes effective administration of the 

LIS benefit and decreases the 

administrative burden on CMS, the 

Social Security Agency, and State 

Medicaid agencies, as well as on 

subsidy eligible individuals. In this final 

rule, we adopt this provision as 

proposed. 

Comment: Several commenters 

expressed support for our intent to put 

in regulation the minimum time periods 

for which beneficiaries are deemed 

eligible for the LIS. 

Response: We appreciate this support 

for our intent to outline the minimum 

time periods of LIS eligibility. 

Comment: One commenter urged us 

to consider making LIS deemed status 

permanent, or granting a 3-year period 

of presumptive eligibility. The 

commenter noted that while income and 

assets may fluctuate, most low-income 

Medicare beneficiaries are unlikely to 

experience increases that are enough to 

affect their eligibility. The commenter 

also noted that making eligibility 

permanent would eliminate the need for 

redeterminations of eligibility, thus 

reducing administrative costs for the 

program and inconvenience and stress 

for beneficiaries. 

Response: We understand the 

potential benefits to the LIS population 

of extending or making permanent their 

eligibility for the subsidy, and reducing 

the inconvenience and stress to 

beneficiaries is an ongoing goal of our 

administrative processes. Currently, 

approximately 95 percent of LIS-eligible 

beneficiaries are re-deemed for the 

following year prior to the end of the 

current calendar year, and half of those 

who are not initially re-deemed (that is, 

another 2.5 percent) are re-deemed 

within next 6 months. In addition to 

this, the number of beneficiaries who 

actually receive the annual Loss of 

Subsidy Letter, also known as the gray 

notice, has been decreasing over the last 

4 years. This suggests that CMS and 

State efforts to improve the 

administrative process are working, and 

that individuals who continue to qualify 

for the low income subsidy are being 

identified appropriately, while the small 

proportion of individuals who may no 

longer qualify for the subsidy also are 

being identified. We believe that the 

approach being adopted here strikes a 

balance between making the re-deeming 

process as efficient as possible while 

still ensuring that beneficiaries 

receiving the subsidy are truly LISeligible. For these reasons, we are not 

adopting the suggested modifications. 

Comment: A few commenters 

recommended that we require States to 

continue providing Medicaid coverage 

to a dual-eligible until the individual’s 

Part D enrollment actually takes effect. 

Response: Section 1935(d) of the Act 

specifically precludes Federal medical 

assistance for Medicaid payments for 

prescription drugs for those Medicaideligible individuals who are also eligible 

for Part D, regardless of whether the 

person is enrolled in a Part D plan. 

Therefore, no modification to the 

regulations will be made. 

Comment: One commenter requested 

additional regulatory changes to require 

improvements to the way we administer 

the LIS benefit, including improving the 

Web site, notices to encourage 

appropriate actions, and putting in 

place better ‘‘Best Available Evidence’’ 

policies and procedures to ensure that 

LIS status discrepancies are corrected. 

Response: As noted previously, we 

continually consider ways to improve 

the administration of the LIS benefit and 

beneficiaries’ understanding of it. We 

believe we have the authority to make 

the additional improvements the 

commenter suggested, as appropriate, 

without further modifying the 

regulation. 

9. Enrollment of Full Subsidy Eligible 

Individuals and Other Subsidy Eligible 

Individuals Under Part D (§ 423.34) 

We proposed to codify in regulation 

the enrollment procedures that we use 

for LIS individuals, which are similar to 

those specified in the regulation for the 

dual-eligible population. We believe 

that our regulations would be more 

accurate and complete if they 

specifically addressed this population. 

Therefore, we proposed to include 

information on how we enroll all LISeligible individuals, including full 

benefit dual-eligible individuals, 

through the following changes: 

• In § 423.34(a), we expanded the 

general rule to refer to all LIS-eligible 

individuals, so that the rest of that 

section applies not only to full benefit 

dual-eligible individuals, but also to all 

LIS-eligible individuals. 

• In § 423.34(b), we retained the 

definition of full benefit dual-eligible 

individual, and added a definition for 

‘‘low-income subsidy eligible 

individual.’’ We have identified the 

need for a technical correction to the 

definition of ‘‘low-income subsidy 

eligible individual.’’ The proposed 

definition could be read to specify that 

the definition of full-benefit dual 

eligible—who are identified as a specific 

group of LIS eligibles—is that in 

§ 423.722, which is limited to such 

individuals already enrolled in a Part D 

plan. However, the enrollment rules in 

§ 423.34(b) applies to full-benefit dual 

eligibles not yet enrolled in a Part D 

plan. We made a technical correction to 

the regulation text to specify that the 

definition of full dual eligible 

individual is that in § 423.34. 

• We amended the paragraph heading 

of § 423.34(c) to indicate that this 

paragraph describes the process we use 

to reassign LIS-eligible individuals 

during the annual coordinated election 

period. We indicate that the 

reassignment process applies to certain 

LIS eligible individuals (that is, not just 

full-benefit dual-eligible-individuals). 

• We revised the paragraph heading 

of § 423.34(d) from ‘‘Automatic 

Enrollment Rules’’ to ‘‘Enrollment 

Rules.’’ We made this change to reflect 

the inclusion of full subsidy and other 

subsidy eligible groups in the 

enrollment process, in addition to full 

benefit dual-eligible individuals. In our 

guidance, we refer to the process of 

enrolling full benefit dual-eligible 

individuals as ‘‘automatic enrollment,’’ 


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and the process for other LIS eligibles as 

‘‘facilitated enrollment.’’ (See section 

30.1.4 of Chapter 3 of the Medicare 

Prescription Drug Benefit Manual.) 

• We amended § 423.34(e) to indicate 

that the rules regarding declining 

enrollment and disenrollment also 

apply to all LIS-eligible individuals. 

• In § 423.34(f), we clarified that the 

paragraph heading and contents of this 

paragraph are limited to the effective 

date of enrollment for full benefit dualeligible individuals. We also amended 

§ 423.34 (f)(3) to specify that, for 

individuals who are eligible for Part D 

and subsequently become eligible for 

Medicaid on or after January 1, 2006, 

the effective date of enrollment would 

be the first day of the month the 

individual becomes eligible for both 

Medicaid and Medicare Part D. 

• In § 423.34(g), we added a new 

paragraph to specify that the effective 

date for LIS eligibles who are not full 

benefit dual-eligibles would be no later 

than the first day of the second month 

after we determine that the individual 

meets the criteria for enrollment into a 

PDP under this section. This change 

conforms to section 30.1.4 of Chapter 3 

of the Medicare Prescription Drug 

Benefit Manual. Unlike full benefit 

dual-eligible individuals who may have 

retroactive Part D coverage, these 

individuals have only prospective Part 

D coverage. 

In the proposed rule, we also 

acknowledged concern expressed by 

some commenters about auto-enrolling 

beneficiaries on a random basis. For 

example, focus groups of seniors suggest 

the possibility that some auto-enrolled 

beneficiaries may not realize they have 

been enrolled in a drug plan or that they 

have been reassigned to a different drug 

plan. We noted that we are committed 

to taking appropriate steps to improve 

this process and welcomed comments 

related to all aspects of these 

procedures. In this final rule, we adopt 

these provisions as proposed. 

Comment: Several commenters 

expressed support for expansion of 

auto-enrollment and reassignment to all 

individuals with LIS. 

Response: We appreciate the support 

for this policy and are adopting the 

proposal without change. 

Comment: Commenters urged us to 

shorten the time period for a plan 

enrollment so that it would take effect 

as of the date the person becomes 

subsidy eligible. The current time 

period can leave an individual who has 

applied and qualified for the subsidy 

with a gap of over 2 months between the 

time they express an interest in getting 

help with drug costs (via the application 

for the LIS) and the time they are 

actually enrolled into a plan and receive 

that assistance. This timeframe may 

have made sense initially, since it was 

not clear that nondually eligible LIS 

recipients would have an ongoing SEP. 

Now that they have been extended that 

protection, there is less of a need to wait 

for their selection. Instead, the 

enrollment should happen quickly to 

ensure access to prescription drugs. 

Response: Facilitated enrollment 

constitutes a passive enrollment process 

that requires advance notice of the 

opportunity to make an active election 

before the enrollment is effective. We 

have been unable to find a way to 

ensure that individuals who are 

facilitated at the end of the month can 

receive the required advance notice and 

have an opportunity to make an election 

on their own before that enrollment 

takes effect (though it is possible to do 

so for those at the beginning of the 

month). It is important to keep in mind 

that this population consists of 

individuals who have applied for LIS, 

are notified of their approved LIS 

eligibility, and informed via their LIS 

approval notice that they need to elect 

a plan in order to avail themselves of 

the subsidy. Thus, we believe they are 

likely to follow through on their 

previous actions and choose a plan on 

their own, leading to possible confusion 

if they receive a facilitated enrollment 

notice after they have already made an 

active election. Finally, we note that all 

individuals whose facilitated 

enrollment into a PDP has not yet taken 

effect may obtain coverage for 

immediate drug needs through the 

Limited Income NET demonstration. 

We are committed to continue 

exploring ways of shortening the 

facilitated enrollment process without 

infringing on an individual’s ability to 

make a choice, or adding to the 

possibility of beneficiary confusion. 

However, it is important to note that 

proposed regulation text that we are 

now finalizing specifies that the 

enrollment effective date is ‘‘no later 

than’’ the first day of the second month’’ 

after we determine that they meet the 

necessary enrollment criteria. Therefore, 

although we are declining to amend the 

regulation as requested while we 

continue to address a number of 

operational issues that remain 

unresolved, the regulation language 

does provide the flexibility to shorten 

the timeframe if warranted and feasible. 

Comment: One commenter noted that 

plans and beneficiaries would benefit 

from us specifying for both plans and 

beneficiaries any premium liability in 

instances when the beneficiary has a 25, 

50, or 75 percent premium subsidy, in 

the process of conducting facilitated 

enrollment. As part of this, the 

commenter suggested revising of the 

facilitated assignment letter to include 

that portion of premium for which the 

beneficiary is liable. 

Response: When we notify plans of 

new facilitated enrollees, we do identify 

those beneficiaries who are partial 

versus full subsidy beneficiaries, both 

on the Transaction Reply Report 

confirming enrollments, as well as on 

the LIS History report. In addition, the 

individuals’ subsidy level is fully 

explained in the LIS approval letter 

from the Social Security 

Administration. However, we appreciate 

the suggestion for modifying the 

facilitated enrollment letter to reference 

a partial subsidy beneficiary’s premium 

liability, and will explore whether this 

is feasible. We believe the latter does 

not necessitate a regulation change since 

notification details are generally an 

operational issue, so we will not modify 

the regulation to reference this. 

Comment: A few commenters 

requested that we require that plans 

notify dual-eligibles in advance of 

potential involuntary disenrollments. 

They noted that we conduct a special 

auto-enrollment early each month— 

• To identify full benefit dualeligibles who are disenrolled from their 

previous plan; 

• Who have not chosen a new one; 

and 

• Where there continues to be a risk 

of a coverage gap if the plan submits the 

disenrollment request to CMS after the 

special auto-enrollment occurs. 

Response: Section 423.36(b) of the 

regulation and section 40.2 of Chapter 3 

of the Medicare Prescription Drug 

Manual already require plans to provide 

advance notice of potential 

disenrollment, so there is no need for a 

regulation change to that effect. The 

special process we run each month to 

capture recently disenrolled individuals 

already represents a significant advance 

in our auto-enrollment procedures. 

However, we will continue to look at 

ways to modify auto-enrollment to more 

quickly place auto-enrolled 

beneficiaries in a new plan. Note that 

under any circumstances, full benefit 

dual-eligibles who are disenrolled will 

not encounter any coverage gap— 

instead their subsequent enrollment will 

be made retroactive to the date of the 

loss of coverage from the preceding 

plan. 

Comment: One commenter suggested 

adding in § 423.34(f)(3) the phrase 

‘‘unless the individual is not a full 

benefit dual-eligible as identified in 

§ 423.34(g)’’ to the end of the sentence 

that comprises this subsection. The 

commenter believes this addition would 


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clarify that § 423.34(f)(3) does not apply 

to non-full benefit dual-eligibles who 

have LIS. 

Response: Section 423.34(f), including 

subparagraph (f)(3), is already limited to 

full benefit dual-eligibles by virtue of 

the introductory regulation text before 

subparagraph (f)(1). Given this, we see 

no need to further specify that 

§ 423.34(f)(3) does not apply to non-full 

benefit dual-eligibles, so we decline to 

amend the regulation as suggested by 

the commenter. 

Comment: Several commenters 

suggested that we expand the PDPs to 

which it assigns or reassigns LIS 

beneficiaries to include enhanced 

benefit plans. One commenter further 

clarified that reassignments should 

include enhanced plans whose portion 

of the basic premium falls below the LIS 

benchmark, as this would be no more 

costly to the government and would 

give LIS beneficiaries the same options 

as available to other beneficiaries to 

enroll in enhanced benefit plans. 

Response: While enhanced benefit 

plans may offer supplemental benefits, 

they always create a premium liability 

for the beneficiary, including those who 

are eligible for the 100 percent premium 

subsidy. This is because, by statute, the 

LIS does not cover the portion of the 

premium attributable to the enhanced 

benefit, even if the total premium is 

under benchmark, meaning that the 

beneficiary is liable for the enhanced 

portion of the premium. The statute 

clearly limits initial auto enrollments to 

plans where an individual has zero 

premium liability, and we have adopted 

the same policy approach for purposes 

of reassignments. Therefore, we decline 

to modify the regulation as requested. 

We note that LIS beneficiaries are 

always free to elect an enhanced benefit 

plan if they wish to access the enhanced 

benefits, but they would incur some 

premium liability. 

Comment: Several commenters urged 

us to move away from random 

reassignment of LIS eligible individuals 

to a system of beneficiary-specific 

reassignment in which beneficiaries are 

matched with plans that include their 

current drugs and preferred pharmacy. 

They believe this would result in less 

disruption to beneficiaries, and 

increased adherence to currentlyprescribed drug regimens, while 

potentially providing the LIS benefit at 

the lowest total cost to beneficiaries. 

Response: We continue to explore 

alternatives to random reassignment 

that would minimize the potential for 

disruptions to continuity of care, and 

appreciate the commenters’ support for 

a beneficiary-specific process. While we 

believe there is merit to beneficiaryspecific reassignment, we decline to 

amend the regulation to require it, given 

that § 423.34(c) currently provides CMS 

the discretion to implement such 

changes if our ongoing exploration of 

such an approach indicates that 

revisions to the current reassignment 

methodology are warranted. 

Comment: A few commenters 

suggested that instead of reassigning LIS 

beneficiaries from plans whose 

premiums are going above the LIS 

benchmark, we should permit them to 

stay in the plan and be held harmless. 

They recommended a number of ways 

to do so, including giving affected 

beneficiaries a grace period of one year 

to remain in the plan, with no 

additional premium payment; letting 

the plan ‘‘absorb’’ any premium 

difference between the benchmark and 

the bid amount (up to $2.00 per one 

commenter); or waiving the requirement 

that plans attempt to collect delinquent 

premiums. 

Response: While we have discretion 

to determine which beneficiaries are 

subject to reassignment, we believe that 

section 1860D–13(a)(1)(F) of the Act, 

which requires uniform premiums, 

precludes us from adopting these 

recommendations (absent a 

demonstration such as the 2006–2008 

‘‘de minimis’’ demonstration, where 

premiums of ‘‘de minimis’’ amounts 

were waived). We note that we have 

already implemented a demonstration 

for the 2010 plan year that increased the 

LIS benchmark, which had the effect of 

substantially decreasing the number of 

beneficiaries who needed to be 

reassigned. 

Comment: One commenter suggested 

that CMS should allow the plan (rather 

than CMS) to move the LIS members in 

to a zero-dollar premium plan offered by 

the same sponsoring organization. 

Response: As outlined in section 

30.1.5 of the PDP Eligibility, 

Enrollment, and Disenrollment 

Guidance, when we reassign a 

beneficiary, we first attempt to reassign 

to a PDP offered by the same 

organization. Only when that is not 

possible do we reassign to plans outside 

of the organization. Our experience has 

been that CMS-initiated actions are 

much easier to implement on a timely 

basis, and to monitor for accuracy and 

completion, than are actions that 

depend on sponsors to identify and 

submit enrollment transactions for the 

affected population. Therefore, we 

believe there is little or no benefit to 

delegating this responsibility to PDP 

Sponsors, and we decline to make the 

requested change. 

Comment: One commenter urged us 

to let plans communicate sooner with 

LIS enrollees they may lose to 

reassignment. The commenter suggested 

such communication be permitted 

earlier than is currently permitted in the 

reassignment process, to ensure affected 

beneficiaries understand their options. 

Response: Plan sponsors are already 

permitted to communicate with current 

enrollees, subject to Part D marketing 

guidelines; the reassignment regulations 

under discussion here do not contain 

additional constraints on these rules, 

and we make every effort to involve 

sponsors in the reassignment 

communications process as early as 

possible. Thus, we believe there is no 

need for changes to the regulation to 

address this issue. 

Comment: One commenter 

recommended that we include LIS 

recipients with partial premium subsidy 

as opposed to only full premium 

subsidy recipients in the annual 

reassignment process. The commenter 

noted that while it is true that recipients 

with partial premium subsidy will pay 

some premium no matter which plan 

they select, the amount they pay is 

lower if they are enrolled in a plan with 

the premium at or below the 

benchmark. 

Response: We acknowledge that a 

partial subsidy beneficiary’s premium 

would be somewhat lower in a zeropremium plan versus a plan with a 

premium over the benchmark, but in 

either case, these beneficiaries would 

still have to pay some portion of the 

premium. As always, our policies with 

respect to reassignment are intended to 

strike a fair balance between our dual 

goals of limiting beneficiary exposure to 

premium costs and also avoiding any 

potential negative impact on an 

individual’s prescription drug coverage 

(such as changes to a pharmacy network 

or drug regimen). Since reassignment 

cannot eliminate the premium liability 

for such individuals under any 

circumstances, in this situation, we 

believe that potential for disruption to 

the prescription drug coverage 

outweighs the potential financial risks 

associated with paying a higher 

premium. Therefore, we do not believe 

that there is sufficient benefit to 

reassigning these beneficiaries, and we 

decline to adopt the commenter’s 

suggested change to our existing 

approach. 

Comment: A few commenters asked 

us to reconsider our decision not to 

include beneficiaries who elect their 

current plan (‘‘choosers’’) in the 

reassignment process. Our 

reconsideration of this issue should 

begin with an evaluation of how 

choosers have been affected by the 

current process. In particular, the 


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Agency should identify the number of 

choosers who— 

• Affirmatively switch plans every 

fall; 

• Affirmatively switch plans during 

the year; and 

• Are involuntarily disenrolled due to 

nonpayment of premium. 

Response: We share the commenter’s 

interest in this issue, and recently 

solicited input on whether we should 

reassign choosers who will face a 

premium liability of $10.00 or more in 

the following year (please see page 84 of 

the Advance Notice of Methodological 

Changes for Calendar Year 2011 for 

Medicare Advantage (MA) Capitation 

Rates, Part C and Part D Payment 

Policies and 2011 Call Letter, issued 

February 19, 2010). We will continue to 

assess choosers’ experience in Part D 

plans above the benchmark, including 

the extent to which they subsequently 

elect another plan and the extent to 

which they experience problems with 

premium payments. As noted 

previously, the regulations do provide 

the flexibility to change the existing 

process should our reconsideration of 

our approach show it to be warranted. 

Comment: Two commenters 

recommended that we send a notice to 

LIS choosers who have chosen to join or 

remain in plans in which they would 

incur a premium liability. The 

commenters suggested notifying them of 

their zero-premium options (including 

an analysis of drug utilization to 

determine most appropriate plan). The 

beneficiary would be permitted to 

respond to the mailing in an efficient 

manner (for example, via postcard, 

telephone call, or online) to indicate his 

or her choice. 

Response: We continue to assess the 

experience of LIS choosers who face 

premium liability, and as noted above, 

have solicited input on whether we 

should reassign choosers who have a 

premium liability of $10.00 or greater 

for the following year. We remain 

committed to reaching out to choosers 

whom we do not reassign to let them 

know about their options for zero 

premium prescription drug plans. 

Comment: A few commenters urged 

us to require State Medicaid Agencies to 

increase the frequency of state 

submission of MMA data exchange files, 

which is the primary vehicle for 

notifying CMS of new dual-eligible 

beneficiaries. This would further 

minimize enrollment delays for new 

dual-eligibles. 

Response: We believe this comment is 

outside the scope of this regulation, so 

we decline to amend the regulation in 

this manner. However, we continue to 

encourage states to submit these files 

more frequently, and provide technical 

assistance on how to do so. 

Comment: One commenter urged us 

to ensure that dual beneficiaries receive 

clearer information about all the options 

available to them, including information 

about Medicare Special Needs Plans 

that can provide their Part D benefits. 

The commenter was especially 

concerned about the new Limited 

Income NET demonstration, which will 

automatically enroll LIS-eligible 

individuals who fail to elect a plan and 

are in immediate need of drugs in one 

Part D plan. This could create obstacles 

to seamless conversion from a 

Medicaid-only managed care plan to a 

Medicare Special Needs Plan offered by 

the same organization. The commenter 

encouraged us to establish more 

effective procedures to find and 

transition new duals into their Medicare 

benefits, especially those who are 

becoming Medicare-eligible because 

they are reaching the end of their 24- 

month disability waiting period. 

Response: We appreciate the 

commenter’s concern about ensuring 

dual-eligible beneficiaries receive 

information about all their options, and 

the need for ensuring a smooth 

transition for these beneficiaries 

between Medicaid and Medicare drug 

coverage. We have taken several steps to 

do so, and believe the Limited Income 

NET demonstration is an important step 

in further improving that transition. 

With respect to the concerns about the 

Limited Income NET demonstration, we 

note that the Limited Income NET 

process only involves auto enrollment 

to a single Part D plan for a short, 

retroactive period. For all prospective 

periods, the long-standing process of 

random enrollment among all PDPs 

with a premium at or below the LIS 

benchmark would continue to apply. 

Further, we do not believe the Limited 

Income NET demonstration specifically, 

or auto enrollment generally, creates 

obstacles to seamless conversion. In 

both cases, our processes are designed 

to ensure that new dual-eligibles have 

access to Medicare drug coverage on the 

first day of their eligibility for it. 

However, both those processes are also 

designed to ensure that any beneficiary 

election will trump a CMS-generated 

auto enrollment. 

Comment: One commenter expressed 

support for the Limited Income NET 

demonstration program, but raised other 

concerns that the commenter believes 

the demonstration will not address: 

enrollment delays, LIS recipients in 

non-benchmark plans, and the need for 

accurate, LIS-specific information in 

plan mailings. 

Response: We appreciate the support 

for the Limited Income NET program, 

and will continue to work on improving 

other areas of the program referenced by 

the commenter. 

10. Special Enrollment Periods Under 

Part D (§ 423.380) 

In the October 22, 2009 rule, we 

proposed to expand the SEP described 

in § 423.38(c)(4), which currently 

applies to full benefit dual-eligible 

individuals, to all LIS-eligible 

individuals. This proposed change is 

consistent with our authority in section 

1860D–1(b)(3)(C) of the Act and will 

conform our regulations to current 

practice as reflected in CMS guidance in 

section 20.3.8, item 7, of chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual. In this final rule, we adopt the 

provision as proposed. 

Comment: Several commenters 

expressed support for putting the 

continuous Special Enrollment Period 

(SEP) for non-full benefit dual-eligible 

beneficiaries that is currently in 

operational guidance into regulation. 

Response: We appreciate the 

comments that support placing the SEP 

for non-full benefit dual-eligibles into 

the regulation. 

11. Transition Process Under Part D 

(§ 423.120(b)(3)) 

In the October 22, 2009 proposed rule, 

under the authority of section 1860D– 

11(d)(2)(B) of the Act, we proposed to 

codify in regulation certain plan 

transition policies at § 423.120(b)(3) 

previously established through 

subregulatory guidance. We specifically 

proposed to codify in regulation that a 

Part D sponsor must provide for a 

transition for the following— 

• New enrollees into PDPs following 

the annual coordinated election period; 

• Newly eligible Medicare enrollees 

from other coverage; 

• Individuals who switch from one 

plan to another after the start of the 

contract year; and 

• Current enrollees remaining in the 

plan who are affected by formulary 

changes from one contract year to the 

next. 

We also proposed, consistent with our 

current guidance, that a Part D sponsor’s 

transition process be applicable to 

nonformulary drugs, meaning both— 

(1) Part D drugs that are not on a 

sponsor’s formulary; and 

(2) Part D drugs that are on a 

sponsor’s formulary but require prior 

authorization or step therapy under a 

plan’s utilization management rules. 

Additionally, consistent with our 

current guidance, we proposed to codify 

the timeframes for the transition process 


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and the days’ supply limit for a 

transition fill of an enrollee’s 

medication. Specifically, we proposed 

to codify the transition process 

timeframe to apply during the first 90 

days of coverage under a new plan. 

In addition, noting that our existing 

guidance directs Part D sponsors to 

provide a temporary supply we 

proposed that Part D plan sponsors be 

required to ensure that the one-time 

temporary supply of nonformulary Part 

D drugs requested during the first 90 

days of coverage in an outpatient setting 

be for at least 30 days of medication, 

unless the prescription is written by a 

prescriber for less than 30 days, in 

which case the Part D sponsor must 

allow multiple fills to provide up to a 

total of 30 days of medication. For a 

new enrollee in a LTC facility, the 

temporary supply may be for up to 31 

days (unless the prescription is written 

for less than 31 days), consistent with 

the dispensing practices in the LTC 

industry. In addition, due to the often 

complex needs of LTC residents that 

often involve multiple drugs and 

necessitate longer periods in order to 

successfully transition to new drug 

regimens. For these reasons, we 

proposed to require sponsors to honor 

multiple fills of nonformulary Part D 

drugs, as necessary during the entire 

length of the 90-day transition period. 

Further, we proposed requiring up to a 

31-day transition supply for enrollees in 

an LTC facility given that many LTC 

pharmacies and facilities dispense 

medication in 31-day increments. Thus, 

a Part D sponsor would be required to 

provide a LTC resident enrolled in its 

Part D plan at least a 31 day supply of 

a prescription when presenting in the 

first 90 days of enrollment (unless the 

prescription is written for less) with 

refills provided, if needed, up to a 93 

day supply. 

In addition to proposing to codify the 

preceding requirements, we also 

clarified our expectations of sponsors 

with respect to providing transition 

notices. Consistent with our guidance 

that specifies that Part D sponsors send 

a written notice, via U.S. First Class 

mail, to each enrollee who receives a 

transition fill, we proposed to codify the 

guidance that directs sponsors to send 

this notice to each affected enrollee 

within 3 business days of the temporary 

fill. In addition to this codification, we 

also proposed requiring plan sponsors 

to make reasonable efforts to notify 

prescribers, via mail, electronic or 

verbal communication, that the affected 

enrollees’ prescription cannot be 

refilled, either because of utilization 

management requirements such as prior 

authorization or step therapy, or 

because the prescribed medication is 

not on the plan sponsor’s formulary. All 

of these proposals were addressed by 

adding paragraphs (i) to (v) to our 

general transition policy requirement at 

§ 423.120(b)(3). We are adopting 

paragraphs (i), (ii), and (v) as proposed 

without further modification. As 

explained below, we are modifying 

proposed paragraph (iii) by clarifying 

the existing language to state that the 

temporary supply of nonformulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules) must be for up to 93 

days in 31 day supply increments, with 

refills provided, if needed, unless a 

lesser amount is actually prescribed by 

the physician, and paragraph (iv) by 

clarifying that transition notices must be 

sent to beneficiaries within 3 business 

days after adjudication of a temporary 

fill. 

Comment: A number of commenters 

supported our proposal of requiring an 

extended transition supply be given to 

enrollees residing in a LTC facilities. 

However, commenters requested that 

CMS provide the same protections to 

individuals requiring LTC in 

community-based settings as provided 

to those in institutions. 

Response: While we appreciate that 

there are community-based enrollees 

who have nursing facility level of care 

and may experience access to multiple 

pharmacies, we are not persuaded that 

we should extend the LTC extended 

transition requirement to such 

individuals. We believe that residents of 

LTC institutions are more limited in 

access to prescribing physicians hired 

by LTC facilities due to a limited 

visitation schedule and more likely to 

require extended transition timeframes 

in order for the physician to work with 

the facility and LTC pharmacies on 

transitioning residents to formulary 

products. We believe that communitybased enrollees, in contrast, are less 

limited in their access to prescribing 

physicians and do not require an 

extended transition period to work with 

their physicians to successfully 

transition to a formulary product. 

Comment: Several commenters 

disagreed with the proposed timeframe 

in which to send out the transition 

notice of 3 business-days and 

recommended 3 calendar days. The 

commenters argue that a requirement of 

3 calendar days is clearer and easier to 

enforce, particularly during holiday 

periods, when holidays delaying U.S. 

mail combined with the normal delays 

in mail delivery can severely cut into 

the time a beneficiary needs to try a 

different drug and request a formulary 

exception. 

Response: We disagree with these 

commenters that the proposed 

timeframe be changed to 3 calendar 

days, which includes weekends and 

holidays when standard businesses are 

closed. We do not believe that a 

calendar day timeframe will allow 

sponsors an acceptable period in which 

to mail out a transition notice. Rather, 

we believe that the 3 business day 

turnaround time for notice to be sent is 

consistent with current transition policy 

and it permits a beneficiary sufficient 

time to work with his/her prescriber to 

change to a therapeutically equivalent 

drug on a plan’s formulary or begin the 

exceptions process. 

Comment: Several commenters 

supported the proposed requirement 

that sponsors notify the prescriber when 

a transition fill has been made. One 

commenter stated that the proposal is a 

positive that allows consistency across 

the MA population and it provides 

protection of certain vulnerable 

populations. Many commenters 

requested that we develop a 

standardized transition format for 

notices and explanations to be provided 

to plans. Another commenter requested 

our review notices that sponsors 

provide to ensure that beneficiaries are 

not unknowingly being steered to mail 

order pharmacies. 

Response: We appreciate the 

comments. We note that we have 

developed a model transition notice for 

plans to send beneficiaries and are 

considering for the future whether or 

not to make that model standardized. In 

addition, we have prepared model 

notices for sponsors to ensure that 

beneficiaries are not unknowingly being 

transferred to mail order pharmacies. 

Model transition notices may be found 

at Part D Marketing Model Materials. 

Comment: Many commenters opposed 

the requirement to send the transition 

notice within 3 business days of the 

temporary fill being dispensed. These 

commenters requested changing the 

proposal to notice being sent within 3 

business days after a temporary fill is 

processed. The commenters argue that 

this is consistent with the current 

language in Section 30.4.10 of Chapter 

7 of the Prescription Drug Benefit 

Manual, where the phrase ‘‘within 3 

business days of the temporary fill’’ has 

been understood by the industry to refer 

to the date the temporary fill is 

processed, since it is only when the 

claim is processed that a plan learns 

about it and can act on it. 

Response: We agree and note that 

industry practice standards have 

interpreted the language to mean within 


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3 business days of a temporary fill being 

processed. Therefore, we are revising 

the language of § 423.120(b)(3)(iv) to 

read ‘‘within 3 business days of 

adjudication of a temporary fill.’’ 

Comment: Some commenters 

expressed concerns with our proposal 

that Part D plan sponsors make 

reasonable efforts to notify the 

prescriber of the transition fill, with 

some commenters recommending that 

we make the prescriber notice 

requirement optional so that plans may 

exercise discretion to determine 

whether it is warranted. Another 

commenter stated that for the 

notification to be successful their master 

DEA file would need constant updating 

and that the requirement does not take 

into account emergency room or urgent 

care physicians covered by a blanket 

DEA number from the hospital. Another 

commenter suggested we should 

dialogue with the industry to review 

operational challenges to the prescriber 

notification. Yet another commenter 

suggested that we not implement the 

requirement unless we provides plan 

sponsors with access to databases with 

complete and accurate physician 

contact information cross-referenced 

with physician identifiers. 

Response: We disagree with the 

commenters’ request to make the 

prescriber notice optional and leave it to 

the plan’s discretion whether such 

notification is warranted. The prescriber 

notification is a means of further 

strengthening beneficiary protections 

when dealing with formulary changes or 

utilization management protocols for 

necessary medications because the 

prescriber is in the best position to 

advise the beneficiary on the benefits or 

risks of switching to a different 

medication. Prescriber notification is an 

additional step to ensure a beneficiary is 

receiving optimal medication therapy 

outcomes with little to no delay in their 

drug regimen. As a result of this 

provision, sponsors and network 

pharmacies will need to ensure that 

they update their databases on a more 

consistent basis. We intend to provide 

additional guidance on what constitutes 

‘‘reasonable notification efforts’’ in the 

future, but we do not envision providing 

plans with a comprehensive database of 

physician contact information as this is 

not information that we keep track of, 

and therefore it is not feasible for plans 

to rely on us to completely and 

accurately maintain such a database. 

Comment: Several commenters stated 

that notification via U.S. mail occurs 

after the fact and suggests an alternative 

of beneficiary notification at the site of 

service. 

Response: We continue to work with 

the industry to work on automated 

methods whereby beneficiaries are 

notified at point of sale that a drug 

dispensed is non-formulary. Until such 

time as these notifications are 

automated, plan sponsors must send 

written notice of transition fills through 

the U.S. mail. 

Comment: One commenter requested 

CMS to define ‘‘other coverage’’ related 

to the requirement to provide a 

transition period for ‘‘newly eligible 

Medicare enrollees from other coverage’’ 

questioning whether this means that 

newly eligible Medicare enrollees who 

do not have ‘‘other coverage’’ should not 

qualify for a transition period. The 

commenter requests that we clarify that 

‘‘newly eligible Medicare enrollee’’ 

would not include anyone who had 

been eligible for Medicare as a result of 

a disabling condition and moves to 

being eligible for Medicare as a result of 

reaching the specified age (such as, 65). 

Response: We agree and clarify that 

‘‘newly eligible Medicare enrollee’’ 

would include anyone who had been 

eligible for Medicare as a result of a 

disabling condition and moves to being 

eligible for Medicare as a result of 

reaching the specified age (such as, 65), 

including enrollees who do not have 

‘‘other coverage’’ but who may be paying 

out of pocket for drugs they are 

currently taking. 

Comment: One commenter supported 

the transition proposal but requests that 

CMS further revise § 423.120(b)(3) to 

standardize the amount of the 

temporary supplies that PDP sponsors 

are required to provide in the LTC 

setting. Some PDP sponsors have 

interpreted this element of CMS’ 

transition policy that temporary 

supplies ‘‘may be for up to’’ 31 days to 

enable them to authorize fills of less 

than 31 days, even when physicians 

have prescribed a 31-day fill. The 

commenter recommends that we revise 

its proposed regulation to require PDP 

sponsors to provide transition supplies 

of at least 31 days unless a lesser 

amount is actually prescribed by the 

physician. 

Response: We agree and are clarifying 

the existing language to state that the 

temporary supply of nonformulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules) must be for up to 90 

days in 31-day supply increments 

unless a lesser amount is actually 

prescribed by the physician. We believe 

this clarification is necessary to protect 

beneficiaries residing in LTC facilities 

from unnecessary delays in obtaining 

the full amount of a temporary fill or 

from uneven interpretation among plan 

sponsors. 

Comment: Many commenters 

suggested that we articulate in 

regulation the extension of transition 

fills through the completion of any 

requested exception, even if that process 

takes longer than 30 days. Moreover, 

commenters suggested that we also 

require a transition fill whenever a 

member encounters formulary 

difficulties obtaining current 

prescriptions. A few commenters urged 

us to codify in regulation the 

requirement that Part D plans cover an 

emergency supply of nonformulary 

drugs outside of the initial 90-day 

transition period. One commenter 

suggested that the regulations should be 

strengthened to provide that without 

evidence of timely written notice to the 

affected enrollee, the enrollee should be 

entitled to continue to receive the 

relevant medication(s). Other 

commenters requested we codify 

current guidance encouraging Part D 

sponsors to incorporate processes in 

their transition plans that allow for 

transition supplies to be provided to 

current enrollees with level of care 

changes. 

Response: We note that current policy 

directs Part D sponsors to provide for a 

transition extension on a case-by-case 

basis when enrollees have not been 

successfully transitioned to the 

sponsor’s formulary requirements. We 

do not believe that it is appropriate to 

codify this ‘‘case-by-case’’ directive into 

the existing rule. Our guidance already 

addresses that sponsors need to review 

an enrollee’s request for an extension 

and the circumstances requiring such a 

request on an individual basis. 

We also disagree with the comments 

that the regulation should be 

strengthened to provide that without 

evidence of timely written notice, the 

enrollee should be entitled to continue 

to receive the relevant medication(s). 

We believe that this situation would be 

more appropriately be handled through 

the complaint process given the level of 

scrunity that would be required to verify 

whether evidence exists that notice was 

provided to the enrollee by the plan 

sponsor. 

We also disagree with the comment 

requesting that we codify into regulation 

at this time our current guidance 

encouraging transition supplies to be 

provided to current enrollees with level 

of care changes. As we have not 

encountered large number of 

complaints, we will continue to 

examine this issue. If we decide to 

mandate transition in this area, we will 

do so through future rulemaking. 


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Finally, we will consider codifying 

our emergency supply policy for LTC 

enrollees in future rulemaking. 

Comment: Some commenters urged us 

to adopt the GAO recommendation to 

make the ANOC sent prior to each open 

season more individualized and thus 

more valuable to plan enrollees. 

Response: We appreciate commenters 

recommending a more individualized 

ANOC being sent out prior to each open 

season. We believe that this is outside 

the scope of this proposal, which is to 

strengthen beneficiary protections 

during the transition process. 

12. Part D Sponsor Responsibility for 

Retroactive Claims Adjustment 

Reimbursements and Recoveries Under 

Part D (§ 423.464, § 423.466, and 

§ 423.800) 

In the October 22, 2009 proposed rule, 

under the authority of sections 1860D– 

23 and 1860D–24 of the Act, we 

proposed that sponsors make retroactive 

claim adjustments and take other payer 

contributions into account as part of the 

coordination of benefits. In making 

these proposed changes, we noted that 

some beneficiary changes (such as LIS 

status changes or midyear Part D 

enrollment changes), LTC pharmacy 

billing practices for dual-eligible 

beneficiaries, and the presence of 

secondary, tertiary, and even quartenary 

payers have contributed to a higher than 

expected volume of retroactive claims 

adjustments requiring Part D sponsor 

reimbursements and recoveries, as well 

as a greater than anticipated complexity 

of calculating these amounts. While we 

previously anticipated that beneficiaries 

would be owed reimbursements due to 

changes in LIS status, and that plan 

sponsors would be required to make 

such reimbursements under 

§ 423.800(c), we did not believe our 

current regulations addressed the other 

entities that may sometimes need to be 

taken into account in reimbursement or 

recovery transactions. Moreover, we 

noted that no industry standard 

electronic process exists to explicitly 

handle underpayment recoveries or 

overpayment reimbursements created by 

these adjustments, and that the current 

Health Insurance Portability and 

Accountability Act (HIPAA) standard 

for coordination of benefits for 

pharmacy claims only partly supports 

these activities when the pharmacy 

initiates ‘‘reverse and rebill’’ 

transactions. As a result, Part D 

sponsors sometimes struggle with how 

to manage these retroactive adjustments 

and those sponsors that are refunding 

overpayments or seeking underpayment 

recovery are each doing it differently. 

We also noted in the October 22, 2009 

proposed rule that, since our current 

regulations do not address retroactive 

adjustments and the complexities 

associated with coordination of benefit 

activities that cannot be accomplished 

between the Part D sponsor and the 

pharmacy through reversal and 

rebilling, we have issued general 

guidance to direct sponsor coordination 

of benefit activities. As part of our 

implementation guidance on the 

automated process for the transfer of 

TrOOP-related data, we established a 

45-day maximum time limit for the 

sponsor to take adjustment action, make 

a refund, and initiate recovery. We 

established this time limit after an 

informal survey and discussions with 

Part D sponsors and their processors. 

We noted in the October 22, 2009 

proposed rule (74 FR 54663) that many 

of the post-adjudication adjustments, 

such as those that are due to enrollment 

changes, are changes that affect 

beneficiary cost sharing, premiums and 

plan benefit phase. Establishing a 

reasonable time limit for all Part D 

adjustment, refund, and recovery 

activity is in the beneficiaries’ best 

interests because it ensures that 

required changes are effectuated on a 

timely basis, thus correcting retroactive 

and prospective beneficiary premium 

and cost-sharing amounts. Moreover, it 

is in the best interest of others who have 

paid a claim on the beneficiary’s behalf 

because it ensures that these amounts 

are resolved timely. 

For these reasons, we proposed at 

§ 423.464 and § 423.466 to codify our 

previous policy guidance by proposing 

that sponsors must make retroactive 

claim adjustments and take other payer 

contributions into account as part of the 

coordination of benefits. Further, we 

proposed adding a new timeliness 

standard at § 423.466 to require 

adjustment and issuance of refunds or 

recovery notices within 45 days of the 

sponsor’s receipt of the information 

necessitating the adjustment. 

As part of making these proposed 

changes, we noted that, to date, most 

Part D coordination of benefits activity 

has been performed at point-of-sale or 

soon after, so pharmacy reversal and 

rebilling of claims can be accomplished 

within the payers’ timely filing 

windows. For Part D, this window must 

be a minimum of 90 days, but for other 

(non-Part D) providers of prescription 

drug coverage the filing window could 

be as short as 30 days. However, we 

acknowledged that with the volatility of 

LIS data and Part D enrollments creating 

a significant volume of retroactive 

adjustments, Part D sponsors are facing 

more claims adjustments than current 

pharmacy claim reversal and rebilling 

approaches can adequately address. 

In addition, we acknowledged issues 

regarding proprietary pricing 

information and the chilling effect that 

disclosure of this information might 

have upon the ability of pharmacies to 

negotiate with payors. To ensure the 

confidentiality of pricing information, 

coordination of benefits on the initial 

claim is accomplished without reporting 

complete information on negotiated 

pricing. The amount then reported in 

the (Nx) transaction to the Part D plan 

is the amount of the beneficiary 

payment after the supplemental 

payment. As a result, a Part D sponsor 

attempting to determine refund or 

recovery amounts without having the 

pharmacy reverse and rebill the original 

claim can generally only impute the 

amount of any supplemental payment 

made by another payer by determining 

the difference between the Part D costsharing and the beneficiary amount paid 

after the supplemental payment. The 

only alternative is to ask the pharmacy 

to reverse and rebill the claim to all 

payers. However, such a procedure 

would be generally impractical after the 

industry standard 30-day window 

because many supplemental payers will 

not accept the late claim. 

In the absence of legal authority to 

compel supplemental payer cooperation 

and to avoid pharmacy underpayment, 

imposing a requirement on sponsors to 

nonetheless calculate a precise 

reimbursement or recovery liability 

would require the creation of a new 

payer-to-payer transaction that would 

both enable reprocessing and address 

pharmacies’ concerns about revealing 

their proprietary pricing. However, as 

we noted in the proposed rule (74 FR 

54663), it is not clear that both goals can 

be achieved. Nor is it clear that even if 

this conflict could be resolved, that the 

cost of doing so would be justified by 

the benefits. 

Therefore, while simple adjustments 

involving just the Part D sponsor and 

the pharmacy are relatively 

straightforward (and can and should be 

promptly transacted), those involving 

other payers are not. We solicited 

comments on alternative approaches to 

improving post-adjudication 

coordination of benefits necessitated by 

retroactive Medicare enrollment and 

low-income subsidy changes when 

multiple payers are involved, as well as 

our assessment that the costs of 

achieving precision in such transactions 

may outweigh the benefits. 

Our specific proposals to modify 

§ 423.464 included the following 

changes: 


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• Revising paragraph (a) to clarify 

that all Part D sponsors must comply 

with administrative processes and 

requirements established by CMS to 

ensure effective coordination between 

Part D plans and other providers of 

prescription drug coverage for 

retroactive claims adjustments, 

underpayment reimbursements and 

overpayment recoveries; and 

• Adding a new paragraph (g)(7) to 

address the sponsors’ responsibility to 

account for payments by SPAPs and 

other providers of prescription drug 

coverage in reconciling retroactive 

claims adjustments that create 

overpayments and underpayments, as 

well as to account for payments made, 

and for amounts being held for 

payment, by other individuals or 

entities. The new paragraph would also 

specify that Part D sponsors must have 

systems to track and report adjustment 

transactions and to demonstrate that— 

(1) Adjustments involving payments 

by other plans and programs providing 

prescription drug coverage have been 

made, 

(2) Reimbursements for excess costsharing and premiums for LIS eligible 

individuals have been processed in 

accordance with the requirements in 

§ 423.800(c), and 

(3) Recoveries of erroneous payments 

for enrollees have been sought as 

specified in § 423.464(f)(4). 

Except as otherwise provided below, 

after considering the comments received 

in response to the proposed rule, this 

final rule adopts the proposed changes 

to the retroactive claims adjustment 

reimbursement and recovery provisions 

in § 423.464 and § 423.466. 

Comment: Multiple commenters 

agreed that the costs of achieving 

precision in retroactive COB 

transactions outweigh the benefits of 

creating specialized electronic 

transactions for calculating payer-topayer claims adjustments. A number of 

these commenters offered 

recommendations to CMS in response to 

our request for alternative approaches to 

improving post-adjudication 

coordination of benefits, including 

establishing a process to notify 

supplemental payers when an Nx 

transaction was not generated and the 

Part D sponsor is making a retroactive 

adjustment to the primary amount paid. 

Response: We appreciate the 

commenters’ concurrence with our 

assessment that the costs to create a 

specialized transaction for retroactive 

claims adjustments outweigh the 

benefits and their recommendations for 

improving post-point-of-sale 

adjudication coordination of benefits. 

Until such time as any cost effective 

alternative approaches are identified, 

we will not require the development of 

payer-to-payer coordination of benefit 

transactions for retroactive claims 

adjustments. Instead, we will work with 

the industry to develop work-around 

solutions, such as imputing amounts to 

be reimbursed based on best available 

information, and will take the 

commenters’ recommended approaches 

into consideration during that effort. 

In the interim, the existing 

coordination of benefit requirements 

require sponsors to coordinate not only 

with beneficiaries, but also with SPAPs, 

other plans or programs providing 

prescription drug coverage and 

beneficiaries and other individuals or 

entities that have made payment on the 

beneficiaries’ behalf. These 

requirements include coordination of 

benefits at point-of-sale, as well as 

retroactive claims adjustments 

necessitated by not only beneficiary 

changes, such as retroactive LIS 

eligibility determinations, LIS status 

changes or mid-year Part D enrollment 

changes, but also other payer changes, 

beneficiary submission of paper claims, 

etc. In addition, as discussed elsewhere 

in this rule, sponsors must have systems 

to track and report adjustment 

transactions and to process adjustments 

and issue refunds or recovery notices 

within 45 days of the sponsor’s receipt 

of information necessitating a 

retroactive claims adjustment. 

As specified in subregulatory 

guidance in the Medicare Prescription 

Drug Benefit Manual chapters on 

Coordination of Benefits and Premium 

and Cost-Sharing Subsidies for LowIncome Individuals, Part D sponsors 

should also: work with other providers 

of prescription drug coverage to resolve 

payment issues; have a process in place 

to handle payment resolution that is not 

restricted by implementation of timely 

filing requirements; make retroactive 

adjustments and promptly refund 

monies owed to the correct party 

(including, but not limited to, the 

beneficiary); and generally limit 

requests for pharmacy reprocessing to 

those situations where the total payment 

to the pharmacy changes. Coordination 

of benefits guidance also includes the 

need to transfer TrOOP and gross 

covered drug cost balances to the new 

plan whenever a beneficiary transfers 

enrollment between Part D sponsors 

during the coverage year. As discussed 

elsewhere in this final rule, sponsors 

have a 45-day maximum time limit from 

receipt of changes in the reported 

transfer data to make an adjustment and 

issue a refund or initiate recovery. 

Comment: One commenter suggested 

that CMS establish an exception that 

would permit a Part D sponsor to refund 

the beneficiary directly without 

accounting for other payers if the net 

claims adjustment is $10 or less and 

there is no N transaction reporting 

another payer amount paid on the 

claim. 

Response: We disagree with this 

suggestion. Although individual claims 

adjustments may not exceed the 

suggested threshold, cumulative 

amounts due to other payers (such as 

SPAPs) could be substantial. 

Additionally, the other payers would be 

unaware that a claim had been 

retroactively adjusted and that a refund 

was issued to the beneficiary. As a 

result, the other payers would not know 

to seek recovery from the beneficiary. 

Therefore, we continue to believe that 

sponsors must comply with the 

coordination of benefits requirements 

without regard to the monetary amount 

of the adjustment. 

Comment: One commenter asked that 

we clarify in § 423.464 that pharmacies 

holding copayments are exempt from 

the coordination of benefits 

requirements since they do not meet the 

definition of a plan or program 

providing prescription drug coverage. 

The commenter noted that this 

clarification will ensure that pharmacies 

recognize they are not a provider of 

prescription drug coverage, and are only 

entitled to reimbursement if the member 

should receive reimbursement and the 

pharmacy has attested that it is holding 

the member’s cost-sharing amounts due 

and has not billed the member. Several 

other commenters requested that 

specific language be added to the 

regulations at either § 423.800(c), or 

§ 423.464(g) and § 423.466(a), to clarify 

that the requirements, including the 45- 

day time period for issuing refunds or 

initiating recoveries due to retroactive 

adjustments, apply not only when a 

supplemental payer is involved, but also 

when a pharmacy is owed for costsharing initially withheld by the 

sponsor for LIS beneficiary claims. 

Response: We agree that pharmacies 

are not providers of prescription drug 

coverage and, therefore, are not covered 

under § 423.464(g). However, it was our 

intention to apply the 45-day time limit 

to all retroactive adjustment regardless 

of whether a pharmacy alone, a 

pharmacy and the beneficiary, or a 

pharmacy, the beneficiary and another 

payer are involved. As a result, we are 

finalizing § 423.464(g) as proposed. In 

response to the concerns raised by the 

commenters regarding the application of 

the 45-day timeframe to pharmacies, in 

this final rule we are also amending 

§ 423.800 to add a new paragraph (e) to 

make it clear that the 45-day timeframe 


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applies to adjustments involving 

pharmacies and beneficiaries, including 

LTC pharmacies holding cost-sharing 

amounts due. Generally, sponsors will 

reimburse the beneficiary for 

adjustments made to retail claims, but 

for full benefit dual-eligible individuals, 

in the absence of other information 

indicating the cost-sharing has been 

waived, the sponsor will reimburse the 

LTC pharmacy. 

Comment: Several commenters argued 

that the 45-day time period for issuing 

reimbursement or initiating recovery 

should be changed to 90 days because 

of the various research and coordination 

issues that may need to be resolved with 

other stakeholders in the industry. 

Response: We disagree with these 

commenters. We believe a 45-day period 

is more than sufficient to resolve any 

coordination of benefits issues and 

refund overpayments or institute 

recovery of underpayments resulting 

from the retroactive claims adjustments. 

As we stated in the proposed rule, we 

considered a 90-day time limit, but 

concluded that this longer timeframe 

was not in the best interests of 

beneficiaries because it would delay the 

payment of refunds and notification of 

the need for payment recovery. 

Moreover, we noted that as part of the 

automated transfer of TrOOP-related 

data, we established a 45-day maximum 

time limit for sponsors to take 

adjustment action, make a refund and 

initiate recovery. We further explained 

that we established this time limit after 

an informal survey and discussions with 

Part D sponsors and their processors. 

For these reasons, we continue to 

believe that a 45-day time limit 

represents a reasonable compromise. 

Therefore, we are finalizing the 

requirement as proposed. 

13. Time Limits for Coordination of 

Benefits (§ 423.466) 

In the October 22, 2009 proposed rule 

(74 FR 54664), we proposed to revise 

§ 423.466 by adding a new paragraph (b) 

that would establish a 3-year time limit 

on Part D coordination of benefits. In 

making this proposed change, we noted 

that currently, there is no statutory or 

regulatory time limit for Part D sponsor 

coordination of benefits with SPAPs, 

other providers of prescription drug 

coverage, or other payers. Current CMS 

guidance as set forth in the 

Coordination of Benefits (COB) chapter 

of the Medicare Prescription Drug 

Benefit Manual only directs Part D 

sponsors to establish at least a 90-day 

timely claims filing window and to 

make appropriate allowances for COB 

claims on a case-by-case basis. The COB 

chapter also directs sponsors, in 

retroactive enrollment situations, to 

coordinate benefits with other payers as 

required by the regulations at 

§ 423.464(f), as well as to accept claims 

from the beneficiary without imposing 

time limits. This chapter further states 

that sponsors, even in those situations 

when retroactive enrollment is not an 

issue, are liable for claims received after 

the end of the coverage year as defined 

in § 423.308 and that, while contract 

provisions regarding timely claims filing 

may limit claims from network 

pharmacies, non-network pharmacies 

and beneficiaries must still have the 

opportunity to submit claims for 

reimbursement without the imposition 

of time limits by the Part D sponsor. 

We also noted the benefits to be 

derived from this proposed change. In 

addition to limiting sponsors’ financial 

liability, a specified time limit would 

strengthen the ability of SPAPs, other 

providers of prescription drug coverage 

and other payers, including 

beneficiaries, to obtain payment for 

covered Part D drugs within that time 

frame. Moreover, we would benefit from 

a COB time limit because it would 

enable us to conduct reopening 

efficiently and on a predictable 

schedule. 

In considering whether to establish 

time limits on the submission of claims 

to Part D sponsors by beneficiaries and 

other payers of prescription drug 

coverage for proper coordination of 

benefits, we noted that the Medicare 

FFS time limit for filing claims, as 

specified in § 424.44, is 15 to 27 months 

depending on the date that the item or 

service was furnished and that under 

certain circumstances these time limits 

may be extended an additional 6 

months. We also noted that the Deficit 

Reduction Act of 2005 (Pub. L. 109–171) 

(DRA) amended section 1902(a)(25) of 

the Act, to provide for a 3-year time 

limit for States to seek recovery of 

Medicaid claims payments when the 

State is not the primary payer. Although 

this DRA provision does not address 

SPAPs and, therefore, does not impose 

a time limit on the requirement for Part 

D sponsors to coordinate benefits with 

SPAPs, it does establish the time limit 

for State Medicaid programs to recover 

from Part D plans. 

Having considered these filing limit 

precedents, we proposed to establish a 

3-year filing limit for Part D 

coordination of benefits with SPAPs, 

other entities providing prescription 

drug coverage, and all other payers, 

including beneficiaries or other 

individuals or (non-network) entities 

paying, or holding amounts for 

payment, on the beneficiaries’ behalf. 

Specifically, we proposed to revise new 

§ 423.466 by adding a new paragraph (b) 

that would establish a 3-year time limit 

on Part D coordination of benefits. Part 

D sponsors would be required to 

coordinate benefits with SPAPs, other 

entities providing prescription drug 

coverage, and other (non-network) 

payers for a period not to exceed 3 years 

from the date on which the prescription 

for the covered Part D drug was filled. 

Adding this provision to the regulation 

would clarify timely filing 

responsibilities and deadlines for all 

beneficiaries and payers, as well as 

place a limit on Part D sponsors’ claims 

payment liabilities and coordination of 

benefits responsibilities. 

As noted in our response to the 

comments below, after considering the 

comments received in response to this 

proposal, we continue to believe a 3- 

year time limit on Part D coordination 

of benefits is reasonable, and in this 

final rule, we are adopting the provision 

as proposed. 

Comment: Two commenters 

expressed support for the establishment 

of a clear timeframe for coordination of 

benefits, and two others expressed 

agreement with the proposed 3-year 

time limit. A number of other 

commenters suggested alternative time 

limits of 2 years, 18 months or 1 year. 

The rationale cited by commenters for a 

shorter time period was that it would 

more closely align the COB time limit 

with the regulatory deadline for 

submission of Part D cost data, thereby 

reducing the number of payment 

reconciliation reopenings and curtailing 

the costs associated with maintaining 

open claims databases. 

Response: We disagree that we should 

shorten the proposed coordination of 

benefits time limit. Other payers need 

time to seek reimbursement and 

sponsors need a clear limit in order to 

resolve claims for which they are 

responsible. We believe that a 3-year 

limit would permit CMS to address both 

needs. A timeframe that aligned with 

the regulatory deadline for submission 

of PDE data would allow only 6 months 

for submission of claims incurred late in 

the coverage year, a timeframe that we 

believe Part D experience to-date has 

demonstrated would not allow 

sufficient time for claim identification 

and subrogation. As we noted in the 

proposed rule, the 3-year limit is also 

aligned with the DRA timeframe, 

providing a uniform period for 

coordination of benefits for all payers, 

rather than creating different timeframes 

based on payer type (for example, 

SPAPs or other entities providing 

prescription drug coverage). This 

alignment will, in our view, ease 

administration for all parties. 


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Therefore, in the final rule, we adopt 

the requirement for Part D sponsors to 

coordinate benefits with SPAPs, other 

entities providing prescription drug 

coverage, and other (non-network) 

payers for a period not to exceed 3 years 

from the date on which the prescription 

for the covered Part D drug was filled. 

By the effective date of this final rule, 

the timeframe for coordination will have 

ended for claims for prescriptions filled 

any time in 2006, as well as for 

prescriptions filled in the early months 

of 2007. For example, a Part D sponsor 

would be responsible for coordinating 

benefits on a claim for a covered Part D 

drug filled on March 3, 2008 until 

March 3, 2011. 

It is important to note that this final 

rule establishes a time limit for Part D 

sponsor liability for coordination of 

benefits with other payers and does not 

affect the timeframes for Part D sponsors 

to pursue Medicare secondary payer 

(MSP) claims and to recover amounts 

paid by the sponsor as primary when an 

MSP payer is identified. Such 

timeframes are separately identified in 

42 CFR part 411. 

Comment: One commenter stated the 

application of the DRA’s health claim 

reimbursement rules and standards to 

prescription drugs is inequitable, 

because Part D claims processing, unlike 

health claims processing, is 

predominantly real-time. As a result, a 

3-year submission window is not 

necessary. 

Response: We disagree. Although no 

interpretive guidance has been issued 

on this provision, the plain reading of 

section 1902(a)(25)(J) of the Act 

encompasses all Medicaid claims, 

including claims for prescription drugs. 

As a result, we believe the application 

of this standard for Part D is 

appropriate. 

Comment: One commenter 

recommended that CMS impose time 

limits for the payment of COB claims 

once filed with the Part D sponsor. 

Response: This suggestion is outside 

the scope of the proposed rule. We can 

consider whether such a time limit is 

warranted and address the issue as 

appropriate in future rulemaking. 

However, we note that once a COB 

claim has been submitted, we expect 

Part D sponsors will make good faith 

efforts to promptly coordinate benefits 

with the submitter of the claim, whether 

an SPAP, another entity providing 

prescription drug coverage, a 

beneficiary or someone acting on his or 

her behalf, or another payer. Any payer 

that does not believe a Part D sponsor 

is making good faith efforts to 

coordinate claims on a timely basis 

should report the complaint to CMS. 

14. Use of Standardized Technology 

Under Part D (§ 423.120) 

Under the authority of section 1860D– 

4(b)(2)(A) of the Act, we proposed to 

revise our regulations at § 423.120(c)(3) 

to require Part D sponsors to 

contractually mandate that their 

network pharmacies submit claims 

electronically to the Part D sponsor or 

its intermediary on behalf of the 

beneficiary whenever feasible unless the 

enrollee expressly requests that a 

particular claim not be submitted to the 

Part D sponsor or its intermediary. 

As we noted in the October 22, 2009 

proposed rule (74 FR 54665), the only 

way that an enrollee can be assured 

access to the negotiated price at the 

point of sale is through online 

adjudication of the prescription drug 

claim. Any other price available to the 

beneficiary at the point of sale cannot be 

deemed to be the negotiated price 

mandated under section 1860D–2(d) of 

the Act. Therefore, to ensure access to 

these negotiated prices, billing 

information on the NCPDP ‘‘Pharmacy 

ID Card Standard’’, which is the 

standard for identification cards for the 

Part D program, must be used by the 

pharmacies filling the beneficiaries’ 

prescriptions to submit claims to the 

Part D sponsor (or its intermediary). 

We noted that CMS guidance set forth 

in the Coordination of Benefits Chapter 

of the Prescription Drug Plan Manual (in 

section 50.4 entitled, ‘‘Processing Claims 

and Tracking TrOOP’’), instructs plan 

sponsors to process all claims online 

real-time. The requirements of accurate 

TrOOP accumulations, Part D benefit 

administration of multiple coverage 

intervals, and coordination of benefits 

with other payers all necessitate online 

real-time adjudication of individual 

pharmacy claims. This guidance states 

further that we expect that Part D plan 

sponsors will establish policies and 

procedures appropriately restricting the 

use of paper claims to those situations 

in which on-line claims processing is 

not available to the beneficiary at the 

point of sale in order to promote 

accurate TrOOP accounting, as well as 

to minimize administrative costs to the 

Part D plans and the Medicare program 

and reduce opportunities for fraudulent 

duplicative claim reimbursements. We 

proposed to revise § 423.120(c)(3) to 

require Part D sponsors to contractually 

mandate that their network pharmacies 

submit claims electronically to the Part 

D sponsor or its intermediary on behalf 

of the beneficiary whenever feasible 

unless the enrollee expressly requests 

that a particular claim not be submitted 

to the Part D sponsor or its 

intermediary. 

We proposed to codify this guidance 

in regulation because we have been 

made aware of an increasing number of 

instances in which network pharmacies 

are not submitting pharmacy claims to 

Part D Sponsors on behalf of Part D 

enrollees. Generally, we believe it is in 

the best interest of Part D enrollees to 

have their claims consistently processed 

through the Part D sponsor (or its 

intermediary). Not only does processing 

claims through the Part D sponsor 

ensure access to Part D negotiated 

prices, but it also ensures that proper 

concurrent drug utilization review 

(including safety checks) is performed. 

In addition, online, real-time processing 

facilitates accurate accounting for 

enrollees’ true out-of-pocket (TrOOP) 

and total drug costs by the Part D 

sponsor so that each claim is processed 

in the appropriate phase of the benefit 

and accurate cost sharing assessed. 

We also proposed to add a new 

paragraph (c)(2) to § 423.120 to codify 

our existing guidance that Part D 

sponsors utilize standard electronic 

transactions established by 45 CFR 

162.1102 for processing Part D claims. 

We noted that we would issue guidance 

on the use of optional or conditional 

fields in the HIPAA standard 

transactions through the Call Letter and 

Prescription Drug Benefit Manual 

instructions. We noted further that we 

routinely work with NCPDP and 

industry representatives in arriving at 

recommendations for standardized use 

of such fields when necessary to 

improve administration of the Part D 

benefit. 

Finally, noting that pharmacies 

cannot routinely distinguish Medicare 

Part D claims from other types of 

prescription drug coverage when the 

same routing information (‘‘RxBIN and 

RxPCN’’) is used for all lines of business 

managed by a single processor, we also 

proposed to add a new paragraph (c)(4) 

in § 423.120 to require that sponsors and 

their intermediary processors establish 

and exclusively utilize unique RxBIN or 

‘‘RxBIN/RxPCN combinations’’ to 

identify all Medicare Part D member 

claims, as well as to assign unique 

‘‘RxID’’ identifiers to individual Part D 

beneficiaries. We solicited comments on 

the operational issues and timelines that 

would be involved in making these 

proposed technical changes to claims 

processing systems. 

After reviewing the comments 

received in response to these proposals, 

we are adopting these provisions with 

some modification. Specifically, we 

revised § 423.120(c)(4) to specify that 

effective on January 1, 2012 sponsors 

assign and exclusively use unique Part 

D identifiers. Exclusive use of these 


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identifiers requires that claims will only 

be paid if these specific numbers are 

submitted in the claims transaction. 

Comment: Many commenters 

concurred with our proposal that Part D 

sponsors mandate that pharmacies 

electronically submit all claims to the 

Part D sponsor or intermediary unless 

the beneficiary expressly requests 

otherwise. Several commenters offered 

recommendations related to 

implementation of this new 

requirement, including that CMS 

modify standard beneficiary 

communications (such as the EOB) to 

include language that helps the 

beneficiary understand that they should 

review their EOBs to confirm that all of 

their claims are being submitted and, 

permit either home infusion providers 

to attest to the plan, or the plan to 

validate on audit, the beneficiary’s 

claims submission election, since it is 

impractical for small home infusion 

providers to bill electronically. 

Response: We appreciate the support 

expressed for the proposed new 

provision and the commenters’ 

recommendations. However, we believe 

the clarifications associated with the 

recommendations, since these are 

related to implementation, are better 

addressed in subregulatory guidance. As 

we develop our implementation 

guidance, we expect to consider the 

clarifications and to continue to seek 

input from the industry and NCPDP. 

Comment: One commenter asked how 

the requirement that pharmacies 

electronically submit all claims to Part 

D unless the beneficiary expressly 

requests otherwise would be enforced if 

members do not show their ID card. 

Response: The requirement applies to 

pharmacies and not the beneficiary. 

Therefore, we will undertake no 

enforcement action against the 

beneficiary if the claim is not submitted 

to the Part D sponsor. However, even if 

the member does not show his or her ID 

card, pharmacies will be able to identify 

Part D claims based on the unique 

RxBIN/PCN identifiers already in the 

pharmacy system or in the response to 

an eligibility query from the TrOOP 

Facilitator, and will generally be 

expected to submit claims whenever 

such data are on file. 

Comment: One commenter urged us 

to allow 6 months for plan sponsors to 

implement the required network 

pharmacy contract change and noted 

that sponsor experience suggests that 

contract language alone will not ensure 

pharmacy compliance. 

Response: We agree that this 

provision will require time for Part D 

sponsors to implement. Therefore, we 

will implement the requirement 

effective January 1, 2011. We likewise 

agree that contract language alone may 

not guarantee pharmacy compliance, 

but we expect other contract provisions 

will address the procedures the Part D 

sponsor will follow in the event a 

pharmacy fails to comply with this 

requirement. 

Comment: One commenter requested 

that CMS clarify that notifying 

beneficiaries or discussing their options 

does not constitute ‘‘solicit[ation]’’ as 

mentioned in the preamble, that our 

lower cash price policy is still in place, 

and that any voluntary request to waive 

claim submission to the plan survives 

the entire life of the prescription and 

there would be no need to expect the 

beneficiary to make a request each time 

they refill that prescription. 

Response: We agree with the 

commenter that discussing options per 

se does not constitute solicitation or 

steering. However, this must be a bonafide discussion of options initiated by 

the beneficiary; that is, the discussion 

should not be initiated by the pharmacy 

with the intent to encourage the 

beneficiary to request his or her claims 

not be submitted to Part D in order for 

the pharmacy to avoid transactions fees. 

With regard to our lower cash price 

policy, we have not altered this policy. 

Finally, we intend to confirm in 

subregulatory guidance that any 

voluntary request to waive claim 

submission to the plan survives the 

entire life of the prescription and there 

would be no need to expect the 

beneficiary to make a request each time 

the prescription is refilled. 

Comment: One commenter 

encouraged us to ensure that Part D 

sponsors’ contracts with network 

pharmacies charge the beneficiary and 

the plan sponsor the lesser of the usual 

and customary price (U&C) or 

contracted rate without regard to special 

programs offered by the pharmacy. 

Response: We believe that this 

comment is outside the scope of this 

proposal, which would only require that 

pharmacies submit all claims to Part D 

sponsors, unless the beneficiary 

requests otherwise. When a pharmacy’s 

U&C prices are lower than the plan’s 

negotiated price, we agree it is in the 

best interests of beneficiaries and 

taxpayers for the pharmacy to extend 

those U&C prices to Part D enrollees. 

However, because we do not directly 

regulate pharmacies, we have no 

authority to require them to do so. 

Comment: Several commenters agreed 

with our proposed requirement related 

to unique payer/processor and enrollee 

identification, with several commenters 

suggesting that implementation be no 

sooner than January 1, 2011 or January 

1, 2012 and not mid-plan year. One 

commenter stated that we should 

accommodate the continued use of 

unique identifiers already established 

by Part D sponsors, without regard to 

length or combination of characters. 

Other commenters were opposed to the 

requirement for Part D sponsors to 

create, and exclusively use, an RxBIN or 

an Rx BIN/PCN combination for Part D 

enrollees as well as to assign an Rx 

identifier to a Part D enrollee, because 

of the costs associated with 

implementation and potential 

disruption for pharmacies and 

beneficiaries. One commenter stated 

that CMS should emphasize that the 

RxBIN and RxPCN numbers should be 

assigned and differentiated at the 

sponsor level, and another commenter 

specifically requested clarification of 

the reference to ‘‘individual’’ Part D 

beneficiaries. 

Response: We appreciate the general 

support for this provision and agree 

with the suggestions related to the 

timing of implementation, particularly 

in light of industry wide programming 

for HIPPA version D.0 conversion. Thus, 

the effective date for the requirement for 

a unique RxBIN or RxBIN/RxPCN 

combination and a unique Part D Rx 

identifier for each individual Part D 

member will be January 1, 2012. We 

believe this date will provide sufficient 

time for sponsors to implement 

necessary systems changes. Currently 

established unique identifiers may 

continue to be used. With regard to the 

level of assignment of the unique RxBIN 

or RX BIN/RxPCN combination, the 

appropriate level of assignment is at the 

Part D sponsor’s parent organization 

rather than at the contract. 

The assignment and exclusive use of 

these unique Part D Rx identifiers have 

a number of advantages for Part D. The 

primary advantage is the use of these 

identifiers enables pharmacies to 

recognize Part D beneficiaries, which is 

possible only with the level of 

identification supported by unique 

identifiers. Distinguishing Part D 

enrollees from the commercial insured 

permits the pharmacy to comply with 

any Part D-specific processing 

requirements, such as the requirement 

to submit claims electronically to the 

Part D sponsor or its intermediary, on 

behalf of the beneficiary unless the 

beneficiary makes an explicit request to 

do otherwise. 

Other advantages to the use of unique 

Part D identifiers relate to the 

coordination of benefits. Currently, the 

TrOOP Facilitator and other switches 

that relay electronic pharmacy claims 

are unable to accurately determine 

whether an initial claim was paid by 


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Part D. As a result, the TrOOP 

facilitation process receives and 

processes coordination of benefits 

claims transactions even when the 

initial claims were not paid by Part D. 

This results in added processing costs 

for us and added workload for Part D 

sponsors receiving N transactions that 

cannot be matched to an initial claim 

because no Part D payment was made. 

Unique Part D Rx identifiers permit Part 

D claims to be processed independently 

and easily segregated for reporting and 

other purposes. 

Comment: One commenter noted that 

the proposed requirements may have to 

be modified to conform to the new 

privacy provisions included in the 

Health Information Technology for 

Economic and Clinical Health (HITECH) 

Act that allow an individual to request 

that a covered entity restrict the 

disclosure of his or her protected health 

information. 

Response: Our proposal would 

require Part D sponsors to require their 

network pharmacies to submit claims 

electronically to the Part D sponsor or 

its intermediary on behalf of the 

beneficiary ‘‘whenever feasible.’’ Federal 

regulations implementing the privacy 

provisions of the HITECH Act have not 

yet been published. Upon publication of 

those regulations, we will review the 

provisions to determine if modifications 

of this requirement are necessary. 

15. Absence from Service Area for More 

Than 12 Months Under Part D (§ 423.44) 

We proposed to amend § 423.44 to 

allow a temporary absence from the PDP 

plan service area for up to 12 months 

before disenrollment would be 

mandatory, consistent with the time 

frame provided under the MA visitor/ 

traveler policy, the nature of the Part D 

benefit and the strong likelihood that a 

PDP enrollee can access the full range 

of PDP benefits while temporarily out of 

the service area. In this final rule, we 

adopt this provision as proposed. 

Comment: Most commenters 

supported our proposal. One commenter 

opposed the proposed change and 

preferred that we either make no change 

or revise the PDP rules to permit the 

offering of a visitor/traveler benefit, 

similar to the policy applicable to MA 

organizations. 

Response: Although the permissibility 

of visitor/traveler benefits under the 

Part D program is not strictly within the 

scope of this proposed rule, we 

recognize that these types of policies 

serve an important function in the MA 

program. However, for the Part D 

program we believe that delivery of the 

drug benefit is much more easily 

accomplished through out-of-area access 

rather than a visitor/traveler benefit, 

given the national pharmacy networks 

that are generally involved in providing 

enrollees with their prescription drugs. 

Thus, we continue to believe, as did 

most commenters, that this population 

is better served by extending plans’ 

flexibility to deliver services on an outof-area basis, rather than by requiring 

the establishment and approval of 

formal visitor/traveler policies 

whenever an enrollee is out of the 

service area for more than 6 months. 

Comment: One commenter wanted us 

to further codify that PDP enrollees 

temporarily absent from the plan service 

area and residing in a LTC facility be 

disenrolled after an absence of 6 

months. 

Response: We disagree with the 

commenter that an individual residing 

in a LTC facility while temporarily 

absent from the plan service area should 

be considered to have a permanent 

residence outside the plan service area 

and disenrolled on an involuntary basis 

due to his or her out-of-area status. 

Current subregulatory guidance (§ 50.2.1 

of Chapter 2 of the Medicare Managed 

Care Manual and § 40.2.1 of Chapter 3 

of the Medicare Prescription Drug 

Benefit Manual) instructs PDP sponsors 

to determine whether an enrollee’s outof-area status is temporary or 

permanent, such that involuntary 

disenrollment would occur prior to the 

expiration of the 6-month period only if 

it is confirmed that the enrollee has 

permanently relocated outside the plan 

service area. Under our proposed 

revision, PDP sponsors would effectuate 

an involuntary disenrollment upon 

confirmation of an enrollee’s permanent 

residence outside the plan service area 

or expiration of a 12-month period, 

whichever occurs first. We believe this 

addresses the concern raised by the 

commenter with respect to ensuring a 

beneficiary’s continued access to the 

Medicare prescription drug benefit 

while residing in an out-of-area long 

term care facility. Accordingly, we are 

adopting without change the revision as 

set forth in the proposed rule. 

Comment: One commenter requested 

that we not extend the period of 

permissible temporary out-of-area 

residence for individuals enrolled in 

MA–PD plans. 

Response: Since our proposed 

revision applies only to stand-alone PDP 

plans, we believe that this clarification 

is not necessary. The current 6-month 

rule for MA plans under 

§ 422.74(d)(4)(B)(ii) will remain in 

effect. 

16. Prohibition of Midyear Mass 

Enrollment Changes by SPAPS Under 

Part D (§ 423.464(e) 

Consistent with the authority of 

sections 1860D–23(a)(1) and (b) of the 

Act, we proposed to add a requirement 

to § 423.464(e) to prohibit midyear mass 

enrollment changes by SPAPs. In 

making this proposed change we noted 

that most SPAPs perform mass 

enrollments on a calendar year basis for 

all its members who have not chosen a 

Part D plan. However, some SPAPs have 

chosen to perform these enrollments on 

a noncalendar year basis. In these 

situations, Part D sponsors have found 

that substantial disenrollment of large 

numbers of SPAP members from one 

plan, followed by mass enrollment into 

another during the calendar year 

significantly affects their financial 

operations. We also stated our belief 

that mass re-enrollment into a new plan 

midyear disrupts any continuity of care 

the beneficiary has established with his 

other current Part D plan, and 

introduces transition risks such as drugs 

not being covered by the member’s new 

plan, or requiring the member to change 

his or her pharmacy that are not 

outweighed by any administrative 

convenience to the SPAP. In this final 

rule, we adopt these provisions as 

proposed. 

Comment: A few commenters were 

concerned that SPAPs may need to 

change Part D enrollment midyear for 

their SPAP enrollees because the SPAP 

determines that its members are not 

being adequately served by the Part D 

plan (for example, the plan does not 

adequately cover the drugs needed by 

the individual SPAP member), or the 

Part D plan fails in its obligation to 

coordinate benefits with the SPAP. One 

commenter in particular suggested we 

change the regulation text to indicate 

that SPAPs not ‘‘routinely’’ engage in 

midyear plan or non-calendar year plan 

enrollment changes, but allow 

nonroutine mass re-enrollment when an 

SPAP has determined that such 

enrollment changes would better serve 

the needs of its members and has 

provided CMS with the appropriate 

prior notification. 

Response: We disagree with the 

commenters that SPAPs should be 

allowed to mass re-enroll its members 

during the calendar year, even when it 

is nonroutine. There are currently two 

actions the SPAP can take when it finds 

that its members are not being 

adequately served by a Part D plan. 

First, if an individual SPAP member is 

not being adequately served by the Part 

D plan (for example, the SPAP 

member’s drugs are not covered or 


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pharmacy access is impeded under the 

plan), the SPAP may, using its 

authorized representative status, reenroll that individual into another Part 

D plan. This one-time special 

enrollment period for individual SPAP 

members is allowed and further 

discussed in our current enrollment 

guidance (Chapter 3 of the Medicare 

Prescription Drug Benefit Program 

Manual). If an SPAP finds that the Part 

D plan is not serving its members 

because the Part D sponsor is in 

violation of Federal statute or 

regulation, the SPAP should contact us 

to report the plan’s violation(s). We will 

then take the appropriate action in 

accordance with its compliance rules. 

Actions by CMS may include 

developing a corrective action plan with 

the Part D sponsor, suspending 

enrollment into the Part D sponsor’s 

plan, or, if necessary, termination of the 

Part D sponsor’s contract. We believe 

that both of these actions will 

adequately address problematic plans 

and that an exception for nonroutine 

mass midyear enrollments will not be 

necessary. 

17. Nonrenewal Beneficiary Notification 

Requirement Under Parts C and D 

(§ 422.506, and § 423.507) 

In the October 22, 2009 proposed rule, 

under the authority of sections 1857(a) 

and (c) and 1860D–12(b)(1) and (b)(3)(B) 

of the Act, we proposed revisions to the 

nonrenewal beneficiary notification 

requirements at § 422.506(a)(2)(ii) and 

(b)(2)(ii) of the MA regulations and 

§ 423.507(a)(2)(ii) and (b)(2)(ii) of the 

Part D regulations to change the 

beneficiary notice requirement from at 

least 60 days to at least 90 days. 

We noted that the existing regulations 

required notification 60 days prior to 

the effective date of the nonrenewal for 

both enrollees and the general public. 

Changing the requirement for the 

personalized beneficiary specific CMSapproved notice to at least 90 days 

provides beneficiaries with an increased 

notice period giving beneficiaries more 

time to choose a new Medicare plan 

prior to the start of the new benefit year. 

We also noted that when we previously 

changed the required notice period to 60 

days, we did so primarily to provide 

adequate time for the appeals process to 

conclude prior to the start of the next 

calendar year; however, our recent 

experience has indicated that the vast 

number of nonrenewals are voluntarily 

elected by the PDP sponsor or MA 

organization, so there is rarely a need to 

accommodate the appeals process. For 

this reason, we proposed at 

§ 422.506(a)(2)(ii) and (b)(2)(ii) of the 

MA regulations and § 423.507(a)(2)(ii) 

and (b)(2)(ii) of the Part D regulations to 

change the beneficiary notice 

requirement from at least 60 days back 

to at least 90 days. 

We also proposed removing the 

requirement for nonrenewing plans (in 

voluntary nonrenewal situations) and 

for us (in CMS-initiated nonrenewal 

situations) to provide notice of the 

nonrenewal to the general public by 

publishing a notice in one or more 

newspapers of general circulation. This 

change was motivated by the cost of 

newspaper advertisements and the 

declining rate of newspaper circulation, 

weighed against the very limited benefit 

gained from notice to the general public 

who is minimally, if at all, affected by 

the nonrenewal. Also, nonrenewal 

information is now easily available to 

the general public through Internet Web 

sites maintained by us (for example, 

http://www.Medicarsuch asov), a 

resource not available to the public 

when the newspaper notice requirement 

was first adopted. We believe that this 

information, in conjunction with the 

requirement to provide personalized 

nonrenewal information to plan 

enrollees is sufficient to ensure 

adequate notice of the plan’s 

nonrenewal. Therefore, we proposed 

deleting § 422.506(a)(2)(iii) and 

(b)(2)(iii) of the MA regulations and 

§ 423.507(a)(2)(iii) and (b)(2)(iii) of the 

Part D regulations to remove the 

requirement that the general public be 

informed of the impending nonrenewal 

through the publication of newspaper 

notices. 

Comment: One commenter stated that 

in order to improve the member 

experience and make the requirements 

consistent, the ‘‘90 day prior to the 

effective date of nonrenewal’’ 

notification deadline should only apply 

to enrollees whose coverage is being 

terminated, and not to enrollees that are 

being mapped to another plan (such as 

Consolidated Renewal or Renewal Plan 

with SAR/Modified ANOC scenarios) 

because they are not losing coverage. 

Response: The change to the 

nonrenewal regulation only applies to 

beneficiaries who are losing coverage for 

the upcoming benefit year. It does not, 

as the commenter suggests, apply to 

beneficiaries who are involved in a plan 

consolidation, as their coverage will 

continue without interruption in the 

upcoming benefit year. 

Comment: Many commenters support 

the change in the notice requirement 

from 60 to 90 days. Commenters agreed 

that beneficiaries should be given more 

time to choose a new Medicare plan 

prior to the start of the new benefit year. 

Response: CMS appreciates these 

comments. 

Comment: Many commenters agreed 

that the publication of a nonrenewal 

notice in newspapers is no longer an 

effective means of communication, and 

support removing this requirement for 

nonrenewing plans. 

Response: CMS appreciates these 

comments. 

Comment: Several commenters 

stressed the importance of CMS issuing 

its model nonrenewal notice in time for 

plans to meet the 90 day requirement. 

Response: CMS agrees with these 

comments and plans to issue the model 

notice during the summer of each year, 

as it has in the past, to ensure that plans 

have enough time to fulfill this 

requirement. 

Comment: One commenter asked if 

the 90-day period runs from the start of 

open enrollment. 

Response: The regulation clearly 

indicates that the notice must be sent ‘‘at 

least 90 calendar days before the date on 

which the nonrenewal is effective.’’ 

Comment: One commenter suggested 

that the CMS approved nonrenewal 

letter which provides information about 

sources for help in comparing Medicare 

plans is a good means to provide 

information in the case of mutual 

terminations. 

Response: We believe that the topic of 

notices for plans that are undergoing a 

mutual termination is outside of the 

scope of this proposed regulatory 

change. We note, however, that 

§ 423.508 of the regulation requires that 

when a contract is terminated by mutual 

consent, the Part D plan sponsor must 

notify its Medicare enrollees of the 

termination ‘‘within timeframes 

specified by CMS.’’ 

18. Notice of Alternative Medicare Plans 

Available To Replace Nonrenewing 

Plans Under Parts C and D 

(§ 422.506(a)(2)(ii) and 

§ 423.507(a)(2)(ii)) 

To allow additional operational 

flexibility, in the October 22, 2009 

proposed rule, we suggested changing 

the requirement for PDP sponsors and 

MA organizations to provide written 

notification of the alternative Medicare 

plans available to replace the 

nonrenewing plan. We proposed 

changing the existing requirement to 

permit the option of either providing a 

written list of alternatives available, or 

placing outbound calls to all affected 

enrollees to ensure beneficiaries know 

whom to contact to learn about their 

enrollment options. We believe this 

change is advantageous for beneficiaries 

because, depending on where the 

beneficiary resides, a listing of available 

plan options is often very long and may 

be too overwhelming for the beneficiary 


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to use appropriately. We noted that a 

much more useful approach would be to 

provide beneficiaries with contact 

information and resources for 

identifying the most appropriate option 

given their unique, individual 

circumstances. For this reason, we 

proposed revising § 422.506(a)(2)(ii) of 

the MA regulations and 

§ 423.507(a)(2)(ii) of the Part D 

regulations, to provide the option of 

sending written notices of all available 

alternatives or placing outbound 

beneficiary calls to ensure beneficiaries 

know whom to contact to learn about 

their enrollment options. As discussed 

above, in either case, a personalized, 

CMS- approved beneficiary notice 

regarding the nonrenewal must still be 

sent to each beneficiary. 

After reviewing the comments 

received in response to these proposals, 

we adopt the proposed changes into this 

final rule with some modification. 

Specifically, we revised the regulation 

at § 423.507 to require that both Part C 

and Part D organizations inform 

beneficiaries of all MA and PDP 

available options. We also revised the 

regulation at § 422.506(a)(2)(ii)(A) to 

require that Part C organizations inform 

beneficiaries of all MA, MA–PD, and 

PDP options. 

Comment: One commenter suggested 

that instead of providing alternative 

plan information in the nonrenewal 

letter, organizations should have the 

voluntary option of calling beneficiaries. 

Additionally, the commenter believed 

that organizations should provide a 

letter that contains language that directs 

impacted members to the Medicare Web 

site for the most current Medicare plan 

information available in their service 

area. 

Response: The requirement to list 

alternative plans is independent of the 

requirement to provide a personalized 

beneficiary notice. The required 

personalized beneficiary notice already 

contains information about using the 

Medicare Web site to obtain information 

about available plans. We disagree with 

the commenter’s recommendation that 

organizations should not be required to 

provide alternative plan information 

and that the phone calls to notify 

beneficiaries be voluntary. Some 

beneficiaries may not be comfortable 

with, or do not have access to the 

Internet. Therefore, we believe it is in 

the best interest of the beneficiaries to 

be provided with either a written list of 

alternative plans or to receive a phone 

call informing them of whom to contact 

to learn about their enrollment options. 

Comment: Several commenters 

supported the proposed change that 

provides nonrenewing plans with the 

option to choose to give advance 

information to enrollees about 

alternative Medicare plan options in 

writing or to make outbound calls to all 

affected enrollees to ensure beneficiaries 

know whom to contact to learn about 

their enrollment options. It was stated 

that this approach also provides plan 

sponsors with the flexibility to vary the 

outreach methods used in order to 

accommodate different segments of their 

membership on a timely basis. 

Response: We appreciate the 

commenters support of our proposed 

changes. 

Comment: One commenter suggested 

that in the event of a nonrenewing MA 

plan, CMS should require that the 

written notification include Original 

Medicare and stand-alone PDPs among 

the alternative options available to the 

affected beneficiary. (Under the 

proposed rule change, the MAO would 

only be required to ‘‘provide a CMSapproved written description of 

alternative MA plan options available 

for obtaining qualified Medicare 

services within the beneficiaries’ 

region.’’) Should the information be 

communicated via telephone by the 

MAO, then the person responsible for 

informing the beneficiary of his or her 

enrollment options should similarly be 

required to tell the beneficiary about 

Original Medicare and stand-alone PDPs 

in addition to other relevant plan 

options. 

Response: The list of available options 

is accompanied by the required 

personalized beneficiary nonrenewal 

notice that provides information about 

the beneficiary’s various options 

including, when applicable, Original 

Medicare. We do agree with the 

commenter’s suggestion to include 

additional alternative available 

Medicare plans; and therefore, have 

revised the regulation to require that 

both Part C and Part D organizations 

inform beneficiaries of both MA and 

PDP available options. 

Comment: Several commenters 

requested that the notification 

requirements mandate different 

personalized notices with more 

specialized information for different 

populations, particularly dual eligible 

and SNP beneficiaries. 

Response: We believe this comment is 

outside of the scope of the proposed 

regulatory changes because these 

changes did not address the information 

required within the personalized 

beneficiary notification. Rather, the 

proposed changes only discussed the 

list of alternative plans that must be 

provided with the personalized notice. 

Comment: Multiple commenters 

raised strenuous objections to the 

change that allows plan sponsors and 

organizations to place outbound calls to 

enrollees in plans that they are 

terminating to tell them who to call to 

learn about enrollment options. 

Commenters believed that allowing 

telephone calls invites the possibility of 

marketing abuses. Specifically, the 

commenters stated that this change 

‘‘creates a major marketing loophole, 

and allows plans to steer enrollees to 

other plans offered by the same 

sponsors and organizations, regardless 

of whether those plans are best for 

them.’’ The commenters believed that 

beneficiaries need to be provided with 

all of the information about alternative 

plans, and all other options including 

returning to traditional Medicare. They 

stated that the information should be 

provided by CMS or by a neutral, 

trained counselor. In addition, they 

believed once plans have been told that 

their contracts will not be renewed, 

there is no incentive for the plans to act 

appropriately and according to 

Medicare marketing guidelines when 

interacting with beneficiaries. 

Commenters suggested that the 

proposed regulation authorizing calls to 

beneficiaries should be clarified to 

include strict plan communication 

restrictions that properly protect 

beneficiaries who are especially 

vulnerable as a result of plan 

terminations. Furthermore, CMS should 

make clear that any sponsor that 

markets plans when notifying 

beneficiaries of plan terminations will 

be considered to be violating Medicare 

marketing rules. 

Response: We do ensure that 

beneficiaries are informed of all of their 

options by requiring all nonrenewing 

plans to provide a personalized 

beneficiary notice which is separate 

from the plan’s requirement to provide 

a list of alternative plans or make 

outbound call to inform beneficiaries of 

whom to contact to learn about their 

enrollment options. The required 

personalized notice includes 

information about all of the 

beneficiaries’ choices and provides 

contact information for CMS and SHIP 

offices so that beneficiaries can contact 

‘‘neutral’’ parties to obtain additional 

information about enrollment options. 

CMS does not believe that plans should 

be prohibited from contacting 

beneficiaries by phone, especially in 

light of the fact that plans regularly 

speak to beneficiaries by phone as part 

of the normal course of administering 

Medicare benefits. Furthermore, we 

believe that phone calls can provide 

beneficial individualized beneficiary 

service. Additionally, CMS will issue 


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guidance that instructs plans to submit 

all nonrenewal related scripts for CMS 

approval so that plans are providing 

appropriate and accurate information 

about the beneficiary’s plan choices. 

Comment: One commenter stated that 

when plans map beneficiaries to an 

alternative plan offered by the sponsor 

rather than nonrenewing, the 

beneficiaries are not afforded 

nonrenewal rights that include a special 

election period and the personalized 

beneficiary nonrenewal notice. The 

commenter believed that the rights of 

members should be the same, and they 

should all default to Original Medicare 

with the option of enrolling in a PDP. 

Response: This comment concerns 

Part C and D enrollment policy and is 

outside the scope of the proposed 

regulatory changes related to beneficiary 

notification included in the proposed 

rule. CMS will consider this comment 

when we prepare the annual 

nonrenewal guidance. 

Comment: Several commenters 

proposed allowing plans to provide the 

alternative list of plans available via 

electronic format for beneficiaries who 

have chosen to ‘‘opt-in’’ to receiving 

communications by electronic means. 

Response: We believe that for the 

purposes of ensuring consistency in the 

application of the notification 

requirements, the list of alternative 

plans should be provided only in hard 

copy at this time. Also, CMS believes 

that beneficiaries’ access to and use of 

on-line resources is not yet widespread 

enough to justify the adoption of 

regulations that allow for notification 

exclusively (even on an opt-in basis) 

through electronic communication. 

Should Medicare beneficiaries’ Internet 

use patterns change in the coming years, 

CMS may make appropriate revisions to 

this policy. 

Comment: One commenter asked 

what number of attempts would be 

required of sponsors that elect the 

option to make calls to beneficiaries. 

Response: We believe that it is 

appropriate to address this question 

through the issuance of nonrenewal or 

marketing sub-regulatory guidance 

which provides more flexibility for 

changes than the rulemaking process. 

Comment: One commenter asked 

what to do if the list of alternative plans 

that is sent in the mail to the beneficiary 

is returned. 

Response: We believe that the 

standard practices organizations have 

presently adopted for handling 

beneficiary mail that is returned should 

be applied by the nonrenewing sponsor 

in such instances. 

Comment: One commenter stated that 

the rules for consolidation that map 

beneficiaries to another plan for the 

following benefit year results in 

disparate treatment of beneficiaries. For 

example, if one Plan Benefit Package 

(PBP) is entirely mapped into another 

PBP (so only one PBP continues in the 

upcoming year), all members in both 

original PBPs receive a standard Annual 

Notice of Change (ANOC). However, if 

some counties are mapped into another 

PBP but others remain (so both PBPs 

exist in both the current and upcoming 

years), members in the mapped counties 

receive a modified ANOC. The 

commenter stated that from the member 

standpoint, it doesn’t matter which 

situation they are in, in either case they 

are mapped into a new plan. This 

disparate treatment of members in 

similar situations can lead to confusion 

among members and creates difficulties 

for customer service staff attempting to 

explain the contents of ANOC packets. 

Response: This comment is outside of 

the scope of the proposed regulatory 

change. 

Comment: One commenter stated that 

CMS must issue alternative plan 

information far enough in advance for 

plans to meet the requirement to 

include alternative plan information in 

the beneficiary specific letters that are 

due on October 1. 

Response: We have an HPMS module 

that provides plan option information to 

nonrenewing sponsors. We 

acknowledge that we cannot hold 

sponsors accountable for meeting the 

October 1 deadline unless we provide 

timely plan option information through 

HPMS to the sponsors, and CMS intends 

to make every effort to ensure that 

sponsors receive this information in a 

timely manner. 

Comment: One commenter proposed 

that if a plan chooses to call 

beneficiaries instead of sending a list, 

the plan should be obligated to 

document that the beneficiary was 

reached and that a message left on an 

answering machine in not sufficient. 

Response: We believe that the issue of 

call documentation is better addressed 

through the issuance of nonrenewal 

guidance which provides more 

flexibility for changes than the 

rulemaking process. 

19. Timeframes and Responsibility for 

Making Redeterminations Under Part D 

(§ 423.590) 

In the October 22, 2009 proposed rule, 

we proposed to reconcile a discrepancy 

with respect to notice of completely 

favorable expedited redeterminations by 

adding new paragraph (d)(2) to 

§ 423.590. The proposed change would 

allow Part D plan sponsors to make the 

initial notice of a completely favorable 

expedited redetermination orally, so 

long as a written confirmation of the 

fully favorable decision is mailed to the 

enrollee within three calendar days of 

the oral notice. As noted in the 

preamble to the proposed rule, the 

change is consistent with the 

requirements in § 422.590(d)(3) of the 

MA regulations. 

We also proposed in § 423.590(d)(2) to 

allow Part D plan sponsors to make the 

initial notice of an adverse expedited 

redetermination orally, so long as a 

written confirmation of the decision is 

mailed to the enrollee within 3 calendar 

days of the oral notice. In addition, we 

proposed to revise paragraph (g) by 

adding cross references to paragraphs 

§ 423.590(d)(1) and (d)(2) in order to 

apply the written notice requirements in 

paragraph (g) to adverse expedited 

redetermination decisions. As noted in 

the preamble to the proposed rule, we 

believe adding these two notice 

requirements to the Part D expedited 

redetermination process is in the 

enrollee’s best interests given the 

expedited status of these requests, and 

is consistent with our subregulatory 

guidance and the process for notifying 

enrollees of adverse expedited coverage 

determination decisions in § 423.572(b). 

Similarly, we proposed adding 

§ 423.590(h) to establish the form and 

content requirements for fully favorable 

redetermination decisions, and 

proposed making those notice 

requirements applicable to 

redeterminations issued under 

paragraph (a)(1). We also proposed to 

reference paragraphs (d)(1) and (d)(2) in 

paragraph (h), so that the form and 

notice requirements in paragraph (h) 

would also apply to fully favorable 

expedited redetermination decisions. As 

we noted in the proposed rule, 

incorporating these Part D standard 

redetermination notice requirements 

will provide an important beneficiary 

protection by ensuring continuity of 

care for Medicare beneficiaries who are 

obtaining refills of prescription drugs 

under Part D, and doing so does not 

conflict with the related MA provisions. 

After considering the comments 

received in response to these proposals, 

we adopt these provisions without 

modification in this final rule. 

Comment: We received a number of 

comments supporting the proposal 

allowing Part D plan sponsors to make 

the initial notice of a fully favorable 

expedited redetermination orally, so 

long as a written confirmation of the 

fully favorable decision is mailed to the 

enrollee within three calendar days of 

the oral notice. However, one 

commenter suggested revising the 3 


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calendar day requirement to 3 business 

days. 

Response: We appreciate the 

comments we received in support of 

this provision. With respect to the 

comment recommending that we revise 

the calendar day requirement to 

business days, we have consistently 

used the calendar-day timeframe for all 

Medicare appeals processes, and we do 

not believe there is a compelling reason 

to depart from that standard for written 

notice of favorable decisions. We note 

that plan sponsors are required to mail 

(not deliver) the notice within 3 

calendar days. 

Comment: We also received many 

comments favoring our proposal giving 

Part D plan sponsors the option of 

making the initial notice of an adverse 

expedited reconsideration orally and 

then following up with written 

confirmation of the decision. 

Commenters also supported applying 

the written notice requirements in 

paragraph (g) to adverse expedited 

redetermination decisions. However, a 

number of commenters expressed 

concern about starting the 60-day 

timeframe for requesting an appeal on 

the date an enrollee receives oral notice 

of an adverse decision. The commenters 

noted that it may be very difficult for an 

enrollee to keep track of the deadline for 

filing an appeal if the 60-day timeframe 

begins on the date they receive oral 

notice of a plan’s decision. The 

commenters suggested starting the 60- 

day timeframe on the date printed on 

the written denial notice. 

Response: We agree and believe the 

60-day timeframe for requesting an 

appeal of an adverse decision should 

begin on the date printed on the written 

denial notice. However, we believe the 

appropriate place to make this 

clarification is in our subregulatory 

guidance. Therefore, we will make this 

clarification in Chapter 18 of the 

Prescription Drug Benefit Manual. 

Comment: A commenter requested 

that CMS develop a model letter for 

fully favorable redetermination 

decisions and written redetermination 

decisions that follow oral notice under 

§ 423.590. 

Response: We agree that it would be 

helpful to provide plan sponsors with 

either model language or standardized 

notices for use in issuing fully favorable 

redetermination decisions and written 

redetermination decisions that follow 

oral notice, and will explore the 

feasibility of implementing these 

options. Any notice(s) we develop will 

be published in Chapter 18 of the 

Medicare Prescription Drug Benefit 

Manual. 

Comment: Numerous commenters 

supported the proposal requiring plan 

sponsors to include specific information 

(such as, the conditions of approval) in 

favorable decision notices. However, 

one commenter opposed the proposed 

requirement and suggested instead that 

we allow plan sponsors to provide the 

approval conditions on request. 

Response: Currently, plan sponsors 

must provide the conditions of approval 

to enrollees upon request. Thus, the 

commenter’s suggestion would not 

address the issue we were trying to 

resolve in the proposed rule. As noted 

in the preamble to the proposed rule, we 

believe it is important to include the 

conditions of approval in favorable 

notices to help ensure continuity of care 

for Medicare beneficiaries who receive 

prescription drugs under Part D. 

Prescription drugs are often provided to 

beneficiaries on a recurring basis. 

Therefore, it is important for an enrollee 

to know the conditions of the approval 

(such as, duration, limitations, and 

coverage rules for refills) before a refill 

is needed, so that, if necessary, the 

enrollee can work with his or her 

prescriber to secure prior approval for 

additional refills, obtain an exception, 

or switch to an appropriate alternative 

prescription. 

20. Requirements for Requesting 

Organization Determinations Under Part 

C (§ 422.568) 

We proposed specific language related 

to oral requests for organization 

determinations, except for paymentrelated requests. As we noted in the 

October 22, 2009 proposed rule, section 

1852(g)(3) of the Act allows an enrollee 

to request an expedited organization 

determination either orally or in 

writing. However, the method for 

requesting a standard determination is 

not addressed in either the Act or the 

implementing regulations at § 422.568. 

Both beneficiary advocates and MA 

plans have voiced concern about the 

absence of express regulatory authority 

that would allow enrollees to request 

standard organization determinations 

both orally and in writing. Therefore, 

we added specific language in § 422.568 

to allow oral requests for organization 

determinations, except where the 

request is for payment. 

Comment: Although one commenter 

opposed allowing oral requests because 

of concerns about proving that a request 

was made, we received several 

comments in support of our proposed 

revision. Many of those who supported 

our proposal also suggested that we 

require plans to develop a confirmation 

and tracking system for oral requests. 

Response: For several years, we have, 

without difficulty, allowed enrollees 

and physicians to orally request 

expedited organization determinations. 

Thus, we believe allowing enrollees to 

also request standard organization 

determinations orally will not pose any 

issues regarding tracking such requests. 

Currently, Chapter 13 of the Medicare 

Managed Care Manual (section 50.2) 

instructs plans to maintain a process for 

tracking expedited organization 

determinations, and we agree with the 

commenters’ recommendation to place a 

similar requirement on plans regarding 

oral requests for standard organization 

determinations. Accordingly, we are 

revising § 422.568 as proposed without 

change. We will also add this 

requirement to Chapter 13 of the 

Medicare Managed Care Manual to 

ensure compliance. 

21. Organization Determinations Under 

Part C (§§ 422.566 and 422.568) 

We proposed to remove the language 

from § 422.566(b)(4) and § 422.568(c) 

that an enrollee must disagree with the 

plan’s discontinuation or reduction of a 

service for the plan’s decision to be 

considered an organization 

determination. Section 1852(g)(1)(A) of 

the Act requires MA organizations to 

have a procedure for making 

determinations regarding whether an 

enrollee is entitled to receive health 

services or payment under the program. 

In accordance with section 1852(g)(1)(A) 

of the Act, § 422.566 and § 422.568 

establish the requirements related to 

organization determinations and 

notices. Existing § 422.566(b)(4) 

specifies that an organization 

determination includes a decision 

resulting in ‘‘[d]iscontinuation or 

reduction of a service if the enrollee 

believes that continuation of the 

services is medically necessary’’ 

(emphasis added). Similarly, under 

§ 422.568(c), a plan must give an 

enrollee a written notice of the 

determination ‘‘if an enrollee disagrees 

with the MA organization’s decision to 

discontinue or reduce an ongoing course 

of treatment’’(emphasis added). We 

indicated that we no longer believe that 

it is necessary to require an enrollee’s 

‘‘belief’’ that the services in question are 

medically necessary in order to consider 

these reductions or discontinuations to 

be organization determinations, nor did 

we believe that it is appropriate to 

condition the delivery of a notice on an 

enrollee’s ‘‘disagreement’’ with the 

discontinuation or reduction of an 

ongoing course of treatment. Therefore, 

we proposed to change this language by 

removing the phrases ‘‘if the enrollee 

believes that continuation of the 


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services is medically necessary’’ and ‘‘if 

an enrollee disagrees with an MA 

organization’s decision.’’ We noted that 

§ 422.620 through § 422.626 already 

provide enrollees who are receiving care 

in an inpatient hospital, skilled nursing 

facility, home health, or comprehensive 

outpatient rehabilitation facility (CORF) 

setting with the right to receive a notice 

and expedited review of service 

terminations for ongoing courses of 

treatment in these settings. Thus, our 

intention was to ensure that enrollees 

who are receiving previously authorized 

ongoing courses of treatment outside the 

settings covered by § 422.620 through 

§ 422.626 would automatically receive 

notice and appeal rights if such services 

were terminated, and enrollees in all 

settings would automatically receive 

notice and appeal rights if the level of 

care or amount of such services was 

reduced. 

Comment: Most commenters 

supported our proposed revisions. 

However, a few commenters requested 

further clarification about whether and 

how this revision altered plan or 

provider notice requirements. One of 

these commenters also requested 

clarification that the changes proposed 

would not create a new requirement for 

plans to notify enrollees each time a 

participating provider discontinues 

treatment under § 422.566 and 422.568. 

This commenter noted that the clauses 

proposed for deletion were originally 

added as part of the notice and 

comment process when the 

requirements for an enrollee’s 

expression of dissatisfaction were first 

adopted. 

Response: As we note previously, 

§ 422.620 through § 422.626 

automatically trigger the requirement for 

plans and providers to give a notice 

with appeal rights whenever enrollees 

experience service terminations while 

they are receiving care in the inpatient 

hospital, skilled nursing facility, home 

health, or CORF settings. Conversely, 

§ 422.566 and § 422.568 currently 

require an enrollee to express 

dissatisfaction about a termination or 

reduction of services in order to receive 

notice and appeal rights. Therefore, our 

goal in no longer requiring an enrollee’s 

disagreement was to ensure that plans 

would be required to provide notices 

whenever they discontinued or reduced 

a previously authorized ongoing course 

of treatment, regardless of the setting. 

However, as we considered these 

comments, we recognized that some 

additional restructuring of the provision 

would be needed to ensure a clear and 

consistent understanding of the policy. 

Enrollees who are receiving care in 

settings governed by § 422.620 through 

§ 422.626 receive notices with appeal 

rights only when services are being 

terminated. However, enrollees do not 

automatically receive notices when 

previously authorized ongoing courses 

of treatment are reduced in these 

settings. Consistent with our proposal, 

we are establishing the policy to require 

notice and appeal rights, in all settings, 

for previously authorized ongoing 

courses of treatment that either end or 

are reduced prematurely. We note that 

the phrase ‘‘previously authorized 

ongoing course of treatment’’ means a 

series of services or treatments that have 

been approved in writing (such as 

through a plan of care). Accordingly, a 

reduction in the level of care of a 

previously authorized ongoing course of 

treatment may include a change in the 

mix or range of services/sessions, a 

decrease in the intensity of the care, or 

a reduction in the amount of services/ 

sessions provided relative to the original 

authorization. 

Unlike the provider settings under 

§ 422.620 through § 422.626, when a 

course of treatment ends in other 

settings under § 422.568(c), it will not 

result in automatic notice and appeal 

rights if the enrollee received all of the 

services as planned in the original 

authorization. In these cases, if an 

enrollee believes that those services 

should continue, he or she must request 

a new organization determination from 

the health plan. Accordingly, we are 

finalizing § 422.566(b)(4) and 

§ 422.568(c) to include the revisions 

noted previously. 

22. Representatives (§ 422.561, 

§ 422.566, § 422.574, and § 422.624) 

We proposed to amend § 422.561 to 

clarify that a representative may act on 

an enrollee’s behalf with respect to the 

grievance process. As we explained in 

the preamble to the October 22, 2009 

proposed rule, for various reasons, 

enrollees may choose or need to have 

someone represent them in order to 

protect their interests. Presently, under 

sections 1852(f) and (g) of the Act, a 

representative may act on behalf of an 

enrollee or other party when filing a 

grievance. However, unlike the 

corresponding Part D regulation, 

existing § 422.561 does not explicitly 

permit representatives to file grievances 

on behalf of an enrollee. In order to 

rectify this and be consistent with the 

Part D definition of representative at 

§ 423.560, we proposed to amend the 

definition of representative under 

§ 422.561. Similarly, we proposed to 

remove the term ‘‘authorized’’ before 

‘‘representative’’ in § 422.574 and 

§ 422.624, so that the definition is 

consistent throughout subpart M. 

Comment: Several commenters 

supported removing the word 

‘‘authorized’’ before ‘‘representative’’ in 

order to be consistent with the 

definition of the term ‘‘representative’’ 

and less limiting in the application of 

the term. However, a perceptive 

commenter noted that we overlooked 

making this revision in two places 

under § 422.566(c). 

Response: We intended to make this 

change throughout all of subpart M, and 

as such, will finalize § 422.566(c) in the 

final rule to include these additional 

revisions. 

Comment: A few commenters 

requested that we restructure all of 

subpart M of part 422 so that the general 

provisions section (§ 422.562) includes 

provisions about enrollee rights and MA 

provider notice responsibilities for 

services rendered by skilled nursing 

facilities (SNFs), home health agencies, 

(HHAs), and comprehensive outpatient 

rehabilitation facilities (CORFs) and 

services provided in the inpatient 

hospital setting. These commenters also 

recommended creating new sections to 

describe provider notice requirements 

for all settings and the notice 

requirements and appeal rights 

specifically related to Part B services. 

This restructuring, the commenters 

suggested, would provide a more 

thorough overview of beneficiary rights 

under subpart M, and place the notice 

and appeal language in a more 

appropriate place in the regulatory 

scheme. 

Response: This comment is beyond 

the scope of the proposed rule. 

However, we note that subpart M, like 

subpart I of part 405 and subpart M of 

Part 423, describes the various levels of 

the MA appeals process, including the 

associated beneficiary rights and 

provider notice requirements, in the 

order in which they occur. We believe 

this structuring of the appeals 

provisions makes it easier to follow the 

process. We do not agree with the 

suggestion that the current order of the 

regulatory provisions prevents enrollees 

from appealing adverse decisions about 

Part B (or any other Medicare) services 

and believe that restructuring subpart M 

as recommended, would not result in 

additional notice or appeal rights for 

enrollees. Finally, to make certain that 

beneficiaries understand the MA 

appeals process and their rights under 

this process, we ensure that beneficiary 

materials and notices, such as the 

Evidence of Coverage and Notice of 

Medicare Noncoverage are 

comprehensive, clear, and easy for 

enrollees to understand. 


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19734 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

23. Disclosure Requirements Under 

Parts C and D (§ 422.111(g) and 

§ 423.128(f)) 

In the October 2009 proposed rule, we 

proposed adding new provisions 

(§ 422.111(g) and § 423.128(f)) to the 

existing regulations that govern the 

information that must be disclosed to 

enrollees and potential enrollees. 

Specifically, we proposed to add that 

CMS may require a sponsoring 

organization to disclose to its enrollees 

and potential enrollees information 

concerning the sponsoring 

organization’s performance and contract 

compliance deficiencies in a manner 

specified by CMS. While a number of 

commenters opposed this proposal, an 

equal number of commenters supported 

it. The latter noted that they support the 

goals of this proposal to provide 

beneficiaries with the information they 

need to assess the quality of care they 

are receiving and to make sponsoring 

organizations accountable for their 

performance deficiencies, which should 

improve compliance with the rules and 

requirements of the Medicare program. 

We also solicited comments on whether 

these disclosure requirements should be 

imposed only in those circumstances 

where a beneficiary would be afforded 

the opportunity to act on them (for 

example, requiring disclosure during 

the particular times of the year when 

beneficiaries would ordinarily be able to 

make change or elections, except in 

those situations where the compliance 

deficiency is so significant that a 

beneficiary may be afforded a special 

enrollment opportunity). 

We are finalizing the proposed 

changes to § 422.111(g) and § 423.128(f)) 

with a modification to § 422.111(g) 

discussed in detail below. 

Comment: A number of commenters 

were concerned that we have not 

provided enough detail about the 

proposal, including what compliance 

and performance deficiencies would 

rise to a level to trigger the disclosure 

requirement, as well as the types, format 

and timing of these disclosures. These 

commenters were concerned that the 

proposed regulations allow CMS too 

much discretion, could be 

inconsistently applied and may lead to 

unnecessary confusion and alarm for 

beneficiaries. Also, commenters stated 

that the existing performance ratings, 

through the Medicare Web site, 

currently provide adequate disclosure to 

beneficiaries. 

Response: As we clarified in the 

proposal, our intent is to invoke this 

disclosure authority when we become 

aware that a sponsoring organization 

has serious compliance or performance 

deficiencies such as those that may lead 

to an intermediate sanction or require 

immediate correction and where we 

believe beneficiaries should be 

specifically notified. One example of a 

situation where enrollees should be 

notified of performance or compliance 

deficiencies would be when a 

sponsoring organization fails to provide 

beneficiaries with the proper premium 

notices to collect premium amounts in 

arrears. Another example would be if a 

sponsoring organization failed to 

provide access to services and we 

instructed the sponsor to contact 

enrollees regarding this issue and assist 

them with obtaining needed services or 

medications. In each of these situations 

we would require a sponsoring 

organization to disclose the deficiency 

to its enrollees and take affirmative 

steps to alleviate any problems for 

enrollees, such as providing enrollees 

with options to fix the issue. 

The performance ratings routinely 

available to beneficiaries, while equally 

important for the promotion of 

transparency and informed choice, 

generally will not include information 

about the type of performance 

deficiencies that will be the subject of 

these disclosure requirements. Also, we 

intend to use the normal account 

management oversight processes to 

review and approve any disclosures 

before they are made to beneficiaries to 

ensure that information disclosed is 

clear, and unambiguous and to lessen 

the potential for confusion, alarm or 

other potential negative impacts on 

beneficiaries. 

Comment: Several commenters raised 

concerns that this requirement would be 

administratively and financially 

burdensome on some sponsoring 

organizations either because these 

disclosures could lead to a significant 

increase in grievances and expenditures 

responding to beneficiary concerns over 

the disclosures or could unnecessarily 

alarm beneficiaries and lead to requests 

for disenrollment. These commenters 

also were concerned about the utility of 

these kinds of disclosures based on their 

experience that Medicare beneficiaries 

rarely request information about 

compliance and performance and have 

demonstrated no interest in information 

about sanctions taken by CMS. 

Response: As we stated in our October 

22, 2009 proposed rule, the primary 

purpose of this requirement is to 

promote transparency and informed 

choice especially in those situations 

where we believe beneficiaries need or 

should have access to this information. 

We intend to exercise our authority 

judiciously in those situations where we 

believe that the information being 

required to be disclosed will have a 

positive effect on transparency and 

informed choice. Similarly, we intend to 

use our normal account management 

oversight processes of review and 

approval of materials disclosed to 

beneficiaries to lessen the prospect for 

beneficiary confusion or concern which 

could lead to unnecessary grievances 

and requests for disenrollment. Finally, 

we believe that beneficiaries would be 

interested in receiving information 

about serious or significant compliance 

or performance deficiencies which 

potentially could affect them. 

Comment: Several commenters 

provided suggestions concerning how 

we should make this information 

available to enrollees. One commenter 

stated that we should require that 

sponsoring organizations make 

information available upon request or 

on the Medicare Web site and another 

commenter requested that we consider 

alternative means of supplementing 

existing performance information 

available to beneficiaries through the 

CMS Web site. 

Response: We do not agree with the 

suggestion that sponsoring organizations 

should only make such information 

available upon request or on the 

Medicare Web site. We intend to require 

that enrollees receive this information 

from sponsoring organizations in those 

circumstances where we believe 

beneficiaries must be affirmatively made 

aware of these deficiencies. Providing 

information upon request or merely 

posting on a Web site which enrollees 

may or may not access does not promote 

the degree of transparency and 

accountability by sponsoring 

organizations, for their deficiencies, that 

was contemplated by our proposal. 

Also, not all beneficiaries have access to 

the Medicare Web site and we believe 

beneficiaries may not be aware that they 

can request this information. 

Comment: One other commenter 

suggested that sponsoring organizations 

should not be required to disclose 

deficiencies that occurred in the past 

because those issues may have been 

corrected and are not relevant to the 

current status of the plan. 

Response: We intend to conduct our 

oversight responsibilities in a manner 

such that the kinds of compliance and 

performance deficiencies contemplated 

by these disclosures come to our 

attention as quickly as possible and are 

similarly disclosed to enrollees in a 

timely manner. However, it is not 

always possible for us to be aware of 

situations contemporaneous with their 

occurrence. We intend to take into 

account whether the deficiencies have 

been corrected and the utility of making 


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Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 19735 

such disclosures to beneficiaries in 

these instances when making a decision 

as to whether disclosure will be 

required. 

Comment: A number of commenters 

expressed concern with the timing of 

these required disclosures and the 

related issue of whether beneficiaries 

may elect other options once they 

receive one of these disclosures. Several 

commenters requested that disclosure 

be imposed only in those circumstances 

where a beneficiary would be afforded 

the opportunity to elect another plan 

option, some requested that disclosure 

of performance deficiencies be 

immediate so that beneficiaries would 

have more time to plan their health care 

decisions and several commenters 

believe that disclosures throughout the 

plan year would decrease the likelihood 

that information would get lost during 

the annual coordinated election period 

(AEP) or open enrollment period (OEP). 

Response: We agree with the 

commenters who recommended that 

disclosure of these compliance and 

performance deficiencies be made as 

expeditiously as possible to 

beneficiaries and therefore we also agree 

that these disclosures may be required 

throughout the plan year. Also, with 

respect to the comments relating to 

allowing beneficiaries to elect other 

options, based on the nature and extent 

of the deficiencies that necessitated the 

disclosure, we intend to exercise our 

authority to grant a special election 

period for beneficiaries affected by the 

plan’s compliance or performance 

deficiencies as permitted in § 422.64 

and § 423.38. Our intention is to provide 

actionable information to beneficiaries. 

In some cases, the appropriate action 

may be to afford beneficiaries an 

opportunity to elect another plan 

option. In other cases, it may be 

sufficient to require plans to disclose 

the deficiency to its enrollees and 

provide enrollees with options to fix the 

issue. 

Comment: We received one comment 

that questioned CMS’ authority to 

require a sponsoring organization to 

disclose to its beneficiaries its 

compliance or performance deficiencies. 

The commenter provided no specifics 

for the assertion and merely stated that 

they have expressed to us on numerous 

occasions the ‘‘well-founded legal and 

policy objections’’ to self-disclosure. 

Response: We currently have both 

statutory authority pursuant to sections 

1851(d) and 1860D–1(c) of the Act and 

existing regulatory authority under 

§ 422.111(f)(8)(v) and § 423.128(c)(1)(vii) 

to require sponsoring organizations to 

disclose information to its enrollees to 

help them make informed choices about 

their healthcare. We note that the 

commenter did not provide a further 

description or citation to the ‘‘well 

founded legal and policy objectives’’ 

that they stated had been previously 

submitted to us. To the extent that the 

commenter is referring to a prior 

proposal related to the mandatory selfdisclosure of fraud, waste, and abuse 

issues, the disclosures that are the 

subject of these proposals are entirely 

distinguishable and this proposal is 

completely unrelated to any past 

proposals involving the mandatory selfdisclosure of fraud, waste, and abuse 

issues. The current provision, for which 

there is explicit statutory authority, 

involves disclosures of compliance and 

performance deficiencies that we are 

already aware of and has determined 

involve an issue that enrollees should 

be notified of expeditiously. However, 

we are modifying the language in 

§ 422.111(g) to replace the term ‘‘selfdisclosure’’ with ‘‘disclosure’’ to avoid 

any confusion. 

Comment: One commenter questioned 

how CMS intends for sponsoring 

organizations to disclose to their 

enrollees that they have resolved the 

disclosed compliance/performance 

issues after the required disclosure is 

made. 

Response: We recognize that 

sponsoring organizations will want to 

correct any underlying compliance or 

performance deficiencies that led to 

these kinds of disclosures quickly. Our 

proposal was specifically intended to 

utilize transparency to incentivize and 

promote sponsoring organizations’ 

compliance with CMS requirements. As 

with the required disclosure notice, we 

intend to use the normal account 

management oversight processes to 

review and approve any notices that 

sponsoring organizations wish to 

provide to enrollees concerning a 

correction of the underlying compliance 

or performance deficiencies that led to 

the disclosure. 

Comment: One commenter requested 

that we issue a written warning to 

sponsoring organizations before sending 

the actual notice requiring disclosure. 

Response: We do not believe issuing 

a written warning to sponsoring 

organizations prior to requiring 

disclosure furthers any particular 

compliance or oversight objectives and 

additionally may not always be feasible, 

especially if the deficiency has just 

occurred and beneficiaries need to be 

notified immediately. We retain the 

discretion to issue a compliance action 

(including a written warning), separate 

and apart from the requirement to have 

sponsoring organization’s disclose 

deficiencies to enrollees, based on the 

underlying associated compliance or 

performance deficiency. Therefore we 

are not incorporating this commenter’s 

suggestion. 

Comment: One commenter expressed 

concern that sponsoring organizations 

do not have the opportunity to 

challenge or appeal the application of 

this requirement. 

Response: These disclosure 

provisions merely require sponsoring 

organizations to provide beneficiaries 

with access to information. There is no 

statutory or regulatory right to challenge 

or appeal a CMS requirement to disclose 

information to enrollees. However, to 

the extent we take a contract or 

enforcement action (for example, an 

intermediate sanction or a civil money 

penalty) against the sponsoring 

organization for an associated 

underlying compliance or performance 

deficiency, the sponsoring organization 

would be afforded any appeal rights 

associated with the action taken. 

Comment: One commenter was 

concerned that sponsoring organizations 

would not comply with the 

requirement. 

Response: We have established 

mechanisms for ensuring compliance 

and fully intend to enforce these 

requirements and to take appropriate 

corrective and enforcement action 

should sponsoring organizations fail to 

comply with this requirement. 

Comment: One commenter 

recommended that defined timeframes 

be issued in which CMS should respond 

to a beneficiary’s inquiry related to the 

disclosure of a plan’s performance or 

compliance deficiencies. 

Response: We have established 

mechanisms for ensuring we respond to 

all beneficiary inquiries and these 

established mechanisms would apply 

equally to any inquiries received from 

beneficiaries concerning these kinds of 

disclosures. 

Comment: One commenter suggested 

that we make public the information on 

its Web site in a manner that is more 

detailed and easier to find. 

Response: Our proposal was not 

intended to solicit comments about the 

information on our Web site and 

therefore we are not specifically 

addressing this comment. 

Comment: One commenter requested 

that we modify the plan ratings for 

special needs plans (SNPs) because they 

do not accurately measure plan 

performance. 

Response: Our proposal was not 

intended to address the methodology for 

plan ratings and therefore we are not 

specifically addressing this comment. 


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19736 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

24. Definition of MA Plan Service Area 

(§ 422.2) 

We proposed to amend the definition 

of an MA plan ‘‘service area’’ at § 422.2 

to exclude facilities in which 

individuals are incarcerated, consistent 

with the definition of service area for a 

Part D plan and in light of the fact that 

incarcerated beneficiaries are unlikely 

to have access to MA plan services, as 

required under § 422.112. We received 

several comments on this provision, all 

of which supported our proposal. We 

appreciate the support for the changes 

and are finalizing the proposed revision 

to the definition of MA plan ‘‘service 

area’’ without modification. 

C. Changes To Provide Plan Offerings 

With Meaningful Differences 

This section addresses proposals in 

our October 22, 2009 proposed rule that 

were designed to promote plan offerings 

with meaningful differences, and ensure 

plan viability. We discuss below 

proposed revisions that would help 

ensure that plans offered by the same 

organization in the same area have 

meaningful differences from each other, 

provide for a transition to the 

applicability of such rules when an 

existing organization is acquired by or 

merged with another organization, and 

provide that plans that have failed to 

attract enrollees over a period of time 

without justification may be nonrenewed. We believe that these 

revisions will help us accomplish the 

balance we wish to strike between 

encouraging robust competition and 

providing health plan and PDP choices 

to beneficiaries that do not create 

confusion for beneficiaries because 

there are meaningful differences in 

benefit packages among the plans 

offered. We discuss these provisions in 

connection with comments we received 

in response to the proposals outlined in 

Table 3. 

TABLE 3—PROVISIONS TO ENSURE MEANINGFUL DIFFERENCES IN PLAN OFFERINGS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Bid Submissions: Ensuring Significant Differences.Subpart F ................ § 422.254 ................................. Subpart F ................ § 423.265 

Bid Review Process ................................... Subpart F ................ § 422.256 ................................. Subpart F ................ § 423.272 

Transition Process in Cases of Acquisitions and Mergers).Subpart F ................ § 422.256 ................................. Subpart F ................ § 423.272 

Non-renewing Low-enrollment Plans ......... Subpart K ................ § 422.506(b)(1)(iv) ................... Subpart K ................ § 423.507(b)(1)(iii) 

1. Meaningful Differences in Bid 

Submissions and Bid Review (§ 422.254, 

§ 423.265; § 422.256, and § 423.272) 

Under our authority in section 

1857(e)(1) of the Act, incorporated for 

Part D by section 1860D–12(b)(3)(D) of 

the Act, to establish additional contract 

terms that CMS finds ‘‘necessary and 

appropriate’’ and with respect to Part D, 

our authority under section 1860D– 

11(d)(2)(B) of the Act to propose 

regulations imposing ‘‘reasonable 

minimum standards’’ for Part D 

sponsors, our October 22, 2009 

proposed rule proposed changes to our 

regulations to ensure that plan offerings 

by MA organizations and Part D 

sponsors represent meaningful 

differences to beneficiaries with respect 

to benefit packages and plan cost 

structures. Specifically, we proposed to 

revise § 422.256(b)(4)(i) and 

§ 423.272(b)(3)(i) to specify that we 

would only approve a bid submitted by 

an MA organization or Part D sponsor if 

its plan benefit package or plan cost 

structures were substantially different 

from those of other plans offered by the 

organization or sponsor in the area with 

respect to key plan characteristics such 

as premiums, cost-sharing, formulary 

structure, or benefits offered. We also 

proposed to make related changes to 

§ 422.254(a)(5) and § 423.265(b)(3)(i) to 

require that MA organizations and Part 

D sponsors must ensure that multiple 

bids submitted for plans in the same 

area are submitted only if the plans 

meet the foregoing test of being 

substantially different from each other. 

After reviewing the comments we are 

finalizing our proposals with the 

technical changes to § 422.254(a)(4), 

§ 423.265(b)(2), § 422.256(b)(4)(i) and 

§ 423.272(b)(3)(i), explained below. 

Comment: Most commenters 

supported our proposal to require 

meaningful differences in bids but asked 

for greater specificity about how the 

new rules would apply. Several 

commenters requested that CMS 

identify the specific thresholds and 

criteria to be used in determining that 

meaningful differences between plans 

exist, and several others requested that 

CMS annually publish the standards 

early in the year preceding the contract 

year to which the thresholds and criteria 

apply. A few commenters requested that 

criteria for meaningful differences be 

published annually and be subject to 

public comment. One commenter 

requested that CMS include public 

notice of areas with limited plans. 

Response: We agree with the 

commenters that it is important to 

provide more information and greater 

specificity concerning standards that we 

will use in assessing meaningful 

differences, and agree that MA 

organizations and Part D sponsors 

should have this information early in 

the year preceding the contract year to 

which the standards would apply in 

order to assist them in developing their 

plan offerings for the contract year. 

However, we also believe it is important 

to retain flexibility when considering 

meaningful differences. Therefore, as 

specified in our October 2009 proposed 

rule, our final regulations at 

§ 422.256(b)(4) and § 423.272(b)(3) 

continue to include the general 

substantive standard we will use when 

assessing plan bids, with the 

expectation that greater specificity in 

how this standard will be applied will 

be provided, with an opportunity for 

comment on our more detailed criteria, 

through guidance such as our annual 

call letter. We do not agree that it is 

necessary to provide a separate public 

notice of areas with limited plan 

choices, as the number of choices 

available in an area is already provided 

to beneficiaries in that area in the 

Medicare & You Handbook, and on the 

Medicare Web site. 

Comment: One commenter opposed 

the proposed changes and 

recommended that CMS reevaluate its 

policy on differences that are 

meaningful to beneficiaries, which the 

commenter believed was based purely 

on actuarial policies. The commenter 

argued that CMS’ policy could be 

considered discriminatory because 

geography would be a factor in whether 

multiple plans had to be different from 

each other. 


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Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 19737 

1 Gold, Marsha. Strategies for Simplifying the 

Medicare Advantage Market. Publication prepared 

for the Kaiser Family Foundation. July, 2009. 

2Rice, T. Reducing the Number of Drug Plans for 

Seniors: A Proposal and Analysis of three Case 

Studies. Presentation at Academy Health Annual 

Research Meeting: Washington, DC. June 9, 2008. 

Response: We believe our proposed 

policies would require differences in 

criteria that beneficiaries, not actuaries, 

would find meaningful, while still 

providing MA organizations and Part D 

sponsors with flexibility in offering 

different plan options. We disagree with 

the commenter who believes that 

considering the geographical region of a 

plan could be considered 

discriminatory, since the beneficiary 

confusion issue we are addressing in 

this rule only applies when duplicative 

plans are offered by the same 

organization in the same area. Moreover, 

we believe that greater scrutiny of 

differences between an organization’s 

plan offerings in an area where more 

plans are offered is justified in that the 

higher the total number of plans offered 

in an area, the greater is the potential for 

beneficiaries to be confused and 

overwhelmed. 

Comment: Several commenters had 

specific questions, concerns, or 

suggestions about how to best assess 

meaningful differences. Several 

commenters wrote that CMS should not 

place so much focus on Part D 

formularies as a means of determining 

meaningful differences. In connection 

with this issue, several commenters 

believed that focus on the plan 

formulary could lead to sponsors 

offering at least one plan with a ‘‘bare 

bones’’ formulary. Such ‘‘baseline’’ or 

‘‘benchmark’’ plans could harm LIS 

enrollees, as such enrollees would likely 

be disproportionately enrolled in such 

plans and are least able to navigate 

barriers such as utilization management 

restrictions. Concerning other specific 

issues, a commenter wrote that MA–PD 

plans offered by the same organization 

should be assessed for meaningful 

differences based on the health care 

benefits offered by each plan and not 

the Part D benefits of each, as 

standardization of the Part D benefit is 

generally helpful for beneficiaries. 

Response: With respect to focusing on 

plan formularies as a criterion for 

assessing meaningful differences in Part 

D plans, we note that while we believe 

differences in formularies to be a 

fundamental area for assessing plan 

differences, this was not the only 

element of Part D plan offerings we 

proposed to assess. Indeed, we proposed 

to look at premiums and cost-sharing, as 

well. With respect to the concerns that 

focusing on the formulary could lead to 

‘‘bare bones’’ plans in which LIS 

beneficiaries could be 

disproportionately enrolled, the Part D 

program requirements clearly specify 

the minimum requirements for basic 

prescription drug coverage, and plans’ 

formularies are reviewed and approved 

only if they are determined to provide 

adequate access consistent with those 

requirements. As explained in 30.2.7 of 

Chapter 6 of the Medicare Prescription 

Drug Manual (see http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/ 

12_PartDManuals.asp#TopOfPage), we 

review submitted drug lists to ensure 

that they are consistent with best 

practice formularies currently in 

widespread use today. Our goal is to 

ensure that all Part D formularies are 

sufficiently broad in scope so as to 

contain the drugs most commonly used 

to treat the conditions faced by 

Medicare beneficiaries. Nothing in our 

proposed regulations would permit a 

sponsor to offer anything less than the 

current standard for the basic Part D 

benefit. 

Comment: A commenter asked if five 

SNP plans offered by the same MA 

organization would be considered 

meaningfully different, even if the 

formulary offered by each resulted in 

similar out-of-pocket costs, simply 

because the plans offered were SNPs. 

Another commenter cautioned that 

coverage in the gap may be little 

different than no coverage in the gap if 

such coverage consists solely of generic 

drugs. The commenter suggested that a 

plan’s initial coverage limit is a better 

indicator of meaningful differences 

between plans. A commenter noted that 

that his studies indicate that enhanced 

Part D benefits are increasingly 

meaningless, and that genuine coverage 

in the gap is the primary indicator 

between enhanced and standard plans, 

given that cost-sharing and premiums 

are often no different between enhanced 

and basic prescription drug coverage. 

According to this commenter, his 

studies show that gap coverage is also 

often not meaningfully different because 

such coverage is: (1) Almost always 

accomplished through generic drugs; (2) 

many generic drugs are not normally 

covered by plans claiming to offer such 

coverage; and (3) copayment amounts in 

the gap are higher than copayments 

before reaching the initial coverage 

limit. The commenter suggested that a 

plan should be required to cover all 

formulary drugs in the gap if the plan 

wants to offer gap coverage and, if this 

is not feasible, plans offering gap 

coverage for generics should be required 

to offer the same coverage in the gap for 

generics that they offer in the initial 

coverage period. Another commenter 

wrote that its experience was that 

utilization of generic drugs is one of the 

best ways that a member can delay onset 

of the coverage gap. 

Response: With respect to the 

comment on multiple SNPs offered by 

the same organization, we would not 

consider five SNPs offered by the same 

organization to be meaningfully 

different simply because the plans 

offered are SNPs. As is also the case in 

our provision to non-renew low 

enrollment plans, we believe that SNPs 

may warrant special attention when 

assessing meaningful differences 

because of such factors as the enrollee 

population served and differences in 

benefits (Medicare and Medicaid in the 

case of dual-eligible SNPs). However, 

we do not believe that such plans 

should receive exemptions from either 

the requirements concerning low 

enrollment or meaningfully different 

plans simply because they are SNPs. 

Half of all Medicare beneficiaries have 

over 40 MA plan choices (this figure 

does not include special needs plans or 

employer group health plans which 

have additional criteria for enrollment), 

and many states offer 50 or more stand 

alone Part D plans, a number that can 

double when one includes Medicare 

Advantage plans with a Part D benefit. 

Several studies suggest that the MA and 

Part D program offerings are so 

numerous that they can be confusing. In 

a report by Marsha Gold of Mathematica 

Policy Research, Inc., for example, Gold 

writes of the MA program that ‘‘Existing 

research suggests that simplification 

may have advantages for beneficiaries,’’ 

and that one such advantage is 

preventing competitors from taking 

advantage of the system ‘‘through 

product design.’’ 1 Gold continues by 

identifying the sheer array of plan types 

with their different characteristics, such 

as access to services or cost structures, 

as confusing to beneficiaries to the point 

that they may not choose the plan that 

is best for them in terms of costs or 

benefits. In his study, ‘‘How Much 

Choice is too Much? The Case of the 

Medicare Prescription Drug Benefit, T. 

Rice argues, based on Part D beneficiary 

studies that he and others in the field 

have conducted, that ‘‘The results show 

that decision quality [of seniors’ ability 

to choose plans with the lowest annual 

total cost] deteriorated as the number of 

plans increases.’’ 2 In another study of 

Part D plan offerings, published in a 

2009 paper by Jason T. Abaluck and 

Jonathan Gruber, the authors determine 

that ‘‘elders place much more weight on 

plan premiums than they do on the 

expected out of pocket costs that they 

will incur under the plan’’ and that 


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3Abaluck, Jason T, and Jonathan Gruber. Choice 

Inconsistencies among the Elderly: Evidence from 

Plan Choice in the Medicare Part D Program. NBER 

Working Paper Series. Working paper 14759. 

February, 2009. http://www.nber.org/papers/ 

w14759. 

‘‘they substantially under-value variance 

reducing aspects of alternative plans,’’ 

confirming that the array of Part D plan 

offerings can often lead to inconsistent 

choices among seniors with respect to 

determining costs, and plan features 

most beneficial to them.3

We agree with the commenter who 

wrote that coverage in the gap may not 

always be meaningfully different if such 

coverage consists solely of a subset of 

formulary generic drugs but we disagree 

that an enhanced alternative plan 

should be required to cover all 

formulary drugs in the gap if the plan 

wishes to claim to offer gap coverage. 

Rather, we believe that a meaningful 

difference with respect to an enhanced 

plan must be represented by a 

significant increase in benefits over 

basic coverage. Similarly, if two 

enhanced plans are offered by the same 

sponsor in a service area, a meaningful 

difference among those two plan 

offerings must be represented by a 

significant difference in benefits offered. 

Comment: One commenter 

recommended that we permit an MA 

organization to offer three plans of each 

plan type in a service area, while 

another wrote that CMS should not 

arbitrarily limit the number of plans 

offered by an MA organization in a 

service area. 

Response: Although permitting an 

MA organization to offer three plans of 

each plan type may be reasonable in 

some circumstances, we do not agree 

with the commenter that this should 

necessarily be the case. To the extent 

that the three plans have meaningful 

differences from each other that avoid 

beneficiary confusion, we believe that 

three plans of the same type (for 

example, coordinated care plan) would 

be permissible. Because the number of 

plans of the same type that would be 

permitted under this rule would depend 

on the plan design, and on ensuring that 

beneficiaries are not confused, we 

disagree with the commenter that we are 

imposing an ‘‘arbitrary’’ limit on plan 

offerings. 

Comment: A commenter suggested 

that CMS require all health care plans 

to have at least one basic, standardized 

plan that would be transparent and 

understandable to beneficiaries no 

matter where or by which organization 

the plan was offered. 

Response: We do not agree with the 

commenter that all MAOs offer at least 

one standardized plan no matter where 

or by which organization the plan is 

offered. While it is important to ensure 

that plan options are meaningfully 

different, we also believe MAOs should 

have the flexibility to craft distinct plan 

options for beneficiaries. 

Comment: One commenter implied 

that CMS was not aware that plan 

benefit designs with low or no 

premiums and higher cost-sharing may 

be attractive to some beneficiaries, and 

plans with no deductibles and higher 

premium attractive to others and, as a 

result, both structures should remain a 

viable choice in the marketplace. A 

commenter urged CMS to look at an 

organization or sponsor’s plans 

‘‘holistically’’ when assessing 

meaningful differences. Another 

commenter cautioned that while 

establishing meaningful differences 

among plans offered by an MAO or 

sponsor is important, CMS must watch 

for complexities in plans’ cost-sharing 

structures, as these various structures 

make it far more difficult for 

beneficiaries to evaluate differences 

between or among benefit packages. 

Response: Contrary to the 

commenter’s suggestion, we are well 

aware that some beneficiaries prefer 

plan benefit designs with low or no 

premiums and higher cost-sharing while 

others may prefer high deductible/high 

premium plans, and we have no 

intention of prohibiting these as ‘‘a 

viable choice’’ for beneficiaries. To the 

contrary, our requirement that plans 

have meaningful differences from one 

another is designed to promote such 

differences in plan design. CMS’ 

concern is with MAOs and Part D 

sponsors that offer several plans in the 

same service area that have few 

distinctions, not with plans with benefit 

or cost structures which are clearly 

quite different. 

Comment: A commenter requested 

that we consider premiums, the 

provision of health and wellness 

programs, and dental or vision coverage 

in our assessment of meaningful 

differences between MA plans. Another 

commenter took exception to our 

example in the proposed rule that an 

HMO with a point of service (POS) 

option and local PPO can sometimes be 

similar, that is, may not be meaningfully 

different, and wrote that local PPOs are, 

in fact, different by virtue of offering 

out-of-network coverage. Another 

commenter agreed that HMOs with a 

POS option are largely indistinguishable 

from local PPO plans. 

Response: The focus of our review for 

meaningful differences is primarily on 

cost differentials between plans for Parts 

A and B services, the presence of a Part 

D benefit, the ways beneficiaries access 

services (that is, through a network, as 

in an HMO or in a non-network context 

such as a PPO) and overall plan costs. 

The addition of individual 

supplemental benefits may not trigger 

the annual thresholds we have used to 

establish significant differences in 

overall plan costs among an MA 

organization’s plan offerings in a service 

area. That said, our recent experience in 

reviewing plan benefit packages 

suggests that the addition of some 

supplemental benefits can result in 

significant differences in out-of-pocket 

costs. Therefore, it is possible that an 

individual supplemental benefit or 

group of supplemental benefits could 

result in plans being meaningfully 

different from one another. With respect 

to the comments concerning our 

example that PPOs and HMOs with a 

POS option could be considered similar 

if offered by the same MAO even though 

they technically are different plan types, 

we cited this example to illustrate that 

even though these are different plan 

types it is possible that such plans, if 

offered by the same MAO, could be 

considered similar under some 

circumstances. For example, if access to 

care in-network, and coverage of 

services out-of-network is essentially 

the same in both plans, and there are no 

other significant differences between the 

two in benefits or costs, there would not 

be ‘‘meaningful’’ differences between the 

two plans. 

Comment: A commenter cautioned 

that CMS should be aware that an MA 

organization offering several dual SNP 

plans might have several similar benefit 

packages for Medicare benefits, but the 

same plans could have quite different 

Medicaid benefits. Another commenter 

supported our intention, as expressed in 

the proposed rule, to permit multiple 

plan filings by the same MA 

organization in certain circumstances 

and wrote that CMS should formally 

recognize the ‘‘Medicaid agency’s 

purchasing strategy’’ ’ in any assessment 

of meaningful differences among dual 

eligible SNP plans. 

Response: We do not consider 

differences in Medicaid benefits among 

dual eligible SNPs offered by the same 

MA organization as significant 

differences for purpose of our review, 

since we are reviewing differences in 

MA plan offerings, not Medicaid 

benefits. We would consider Medicare 

premiums (as part of a plan’s cost 

structure) as part of its review of bids. 

In short, as an earlier commenter urged, 

CMS intends to look ‘‘holistically’’ at an 

organization or plan sponsor’s offering 

in a service area when determining 

whether or not an organization’s or 


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Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 19739 

sponsor’s offerings are meaningfully 

different. 

Comment: A commenter wrote that 

CMS should ensure that CMS’ policies 

do not inadvertently remove meaningful 

choices in areas where choices may be 

comparatively limited (Barrow County, 

Alaska v. Dade County, Florida, for 

example). Another commenter wrote 

that CMS should consider limiting an 

organization’s or sponsor’s plan 

offerings in a geographic area similar to 

the Federal Employee Health Benefits 

Program or plans offered by some other 

employers. 

Response: We do not intend to 

prevent plan choice in rural areas 

through implementation of the 

requirement for meaningfully different 

plans. The intent of the provisions is to 

ensure genuine choices for beneficiaries 

as well as transparency in plan offerings 

so that beneficiaries can make informed 

decisions about their health care plan 

choices. For this reason, we do not agree 

with the commenter who suggests that 

we limit an organization/sponsor’s plan 

offerings in a geographical area to an 

arbitrary number of plans, since this 

could actually limit additional 

meaningful choices. 

Comment: Two commenters cited 

discrepancies in the preamble and 

regulations text for Parts C and D 

concerning bid submissions 

(§ 422.254(a)(4) and § 423.265(b)(2)) and 

asked that we ensure the final 

regulations text reflects the language of 

the preamble by specifying that 

meaningful differences include 

differences in ‘‘cost-sharing or benefits 

offered, (MA regulations)’’ and 

‘‘premiums, cost-sharing, formulary 

structure, or benefits offered’’ (Part D 

regulations) instead of the proposed 

regulations text for these sections, 

which was more general ‘‘benefit 

packages and plan costs’’ (MA 

regulations), ‘‘beneficiary out-of-pocket 

costs, and formulary structures’’ (Part D 

regulations). In addition the 

commenters asked that the list of 

meaningfully different elements cited in 

the bid submission and review sections 

be connected with the coordinating 

conjunction ‘‘or’’ instead of ‘‘and.’’ One 

of the commenters recommended that 

the bid review sections for both the Part 

C and D regulations at § 422.256(b)(4)(i) 

and § 423.272(b)(3)(i) cross reference the 

criteria for meaningful differences in the 

bid submission sections for both 

programs (§ 422.254(a)(4) and 

§ 423.265(b)(2)). 

Response: We agree with the 

comments suggesting that the 

regulations text for the bid submission 

and review sections specifying the 

criteria we will use in assessing if an 

MA organization’s or Part D sponsor’s 

bids are meaningfully different should 

be connected with ‘‘or’’ instead of the 

coordinating conjunction ‘‘and.’’ As a 

result, we are revising our regulations at 

§ 422.254(a)(4), § 422.256(b)(4)(i), 

§ 423.265(b)(2), and § 423.272(b)(3) to 

state that an [MA or Part D] 

organization’s bids must reflect 

differences in ‘‘benefit packages or plan 

costs.’’ We also are making conforming 

changes to § 422.256(b)(4)(ii) and 

§ 423.272(b)(3)(ii) which concern 

acquisitions and mergers, as these 

sections use similar language. However, 

we disagree with the commenter who 

urged that the preamble language 

referencing ‘‘plan characteristics such as 

premiums or cost-sharing’’ (MA 

program) or ‘‘premiums, cost-sharing, 

formulary structure,’’ (Part D program) 

should be reflected in the regulations 

text. Although these are certainly 

elements that may result in 

meaningfully different plans, we believe 

the current language captures these 

elements while providing the necessary 

flexibility to view plans ‘‘holistically.’’ 

In addition, the commenter correctly 

points out that in order to make the Part 

C and D regulations consistent, 

§ 422.256(b)(4)(i), which concerns MA 

bid reviews, should cross reference 

§ 422.254(b)(4), which concerns 

submission of MA bids. 

With the exception of the revisions 

noted previously, we are finalizing the 

provisions as proposed. 

2. Transition Period in Cases of Mergers 

and Acquisitions (§ 422.256, § 423.272) 

In connection with our proposal to 

ensure that plan offerings represent 

meaningful differences, we proposed to 

add § 422.256(b)(4)(i) and 

§ 423.272(b)(3)(ii) to provide MA 

organizations and Part D sponsors 

involved in mergers or acquisitions a 2- 

year transition period from the merger 

or acquisition to ensure that plans 

offered by the MA organization or Part 

D sponsor are significantly different 

from each other. After a transition 

period of 2 years, we would only 

approve a bid submitted by an MA 

organization or Part D sponsor, or a 

parent organization to that entity, if the 

benefits or plan cost structure 

represented by that bid were 

substantially different from any other 

bid submitted by the same MA 

organization or Part D sponsor (or 

parent organization of that entity). We 

requested comments regarding the 

adequacy of our proposed transition 

period length of 2 years in both the MA 

and Part D contexts, particularly since 

we had previously, as articulated in the 

2008 Call Letter for Medicare health 

plans and PDPs, that PDP sponsors 

affected by mergers or acquisitions 

would be afforded a 3-year transition 

period. After reviewing the comments 

received in response to this proposal, 

we are finalizing the proposed 

provisions without modification. 

Comment: Several commenters agreed 

with our proposal to require 

organizations and sponsors acquiring or 

merging with existing entities to offer 

plans with meaningful differences 

within two years of the merger or 

acquisition. One of the commenters 

wrote that 2 years was ‘‘more than 

adequate’’ for affected organizations and 

sponsors to offer meaningfully different 

plans. Another wrote that while 2 years 

was sufficient, CMS should consider 

notifying beneficiaries 1 year in advance 

of a plan’s non-renewal so that they 

have clear notice of any changes. 

Several commenters disagreed with 

the proposal to permit 2 years for 

transition, recommending, instead, that 

CMS maintain the current 3-year 

requirement articulated in the 2008 Call 

Letter. A few commenters believed that 

the language in the proposed rule could 

be interpreted to permit as little as one 

bidding cycle/bidding year between an 

acquisition or merger and the offering of 

meaningfully different plans. One 

commenter said that a 2-year transition 

period would be disruptive to 

beneficiaries and would not permit 

plans to develop adequate benefit 

packages. This commenter requested 

that CMS permit a 3-year transition 

period. Another commenter contended 

that organizations/sponsors need 3 years 

after a merger or acquisition in order to 

adapt their benefit packages to comply 

with the meaningful differences rule, 

and to implement a robust 

communications plan for implementing 

required changes. 

Another commenter argued that CMS 

should not state that the transition 

period will be ‘‘as determined by CMS,’’ 

but rather specify how the transition 

period will be measured. The same 

commenter wrote that if CMS does 

finalize the proposed requirement, we 

should not apply it to any acquisition 

prior to issuance of the rule, as the 

organization would have already taken 

action based on transition-related 

guidance in the 2008 and 2009 call 

letters. 

Response: As stated in the preamble 

to the proposed rule, based on our 

experience, we believe that our 

proposed timeline for transitions 

provides ample time for organizations 

and sponsors to ensure that benefit 

packages are sufficiently different and to 

notify enrollees of any changes. Because 

the transition period actually applies for 


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the two contract years following the 

year of the acquisition or merger, that is, 

if a merger takes place in 2010, the 

MAO or sponsor would have until 2013 

to offer meaningfully different plans, we 

believe this period is disruptive neither 

to plans nor to beneficiaries, and thus 

disagree with the commenter who 

asserted that a 3-year transition was 

needed to allow MA organizations and 

Part D plan sponsors to adapt their 

benefit structures and communicate to 

beneficiaries about the changes being 

made. 

We clarify that only organizations or 

sponsors that merge or are acquired after 

the effective date of this final rule will 

be subject to the requirement at 

§ 422.256(b)(4)(ii) and § 423.272(b)(3)(ii) 

that their offerings are meaningfully 

different after a 2-year transition period. 

In the case of plans offered by 

organizations or sponsors that merge or 

acquire other plans prior to the effective 

date of this regulation, the previously 

articulated 3-year transition period 

would apply. 

3. Non-Renewing Low-Enrollment Plans 

(§ 422.506(b)(1)(iv), § 423.507(b)(1)(iii)) 

As part of our process to streamline 

and simplify the plan selection process 

for beneficiaries, and ensure that 

beneficiaries are only offered plans with 

long-term viability, we proposed in 

§ 422.506(b)(1)(iv) and 

§ 423.507(b)(1)(iii) to include, as a 

specific ground for non-renewal of a 

contract, a finding that a Part C or Part 

D plan has failed to attract a significant 

number of enrollees over a sustained 

period of time. We justified this 

requirement on the grounds that, as a 

general matter, continuing such a low 

enrollment plan was not consistent with 

effective and efficient administration of 

the Medicare program for purposes of 

section 1857(c)(2)(B) of the Act 

(incorporated for Part D under section 

1860D–12(b)(3)(B) of the Act), which 

provides authority to terminate a 

contract under such circumstances. In 

the preamble to the proposed rule, we 

acknowledged that there may be 

instances in which low enrollment over 

a sustained period of time is a function 

of the type of beneficiaries served, 

geographic location, or other 

circumstances, and that we would 

consider continuing to renew a low 

enrollment plan in such situations 

including, but not limited to, chronic 

care SNPs offering health care services 

especially tailored to this category of 

beneficiaries and not available 

elsewhere or employer group health 

plans offering benefits augmenting those 

of an MA plan to employees of a small 

business. We further stated that, if a 

case could be made that low enrollment 

is justified, and the absence of such a 

plan would significantly limit 

beneficiary health care options in a 

service area, consistent with effective 

and efficient administration of the Part 

C or Part D benefit, we would not nonrenew that plan. Similarly, we also 

stated that the threshold for low 

enrollment could fluctuate, although we 

noted that we used a threshold of 100 

enrollees for purposes of reducing the 

number of low enrollment plans for 

contract year 2010. Therefore, we did 

not propose to revise our regulations to 

specify a specific threshold. We 

solicited comments on this approach 

and whether we had provided sufficient 

clarity on how we would determine 

whether a low-enrollment plan would 

be non-renewed. 

Comment: Several commenters 

supported the proposal to non-renew 

low enrollment plans, but 

recommended that the threshold and 

guidelines we would use to apply this 

requirement (including such factors as 

the number of plans in a market, plan 

enrollment, and the number of years of 

operation with low enrollment 

numbers) be clear and transparent, and 

that they be made available publicly 

early in the year preceding the contract 

year to which they will apply. One 

commenter wrote that CMS should 

convene a working group prior to 

enacting our proposed policy to nonrenew low enrollment plans. Another 

commenter wrote that CMS should 

consider low enrollment to be in the 250 

to 500 enrollee range rather than 100 

enrollees (the number used in our 

efforts to reduce low-enrollment plans 

for contract year 2010, as detailed in the 

preamble to our proposed rule). Another 

recommended a low enrollment 

threshold of 1000 enrollees because it 

believes that plans serving fewer than 

1000 people in a service area would be 

unable to offer negotiated savings, 

quality managed care, or popular plan 

features. A commenter asked CMS to 

clarify what is meant by ‘‘a small 

number of enrollees over a period of 

time.’’ 

Response: We agree that guidelines 

concerning minimum enrollment 

thresholds and criteria should be 

published annually and as early as 

possible in the year preceding the 

contract year to which they will apply. 

While we disagree that we should 

specify thresholds in regulations, we 

intend to provide opportunities for the 

public to review and comment on our 

proposed thresholds and criteria for 

assessing low enrollment for the 

following contract year (for example, 

through our annual call letter). We 

recognize that we must be flexible in 

assessing minimum enrollment to 

ensure that plans with legitimate 

reasons for low enrollments, such as 

lack of other health care plan options, 

specialized plan offering (such as, a 

chronic care SNP), or recent 

establishment of the plan, may continue 

to operate and that beneficiaries who 

might not otherwise have access to 

health care options offered by a lowenrollment plan will continue to have 

such access. Because we intend to 

provide for public input annually on 

our implementation guidance and will 

consider the suggestions for specific 

threshold amounts submitted by the 

commenters in that context, we do not 

believe the suggested ‘‘workgroup’’ to be 

necessary. With respect to the question 

of what constitutes ‘‘a small number of 

enrollees’’ over a period of time, the 

process described above may also be 

used to determine the number of 

enrollees that would trigger application 

of this regulation, as well as the period 

of time for which the small number 

would have to be sustained. 

Comment: Another commenter 

recommended that CMS make clear that 

the length of time a plan has had low 

enrollment will be a primary factor in 

determining whether a plan is nonrenewed, and that we should modify 

our regulations language to explicitly 

provide for ‘‘waivers’’ of the proposed 

requirement at § 422.506(b)(1)(iv) 

(§ 423.507(b)(1)(iii) for Part D plans) 

when special circumstances such as the 

type of beneficiaries served, geographic 

location, and absence of the plan would 

significantly limit beneficiary health 

care options in a service area. 

Response: The length of time in 

which a plan has had low enrollment is 

only one of the factors that we will 

consider in determining whether it is 

consistent with effective and efficient 

administration of the Part C or Part D 

benefit. We will also consider the type 

of benefits being offered under the plan 

and the nature of the enrollment in the 

plan. As stated above, we recognize that 

we must be flexible in applying any 

minimum enrollment requirement to 

ensure that plans with legitimate 

reasons for low enrollments, such as 

lack of other health care plan options, 

specialized plan offering or recent 

establishment of the plan, may continue 

to operate. This flexibility will ensure 

that beneficiaries who might not 

otherwise have access to health care 

options offered by a low-enrollment 

plan will continue to have such access. 

Because we intend to apply this 

requirement in a flexible manner that 

considers the particular circumstances 

of each low enrollment plan, we do not 


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believe it is necessary to modify the 

proposed regulations at 

§ 422.506(b)(1)(iv) and 

§ 423.507(b)(1)(iii) to provide explicitly 

for ‘‘waivers’’ of this requirement. 

Comment: A commenter 

recommended that non-renewed plans 

be permitted to passively enroll affected 

enrollees into another plan offered by 

the MA organization or Part D sponsor. 

Response: With respect to the 

recommendation to provide for passive 

enrollment of beneficiaries in a nonrenewed plan into another plan offered 

by that organization, we believe this is 

appropriate only in limited 

circumstances when a compelling case 

can be made that such passive 

enrollment is in beneficiaries’ best 

interests. In making such 

determinations, we take into 

consideration criteria such as benefits, 

cost sharing, the provider network, and 

premiums to ensure a comparable plan 

offering. In all other cases, we believe it 

is most appropriate to leave enrollment 

decisions to beneficiaries, who will 

have an opportunity during the annual 

coordinated election period to select 

another MA plan or Part D plan offered 

by the MA organization or Part D 

sponsor offering the plan being 

terminated. If a plan is terminated or 

nonrenewed, the affected organization 

or sponsor must follow all beneficiary 

and CMS advance notification 

requirements as specified in §§ 422.506, 

422.508, 422.510, and 422.512 (MA 

program regulations), §§ 423.507, 

423.508, 423.509, and 423.510 (Part D 

program regulations) and related 

guidance for both programs. In addition, 

passive enrollment initiated by an 

organization or sponsor in the absence 

of CMS approval is not among the 

transactions permitted by us in our 

annual renewal/non-renewal guidance. 

Because of these requirements and 

policies, an MA organization or Part D 

sponsor wishing to enroll members from 

the terminating or non-renewing plan 

into another of their plans could not do 

this without prior CMS review and 

consent. If we were to determine that 

such a transaction was in beneficiaries’ 

best interests, we would, as is our 

practice, facilitate and closely monitor 

the process. We note as well that 

beneficiaries in terminated or nonrenewed plans have guaranteed issue 

Medigap rights, access to information 

about other available health care 

options, and other information that will 

assist them in finding plans most suited 

to their needs. 

Comment: Several commenters 

supported our proposal but asked that 

we make exceptions for SNPs. One 

commenter requesting the SNP 

exception wrote that ‘‘status as a SNP 

should be prima facie evidence that low 

enrollment is justified.’’ A few of these 

commenters specifically requested that 

such exceptions be codified in the final 

regulations text. One commenter 

requested an exception be made for 

employer group plans. One commenter 

requested an exception for MA-only 

plans, stating that enrollees who get 

their prescription drugs through some 

means other an MA–PD should still 

have the option of remaining in an MAonly plan, and another commenter 

requested that ‘‘national’’ plans be 

exempted from these requirements. 

Response: While we will consider 

exceptions on a case-by-case basis to 

any low-enrollment thresholds we 

establish, we do not believe it is 

necessary to exempt any specific plan 

type a priority. As we stated in the 

preamble to the proposed rule, there 

may be reasons for exceptions based on 

plan type, geography, or special health 

conditions of enrollees served that 

warrant a waiver of the requirements. 

However, a specific plan type, for 

example, a SNP or employer group plan, 

will not automatically be exempt from 

the minimum enrollment standard for 

renewal due to plan type alone. While 

sustained low enrollment may well be 

justified in the case of certain SNPs 

serving individuals with a relatively 

rare condition, a SNP serving an 

individual with a more common disease 

such as diabetes, or serving dual 

eligibles, should be able to attract 

enrollees. Similarly, we do not believe 

there is justification for exempting MAonly plans or ‘‘national’’ plans from the 

requirements unless there are other 

reasons to exempt them (for example, 

lack of other health care plan options, 

the specialized nature of the plan, or the 

recent establishment of the plan). 

4. Medicare Options Compare and 

Medicare Prescription Drug Plan Finder 

In the proposed rule we asked for 

comments on ways to improve the web 

tools, Medicare Options Compare 

(MOC), and the Medicare Prescription 

Drug Plan Finder (MDPF). We 

summarize and respond to these 

comments below. 

Comment: One commenter requested 

that CMS add a function to limit the 

information that can be seen in the MOC 

so that users of the tool can focus on 

information they need most. 

Response: The 2011 contract year 

update will include functions that 

expand and collapse which will help 

users of the MOC better focus on 

specific information. 

Comment: Another commenter asked 

that the MOC contain direct links to the 

plan(s) discussed, not just the 

organization’s Web site as is now often 

the case. 

Response: We are not making the 

suggested change at this time as we 

believe that MOC already includes 

sufficient information to contact plans. 

Comment: Another commenter 

requested that the tool clearly indicate 

what is meant by an ‘‘enhanced plan,’’ 

even if this is just a general description 

in the tool of the typical features of an 

enhanced plan. 

Response: We do not believe that 

revisions are necessary as information 

on enhanced plans is currently available 

in the glossary and at http:// 

www.medicare.gov/medicarereform/ 

howtoread.asp. 

Comment: A commenter requested 

that CMS add back the search function 

in MPDPF notifying the user of the 

number of drugs covered by a particular 

plan. The same commenter requested 

that information be included about 

when a plan last updated its drug 

pricing information and that the tool 

includes information about coverage of 

drugs traditionally covered under Part 

B, for example, infused and injectable 

drugs for MA–PD plans. 

Response: Currently the drugs an 

individual beneficiary takes may be 

entered and displayed to determine 

coverage, but the MPDPF does not 

permit display a list of all the drugs a 

plan covers as this would take a very 

long time for the tool to display. CMS 

reviews drug pricing on a regular basis 

and the data is updated monthly to 

reflect any changes. We believe the 

compare function best permits users to 

tailor their searches for the specific 

drugs in the specific forms that they 

need. 

Comment: Another commenter wrote 

that the MOC is relatively thorough but 

inconsistent in that some plans in the 

tool do not include information about 

health care costs and that saved 

searches often yield different results 

when retrieved later. The commenter 

recommended that the tool be refined to 

allow the user to move easily back and 

forth between information for MA and 

Part D plans, that the conditions 

required for enrollment in a chronic 

care SNP be specified, and that the 

function concerning costs for tiers of 

drugs is ‘‘incredibly unfriendly and 

confusing.’’ 

Response: We are considering how 

best to streamline and make the use of 

these comparative functions easier. 


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19742 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

D. Changes To Improve Payment Rules 

and Processes 

This section addresses three payment 

issues under Part C. These provisions 

are outlined in Table 4. 

TABLE 4—IMPROVING PAYMENT RULES AND PROCESSES

Provision 

Part 417/422 Part 417/422 Part 423 Part 423 

Subpart Section Subpart Section 

Risk Adjustment Data Validation ......................................................... Subpart F .................. § 422.2 N/A N/A. 

Dispute and Appeals Process ............................................................. Subpart G .................. § 422.311 ........................ ........................

Payments to Medicare Advantage Organizations-Actuarial Valuation Subpart F .................. § 422.254 N/A N/A. 

Determination of Acceptable Administrative Costs by HMO/CMP 

Cost Contract and Health Care Prepayment Plans (HCPPs).

Subpart O .................. § 417.564 N/A N/A. 

Calculation of the Minimum Percentage Increase under Part C ......... Subpart G .................. § 422.306 N/A N/A. 

1. Definitions Related to Risk 

Adjustment Data Validation Appeals 

(§ 422.2) and Addition of Medicare 

Advantage Organization Risk 

Adjustment Data Validation—Dispute 

and Appeal Procedures (§ 422.311) 

In the October 22, 2009 proposed rule, 

we proposed regulations establishing an 

appeals process to be used by MA 

organizations to appeal the error 

calculation resulting from Risk 

Adjustment Data Validation (RADV) 

audits. As explained in the preamble of 

that proposed rule, under RADV audits 

and medical records are reviewed to 

determine whether they support 

diagnosis codes (known as Hierarchical 

Condition Codes, or HCCs) submitted to 

us under the MA risk adjustment 

methodology. Under this methodology, 

certain diagnosis codes are considered 

to signify higher costs for the enrollee, 

and therefore, we pay a higher amount 

to the MA organization for an enrollee 

to reflect these higher costs. If, in fact, 

a diagnosis code was not justified by the 

enrollee’s medical condition, the higher 

payment amount associated with that 

diagnosis code would have been an 

overpayment. Under the RADV audit 

process we plan to recover the 

overpayments identified during the 

RADV audit. The appeals process we 

proposed in the October 22, 2009 

proposed rule was intended to provide 

a mechanism for MA organizations to 

appeal the error calculation associated 

with the overpayments identified under 

RADV audits. We invited and received 

a large number of comments from health 

plans, managed care industry trade 

associations, and other interested 

parties regarding not only the proposed 

appeals process, but on the RADV audit 

process and underlying MA payment 

policy producing the overpayment 

findings and our definitions proposed at 

§ 422.2. Since neither the statute nor 

existing MA program regulations 

currently specify a process for appealing 

overpayments resulting from RADV 

audits, the appeals process we proposed 

was based on our authority to establish 

MA program standards by regulation at 

section 1856(b)(1) of the Act. 

Specifically, we proposed adding a new 

§ 422.311 to part 422, subpart G, to 

specify RADV dispute and appeal rights 

for MA organizations. We proposed 

regulatory provisions allowing MA 

organizations that undergo RADV 

audit(s) to—(1) submit physician and 

other practitioner signed attestations 

relating to physician and other 

outpatient medical records that had a 

missing signature, or credentials that 

resulted in a payment error finding; (2) 

dispute certain other types of medical 

record review-related findings through 

the use of a documentation dispute 

process; and (3) appeal our RADV 

payment error calculation. By availing 

themselves of these RADV dispute and 

appeal processes, we noted that MA 

organizations would be able to reduce 

their RADV payment error and thereby, 

reduce their overall estimated MA 

payment error. Therefore, we proposed 

the following provisions under part 422: 

• To revise § 422.2 to add definitions 

of six terms that pertain to RADV 

activities, and thus to our proposals for 

implementing a RADV dispute and 

appeal processes. 

• A new § 422.311 describing 

procedures that we would implement to 

afford MA organizations facing a 

potential overpayment determination 

resulting from RADV audits the 

opportunity to have certain potential 

RADV payment errors addressed in 

advance of RADV-audit-related payment 

error determinations, and to have other 

types of confirmed payment errors 

overturned. At § 422.311(a) and (b), we 

summarized the RADV audit 

procedures. Beginning with 

§ 422.311(c), we proposed implementing 

a three-pronged RADV dispute and 

appeal procedure that MA organizations 

could employ to reduce their RADV 

payment error rate, including— 

• Physician/practitioner 

attestation(s); 

• Documentation dispute; and 

• RADV payment error calculation 

appeal. 

We noted that analysis of data 

originating from medical records 

submitted by MA organizations that 

have undergone RADV audit indicates 

that a substantial percentage of medical 

record-related payment error 

determinations are due to missing 

signatures or credentials on medical 

records. Medicare program rules dictate 

the necessity of physician signatures on 

medical records, and MA risk 

adjustment requirements dictate that 

risk adjustment diagnosis data be 

accepted only for health services that 

were provided by certain physician 

specialties. Therefore, RADV audit 

procedures require that, in addition to 

finding diagnosis information that 

would support the HCCs submitted by 

the MA organization for risk adjustment 

purposes, physician signatures, and 

appropriate credentials must be present 

on medical records. Medical records 

with missing signatures or credentials 

are scored as errors under RADV audit 

procedures. We estimated that if given 

the opportunity to do so, many 

physicians and other practitioners that 

provided the diagnosis information on 

RADV-reviewed medical records would 

in fact attest that they documented the 

information in these medical records, 

even though signatures and credentials 

were missing from those records. 

Moreover, the presence of a signature or 

credential attestation to accompany 

these medical records would in our 

opinion, provide justification for 

preventing both contract-level and 

national-level RADV payment errors 


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that would otherwise originate from 

medical record signature, or credentialrelated discrepancies. 

Therefore, in proposed 

§ 422.311(c)(1), we proposed to 

implement a process that would allow 

MA organizations to voluntarily submit 

CMS attestations (that is, attestations 

developed and pre-populated by CMS). 

These attestations would be signed by 

physicians/practitioners who would 

attest responsibility for providing and 

documenting the health services in the 

physician and outpatient medical 

record(s) that were submitted for RADV 

audit. We specified at proposed 

§ 422.311(c)(1)(ii) and (iii) that MA 

organizations would be eligible to use 

attestations to address signature or 

credential-related discrepancies only 

from physician or outpatient medical 

records; attestations would not be 

allowed to address signature or 

credential-related discrepancies found 

on inpatient medical records. The 

proposed use of an attestation would 

not in any way supplant the medical 

record, nor would it permit attesting 

physicians/practitioners to alter the 

existing medical record. Attestations 

would not be acceptable to address any 

issues outside of the RADV-audit 

process. 

At proposed § 422.311(c)(1)(C)(iv), we 

indicated that we would prospectively 

notify MA organizations that if the ‘‘one 

best’’ medical record used to validate an 

audited HCC were missing a physician/ 

practitioner signature or credential, the 

MA organization would be permitted to 

submit a CMS–RADV attestation along 

with the medical record, to fulfill the 

requirement that medical records 

contain physician/practitioner 

signatures and credentials. 

We described the proposed process 

that we would jointly undertake to 

review attestations submitted for our 

review at proposed § 422.311(c)(1)(iv) 

and (v), noting the following: 

• Only CMS-generated attestations 

that meet certain requirements 

described at § 422.311(c)(1) and (d) 

would be eligible for consideration. 

Failure to meet these requirements 

would result in us not reviewing or 

accepting submitted attestations. 

• CMS attestations that have been 

altered or amended (for example, 

striking out prepopulated words and 

replacing them with hand-written 

replacement words) without instruction 

or written concurrence from us would 

not be accepted. 

• Attestations would need to 

accompany the medical record at the 

same time that the medical record was 

submitted to us for RADV audit. MA 

organizations would not be permitted to 

submit attestations before or after 

submission of their RADV medical 

records. 

• Attestations would need to 

originate from the physician/ 

practitioner whose medical record 

accompanies and corresponds to the 

attestation. We would not accept 

attestations or medical records from any 

party other than the MA organization. 

• Organizations would not be 

permitted to submit attestations during 

the documentation dispute or RADV 

reconsideration processes described at 

§ 422.311(c)(2) and § 422.311(c)(3). 

At proposed § 422.311(c)(1)(iv), we 

described the process that we would 

undertake to review attestations and 

notify appellant MA organizations of the 

results of these attestation reviews. Our 

attestation review determinations would 

be final and binding upon both parties 

and would not be eligible for further 

appeal. 

We further proposed affording MA 

organizations the option of disputing 

other nonsignature or credential-types 

of RADV-related medical record 

diagnosis coding discrepancies via a 

proposed documentation dispute 

process that we described in new 

paragraph § 422.311(c)(2). Under our 

proposal, in order to be eligible for 

documentation dispute, MA 

organizations would need to submit 

their ‘‘one best’’ medical record in 

accordance with RADV medical record 

submission deadlines established by us 

during the RADV medical record 

request process. 

At proposed § 422.311(c)(2)(a), we 

specified the types of RADV-related 

errors that would be eligible for the 

proposed documentation dispute 

process. The documentation dispute 

process would apply only to the errors 

that arise out of operational processing 

of medical records selected for RADV 

audits and submitted to us by 

established deadlines. In this context, 

errors that arise from operational 

processing mean errors that arise from 

the collection and processing of medical 

records for a RADV audit. 

At § 422.311(c)(2)(ii), we proposed 

limitations that we would impose upon 

the documentation dispute process; 

namely that MA organizations would 

not be permitted to dispute any medical 

record coding discrepancies, nor would 

MA organizations be permitted to 

submit altogether new medical records 

in place of previously submitted 

medical records. Payment errors that 

resulted from missing medical records 

would not be eligible for documentation 

dispute. At proposed § 422.311(c)(2)(iii) 

and (iv), we indicated that we would 

prospectively notify MA organizations 

of RADV payment errors that would be 

eligible for documentation dispute, 

describe the documentation dispute 

process that we would undertake, along 

with the process that we would 

undertake to notify MA organizations of 

the results of documentation dispute 

reviews. As described at proposed 

§ 422.311(c)(2)(v), our documentation 

dispute review determination would be 

final and binding upon both parties and 

would not otherwise be eligible for 

further administrative appeal. 

Proposed § 422.311(c)(3) would 

establish an appeals process under 

which RADV payment error calculations 

would be subject to appeal. Unlike our 

proposed attestation process described 

at § 422.311(c)(1), and proposed 

documentation dispute process describe 

at § 422.311(c)(2), which would afford 

MA organizations the opportunity to 

dispute aspects of our medical record 

review process, the proposed RADV 

payment error calculation appeal 

process was specifically designed to 

afford MA organizations the opportunity 

to appeal our contract-level RADV 

payment error calculation. Under the 

proposed RADV payment error 

calculation appeal process, we proposed 

establishing a three-level appeal process 

whereby MA organizations may— 

• Seek reconsideration; 

• Appeal the reconsideration decision 

to an independent CMS Hearing Officer; 

and 

• Appeal the decision of the 

independent CMS Hearing Officer to the 

CMS Administrator. 

Given the complexity of RADV audits 

in general, and the calculation of RADVrelated error rates in particular, we 

stated our belief that it was prudent to 

afford appellant MA organizations 

multiple-layers of RADV-related 

payment error appeal. 

At proposed § 422.311(c)(3)(ii), we 

also specified that MA organizations 

would not, under the proposed RADV 

payment error calculation appeal 

process, be permitted to appeal medical 

record review errors, nor would MA 

organizations be permitted to seek 

formal appeal of physician or 

practitioner signature or credentialrelated review errors. We believed that 

medical record review-related issues 

would be addressed as a result of the 

rigorous medical record review process, 

and the attestation and documentation 

dispute processes described earlier in 

the proposed regulation. In accordance 

with our proposed regulation at 

§ 422.311(c)(3)(i), the RADV payment 

error calculation appeals process would 

only apply to errors identified in the 

RADV payment error calculation. MA 

organizations would not be permitted to 


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utilize the payment error calculation 

appeal process as a method for 

submitting any medical records for 

consideration in the calculation of the 

payment error. In order to be eligible for 

RADV payment error calculation appeal, 

MA organizations would need to adhere 

to established RADV audit 

requirements, including the submission 

of medical records in the manner and by 

the deadlines specified by CMS. 

Furthermore, we noted that MA 

organizations would not be permitted to 

appeal our RADV payment error 

calculation methodology. Our 

justification for excluding 

methodological appeals was two-fold. 

First, we said the methodology that we 

planned to employ to calculate RADV 

payment errors was methodologically 

sound and academically defensible. We 

stated that we intended to ensure that 

all MA organizations understand the 

RADV payment error calculation 

methodology by providing annual 

notice to all MA organizations of the 

methodology that will be employed for 

calculating Part C payment errors. MA 

organizations that object to CMS’ RADV 

payment error calculation methodology 

would be given an opportunity to 

provide comment to us under ours 

annual notice of RADV audit 

methodology. Second, in addition to 

providing an annual notice of RADV 

audit methodology, we stated that we 

would provide an expanded explanation 

of methodology as part of each RDV 

audit report that we send to MA 

organizations that undergo RADV audit. 

Included in this expanded explanation 

of methodology would be RADV 

payment error calculation factors 

unique to each audited MA organization 

that would enable the MA organization 

to independently calculate its own 

RADV payment error. 

At proposed § 422.311(c)(3)(iii) and 

(v), we specified that MA organizations 

would be notified of their RADV 

payment error calculation appeal rights 

at the time we issue a RADV audit 

report to that organization. MA 

organizations would have 30 calendar 

days from the date of this notice to 

submit a written request for 

reconsideration of its RADV payment 

error calculation. A request for 

reconsideration would need to specify 

the issues with which the MA 

organization disagrees, the reasons for 

the disagreements and explain why the 

organization believes the issues are 

eligible for reconsideration. The request 

for reconsideration would need to 

include additional documentary 

evidence that the MA organization 

considers material to the 

reconsideration, though MA 

organizations would be prohibited from 

submitting medical record-related 

evidence such as new or previously 

submitted medical records or physician 

or practitioner attestations and from 

appealing any issues pertaining to the 

methodology applied in any part of the 

RADV audit. At proposed 

§ 422.311(c)(3)(iv), we further specified 

that the MA organization would bear the 

burden of proof to demonstrate that our 

RADV payment error calculation was 

clearly incorrect. 

We described our proposal regarding 

the conduct of a RADV payment error 

calculation reconsideration, the 

decision of the reconsideration official 

and the effect of the CMS 

reconsideration decision official at 

proposed § 422.311(c)(3)(e) and (f). 

At proposed § 422.311(c)(3)(v) and 

(vi), we described the first level of 

RADV payment error calculation appeal, 

the request for reconsideration of our 

RADV payment error calculation. Under 

this process a CMS official or our 

contractor not otherwise involved in 

error-rate calculation activity would 

review our RADV payment error 

calculation and any written evidence 

submitted by the MA organization that 

pertains to CMS’ RADV payment error 

calculation, recalculate the payment 

error utilizing our RADV payment error 

calculation methodology (as specified in 

our standard operating procedures), and 

render a determination whether the 

RADV payment error calculation was 

accurate. This CMS official or CMS 

contractor not otherwise involved in 

RADV error-rate calculation activity 

would recalculate and arrive at an 

independent RADV payment error. 

Whether the official or contractor agreed 

with our payment error calculation, or 

overturned the calculation and 

established a new RADV payment error, 

this party’s RADV payment error 

calculation determination would be 

issued to a CMS reconsideration official. 

The CMS reconsideration official would 

review their analysis and make a 

determination whether to accept or 

reject the findings of the CMS official or 

CMS contractor that recalculated the 

RADV payment error. In instances when 

the CMS official or contractor 

recommended overturning CMS’ RADV 

payment error calculation and the 

reviewing CMS reconsideration official 

agreed with the newly calculated RADV 

payment error, we would issue a 

reconsideration decision which 

informed the appealing MA 

organization in writing of its 

reconsideration decision, in effect, 

notifying the MA organization of its new 

RADV payment error. If the 

reconsideration official upheld the 

decision of the CMS official or 

contractor to sustain our initial RADV 

payment error calculation, the 

reconsideration official similarly would 

notify the appellant MA organization of 

its determination. In either instance, the 

decision of the reconsideration official 

would be final and binding, unless a 

request for hearing was filed by CMS or 

the appellant MA organization. 

At proposed § 422.311(c)(4), we 

clarified that if CMS or an MA 

organization were dissatisfied with the 

decision of the CMS reconsideration 

official described at § 422.311(c)(3), 

CMS or the MA organization would be 

permitted to request a second-level 

RADV payment error calculation appeal, 

which is a hearing on the RADV 

payment error calculation 

determination. CMS or MA organization 

choosing to pursue a hearing would be 

required to file a request for hearing 

within 30 calendar days of the date the 

MA organization received the written 

RADV payment error calculation 

reconsideration decision, as described at 

proposed § 422.311(c)(3)(vi). 

We noted that CMS or MA 

organizations requesting a hearing 

would need to do so in writing, 

including a copy of the CMS 

reconsideration official’s decision to 

either uphold or overturn the initial 

RADV payment error calculation, and 

specify the findings or issues in that 

reconsideration decision that they 

disagreed with and why they disagreed 

with them. The hearing would be 

conducted by the CMS Office of 

Hearings and presided over by a CMS 

Hearing Officer who neither receives 

testimony nor accepts any new evidence 

that was not presented with the request 

for reconsideration of the RADV 

payment error calculation. The hearing 

would be held on the record, unless the 

parties requested, subject to the Hearing 

Officer’s discretion, a live or telephonic 

hearing. The Hearing Officer would also 

be permitted to schedule a live or 

telephonic hearing upon their own 

motion. The CMS Hearing Officer would 

be limited to a review of the record that 

was used for the initial RADV payment 

error calculation and the reconsidered 

RADV payment error calculation. 

Additionally, we noted that the 

Hearing Officer would have full power 

to make rules and establish procedures, 

consistent with the law, regulations, and 

CMS rulings. These powers would 

include the authority to take appropriate 

action in response to failure of an 

organization to comply with such 

procedures. 

At proposed § 422.311(c)(4)(iv), we 

also indicated that the CMS Hearing 

Officer would review and decide 


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whether the reconsideration official’s 

decision was correct and to notify CMS 

and the MA organization in writing of 

his/her decision, explaining the basis 

for the decision, which would be final 

and binding, unless the decision was 

reversed or modified by the CMS 

Administrator in accordance with 

§ 422.311(c)(5). 

We explained that the third level of 

RADV payment error calculation appeal 

that MA organizations can request 

would be discretionary review by the 

CMS Administrator. We described this 

proposed process at § 422.311(c)(5). At 

this level of appeal, CMS or the MA 

organization would be permitted to 

appeal the decision of the CMS Hearing 

Officer by requesting that the CMS 

Administrator review the CMS Hearing 

Officer’s determination. Parties 

requesting CMS Administrator review 

would have to request the review within 

30 calendar days of receipt of the CMS 

Hearing Officer’s determination. If the 

Administrator agreed to review the case, 

the Administrator would review the 

Hearing Officer’s decision as well as any 

other information included in the record 

of the Hearing Officer’s decision and 

would determine whether to uphold, 

reverse, or modify the CMS Hearing 

Officer’s decision. The Administrator’s 

determination would be final and 

binding. 

We also noted that, based on our 

experience with appeals of MA and 

Medicare Part D program contract 

determinations, we have determined 

that it would be necessary for us to 

establish a ‘‘compliance date’’ to use as 

a reference point in issuing a ruling 

regarding RADV audit findings. 

Therefore, we proposed at 

§ 422.311(b)(2), to require that the 

compliance date for meeting Federal 

regulations requiring MA organizations 

to submit medical records for the 

validation of risk adjustment data 

(§ 422.310(e)) also be the due date when 

MA organizations (or their contractor(s)) 

selected for RADV audit would need to 

submit medical records to us. We stated 

we would inform an MA organization in 

writing regarding selection for RADV 

audit, including the due date for 

submission of medical records. 

We invited and received a large 

number of comments from health plans, 

managed care industry trade 

associations, and other interested 

parties regarding not only the proposed 

appeals process described in proposed 

§ 422.311—but also the RADV audit 

process and underlying Medicare 

Advantage payment policy. These 

comments have resulted in changes to 

our above-described proposals as 

discussed below. 

While many comments that we 

received relate to the underlying RADV 

audit process and risk adjustment 

methodology and may not directly 

address the RADV appeals process 

specifically, we are responding to these 

comments, because they appear to be 

relevant to the RADV appeals process 

that we had proposed in our Notice of 

Proposed Rulemaking. Certain 

comments were outside the scope of our 

proposed rule and we have not included 

responses to those comments. 

Comment: A comment alleged that it 

was premature for CMS to propose rules 

related to the RADV appeals process 

because the commenter stated that the 

Administrative Procedure Act (APA) 

required that the underlying RADV 

audit process giving rise to the 

overpayments that would be appealed 

under our proposed regulations be 

subjected to notice and comment 

rulemaking. 

Response: We disagree and believe 

that the RADV audit process does not 

establish any substantive rules within 

the meaning of the APA or section 1871 

of the Act, but rather is a means for 

ensuring that payments made to MA 

organizations comply with substantive 

rules governing MA payments that are 

set forth in the statute, and in 

regulations that have been subjected to 

notice and comment procedures. 

Regulations specifying that payment 

amounts are subject to audit (for 

example, § 422.504(d)(1)(i) have been 

subjected to notice and comment 

procedures, and provide ample notice of 

the fact that we have the right (and, 

indeed, the duty) to ensure that MA 

payment amounts are accurate. See also, 

§ 422.310(e), which states that MA 

organizations and their providers and 

practitioners will be required to submit 

a sample of medical records for the 

validation of risk adjustment data, as 

required by CMS, and that there may be 

penalties for submission of inaccurate 

data. 

Indeed, we would point out that 

throughout the Medicare program, and 

government programs generally, audit 

policies and procedures intended to 

ensure or verify payment accuracy assist 

in the enforcement of rules, and are not 

themselves substantive rules subject to 

APA notice and comment procedures. 

Therefore, to the extent we are 

providing a RADV appeals process, we 

are providing an opportunity that does 

not currently exist for MA organizations 

to appeal audit findings that they would 

otherwise not have been permitted to 

question. 

Comment: Some commenters stated 

that CMS did not follow proper 

procedures and stated that procedures 

set forth in our proposed regulations, 

such as our ‘‘one best medical record’’ 

and other documentation requirements, 

established a substantive legal standard 

governing the payment to MA 

organizations, and therefore, they had to 

be included in the annual notice of 

changes to payment methods required 

under section 1853(b)(2) of the Act, 

which requires that MA organizations 

be afforded an opportunity to comment 

on changes in the methodology for 

determining MA payments. 

Response: We disagree. The 

requirement in section 1853(b)(2) of the 

Act to provide an advance notice of 

methodological changes to MA 

organizations of proposed changes to 

the methodology and assumptions used 

to compute annual MA capitation rates 

pertains to the methodology for 

determining the proper amount of 

payment. All substantive changes to the 

risk adjustment methodology at issue in 

the RADV audit process have been 

described in the annual advance notice. 

The RADV audit process and appeals 

procedures proposed in the October 22, 

2009 proposed rule do not make any 

substantive changes in the methodology 

for determining MA payment amounts. 

Rather, they are designed to ensure that 

this payment methodology has been 

applied correctly, and the MA 

organization has received the amount to 

which it was entitled under this 

methodology. The risk adjustment 

methodology provides that a specific 

amount be paid if an enrollee has a 

particular condition. The RADV audits 

and appeals process are designed to 

ensure that the enrollee in fact has that 

condition, and that the MA organization 

is thus entitled to the amount that has 

been paid for that condition. The fact 

that audits might determine that an MA 

organization was not, in fact, paid 

correctly, is not a change in 

methodology or assumptions related to 

how the payment amount is to be 

determined and therefore is not subject 

to the advance notice requirements 

under section 1853(b)(2) of the Act. 

Nonetheless, in our October 22, 2009 

proposed rule, we proposed to provide 

notice of RADV audit methodology to 

the public, as well as a summary of 

RADV methodology issues for each 

audited MA organization at the time we 

issue our audit finding pursuant to an 

actual RADV audit. We offered to 

provide details of our RADV audit 

methodology in an attempt to provide 

additional transparency related to the 

process. We anticipate providing 

additional notice of RADV audit 

methodology to the public by 

publishing the methodology in some 


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19746 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

type of Medicare program document— 

most likely in a Medicare manual later 

this year (2010). 

Comment: A commenter stated that 

CMS was not complying with 

requirements in section 1871(a)(2) of the 

Act, which states that ‘‘No rule, 

requirement, or other statement of 

policy (other than a national coverage 

determination) that establishes or 

changes a substantive legal standard 

governing the scope of benefits, the 

payment for services, * * * shall take 

effect unless it is promulgated by the 

Secretary by regulation* * *’’ 

Response: As discussed previously, 

the RADV audit process, and the 

appeals procedures addressed in this 

rulemaking, do not ‘‘establish’’ or 

‘‘change’’ any ‘‘substantive legal standard 

governing * * * payment.’’ To the 

contrary, they are designed to ensure 

that the substantive legal standards for 

payment set forth in the statute and 

regulations are correctly applied. The 

substantive rules governing the amount 

of payment to which the MA 

organization is entitled are unchanged 

as governed by statute and 

implementing regulations. 

Comment: A commenter urged that 

CMS suspend RADV audits until such 

time as CMS subjects the rules to notice 

and comment rulemaking. 

Response: As discussed previously, 

we do not believe subjecting the RADV 

audit process to rulemaking is required 

or appropriate, there would be no basis 

for suspending the audit process. 

Comment: One commenter noted that 

when the risk adjustment system was 

initially established, the Secretary was 

required to submit a report to Congress 

in accordance with section 1853(a)(3)(A) 

of the Act that documented the 

proposed method of risk adjustment of 

MA payment rates, and that included an 

evaluation of the method by an outside, 

independent actuary of the actuarial 

soundness of the proposal. The 

commenter believed that such an 

evaluation was required in the case of 

the RADV audit process. 

Response: We disagree that RADV 

audits impact the risk adjustment 

system in any manner. As indicated 

earlier, RADV audits are solely to verify 

that the risk adjustment methodology is 

being correctly applied. 

We also received a large number of 

comments from MA organizations, 

managed care trade associations and a 

law firm regarding RADV 

methodological-related issues. While 

some comments were not relevant to the 

rules that CMS proposed regarding the 

RADV appeals process, there were a 

number of comments that we believe 

should be addressed, and as such, we do 

so as follows. 

Comment: Many commenters 

recommended that CMS independently 

test and validate its RADV methodology 

before CMS implements it. The 

commenters indicated that CMS failed 

to provide any record of submitting its 

methodologies to an academic review 

and that if CMS has done so, we should 

have included such studies with the 

proposed rule so that interested parties 

could review and comment on any of 

these academic studies. The 

commenters recommended that CMS 

provide a process that permits thorough 

review and comment by plans of RADV 

audit methodology issues before 

undertaking further RADV audits. 

Several commenters further 

recommended that all methodological 

issues pertaining to RADV audits be 

appealable. 

Response: Previously in this preamble 

we indicate that the process of 

independently reviewing medical 

records to validate risk adjustment data 

submitted by MA organizations for 

payment purposes has been established 

and operational for more than 10 years. 

Over the course of this timeframe, we 

have been advised on the RADV process 

by statisticians, senior analysts, expert 

medical record coders, physicians, 

managed care professionals, and other 

health care providers. From a medical 

record coding perspective, we have 

secured expert direction from Peer 

Review Organizations (PROs) (in the 

past) and Quality Improvement 

Organizations (QIOs) (currently) by 

incorporating them into the RADV team. 

From an analytic design and 

implementation perspective, we have in 

the past and continue to employ senior 

level expert analysts from different 

academic fields as independent 

contributors to the RADV operations 

team to review and validate the 

accuracy of the findings across the 

RADV process, including peer review of 

statistical sampling and payment error 

calculation methodologies. The 

independent expert analysis and review 

is similar to that conducted in an 

academic setting in that the 

participating parties are credentialed in 

a specific field of study, such as 

statistics, and possess substantial years 

of expertise conducting similar 

processes and analyses. The 

independent methodology review 

processes also involve the use of 

internal controls, and tests for 

consistency and accuracy. RADV 

procedures are subject to the evaluation 

requirements of the CMS Annual 

Financial Audit. 

In addition, the RADV methodology 

that we employ in the process of 

reporting a component of the national 

Part C payment error is similar to the 

methodological approach that we 

employ in conducting contract-specific 

RADV audits and error calculations. 

This methodology has been reviewed 

and approved by officials at the HHS. 

This notwithstanding, in considering 

the commenters’ questions, where 

necessary, we will incorporate 

additional independent third party 

review for purposes of validating RADV 

error-calculation methodology. As 

indicated in our proposed rule and cited 

elsewhere in the preamble to this final 

rule, we intend to publish its RADV 

methodology in some type of public 

document–most likely, a Medicare 

Manual, so that the public can review 

and provide comment as it deems 

necessary. Finally, to ensure that 

audited organizations understand how 

their RADV error rate was calculated, as 

indicated in our proposed rule, we 

further intend to describe our RADV 

methodology in each audited 

organization’s RADV audit report. 

Given these efforts to ensure that the 

RADV process is transparent to audited 

MA organizations and the public, and 

that the methodology used under that 

process is reasonable, consistent, and 

accurate, we do not believe any further 

action is required. 

Comment: Several commenters argued 

that CMS should include Medicare plan 

enrollees for whom no diagnosis code 

was submitted under the risk 

adjustment methodology as part of its 

RADV error testing samples. These 

commenters also recommended that 

CMS include ‘‘under-coding’’ findings in 

the audit error estimates in order to 

more accurately account for members’ 

health status. 

Response: Our RADV audit policy 

does account for both underpayments 

and overpayments. The RADV process 

addresses under-coding through the 

application of rules for crediting a 

sampled enrollee with additional HCCs 

that are identified incidentally, during 

medical record review. We emphasize 

that these ‘‘additional’’ diagnoses were 

not originally submitted for payment for 

enrollees selected in the sample, and yet 

we provide audited organizations credit 

through our RADV medical record 

review process. 

However, we have not and do not 

expect to sample enrollees for whom no 

HCCs were submitted. This is because 

the RADV is an audit process that is 

intended to validate the HCCs that were 

submitted by MA organizations in order 

to determine whether the additional 

payment amounts associated with these 


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diagnosis codes were properly made. 

Under our separate Risk Adjustment 

Data Submission Process, the data 

submission period for any given 

payment year is lengthy and extends 

beyond the actual payment year, 

providing a substantial amount of time 

for organizations to submit and/or 

correct enrollee HCC risk adjustment 

data for any given payment year—to 

reflect of enrollee health status. This is 

sufficient time for plans to submit data 

on all their enrollees, including those 

with no HCCs. The RADV audit process 

is not intended to serve as a de facto 

mechanism for extending the HCC data 

submission deadlines under which MA 

organizations operate. 

We received a number of comments 

from MA organizations and a law firm 

regarding the financial impact of RADV 

audits. While these comments did not 

pertain directly to our proposed RADV 

appeals procedures, some comments 

nevertheless indirectly impact the 

RADV appeals rules. Therefore, we 

respond to several of these comments 

here. 

Comment: Several commenters 

suggested that CMS’s proposed 

methodology to calculate and apply 

error rates and payment adjustments 

across contract years after payments 

were made undermines the actuariallybased risk assumptions inherent in 

Plans’ bid submissions. 

Response: Regarding the assertion that 

RADV audits undermine the Part C 

bidding process, beginning with the 

introduction of the HCC risk adjustment 

model for CY 2004, we have published 

clear guidelines to be followed by MA 

organizations in the collection and 

support of diagnosis codes underlying 

risk scores for plan enrollees. In their 

preparation of a MA bid, certifying 

actuaries are expected to ensure that the 

underlying data are reasonable and 

appropriate for the circumstance, 

including the base year risk scores. If 

the ultimate risk scores for a plan’s 

population are lower than initially 

forecast by the certifying actuary, then 

the plan is likely to experience lower 

than expected margin. Conversely, if the 

ultimate risk scores for a plan’s 

population are higher than initially 

forecast by the certifying actuary, then 

the plan is likely to experience greater 

than expected margin. These results 

illustrate the nature of health plan 

capitation and the risk borne by MA 

organizations. 

Comment: Commenters stated that the 

establishment of an audit methodology 

that involves retrospective contractlevel payment adjustments creates the 

potential for unpredictable retroactive 

liability that MA organizations could 

not have considered in developing bids 

for affected prior years. Commenters 

suggested that CMS’ sampling 

methodology undercuts the mandate in 

section 1854(b)(6)(B)(iv) of the Act that 

MA organizations’ rates reflect the 

revenue needs of the organization. The 

commenters assert that MA 

organizations did not develop bid 

submissions for calendar years 2006 

through 2009 with an expectation that 

CMS would implement contract-wide 

payment adjustments based on provider 

documentation issues outside of the MA 

organizations’ control. As a result, if 

payments effectively are reduced 

retroactively as the result of RADV 

audits, the bid submissions (and 

resulting payments) arguably would not 

adequately reflect Plans’ risks, and MA 

organizations may be forced to dip into 

their reserves to repay dollars that were 

not anticipated to be at risk. 

Response: We disagree. If plan bids 

are developed based on faulty data, such 

as inappropriate claim costs or risk 

score data, there is a greater likelihood 

of error in the bid projection. There are 

many factors that influence the accuracy 

of bid projection, and data quality is just 

one such factor. There is no legal 

authority to change a bid amount after 

it has been accepted regardless if 

additional information suggests that the 

bid is too high or too low. 

In general, it is our belief that health 

plans are confusing actuarial 

equivalence in payment amount— 

which demographic adjustments, risk 

adjustment methodology, and coding 

intensity adjustment are all designed to 

achieve— with differences in the way 

costs are documented. Because MA 

organizations are paid on a capitation 

basis, costs are not covered for a specific 

service provided. Rather, they are based 

on the actuarial value of such costs. The 

risk adjustment methodology uses 

diagnosis codes as a proxy for higher 

costs associated with a particular 

diagnosis. Because, under original 

Medicare, costs of specific services 

received are reimbursed, the diagnoses 

leading to such costs being incurred 

have a different relevance under original 

Medicare than they do under the 

Medicare Part C payment system. The 

risk adjustment methodology and RADV 

audit process that we employ to ensure 

accuracy under Medicare Part C actually 

further actuarial equivalence, rather 

than conflicting with it. The differences 

between MA and original Medicare are 

simply attributable to differences in 

how payment is made. It is these 

differences that necessitate the actuarial 

equivalence standard in the first place. 

Comment: Several commenters 

questioned whether CMS’s RADV 

medical record review coders have the 

qualifications and experience necessary 

to code RADV-related medical records. 

Commenters specifically questioned 

whether RADV coders were equipped to 

code accurately in situations in which 

clinical training may be required in 

order to recognize all extractable ICD–9 

codes. They inquired into the 

certification and coding experience 

qualifications for the RADV coders. 

Response: The coders that CMS uses 

to review RADV medical records are 

fully qualified to code RADV-related 

medical records. All coders are 

professionally certified for example, 

Certified Professional Coder (CPC), 

Certified Coding Specialist (CCS), 

Registered Health Information 

Administrator, (RHIA) and Registered 

Health Information Technician (RHIT), 

and must have prior experience coding 

medical records. Coders have access to 

physician consultation as needed. 

Coders also have access to our 

Independent Coding Consultant—a 

coding expert with more than 10 years 

of professional coding experience, 

which we require to be RHIA, coding 

certified and to have at least 5 years of 

experience in RADV-specific coding. 

Comment: Several commenters 

objected to what they contend is a 

burden that RADV audits impose upon 

the physicians and physician practices 

who must produce medical records 

necessary to conduct audits. These 

commenters recommended that CMS 

take into account the potential impacts 

of more aggressive program integrity 

efforts on the medical practices that 

provide care to MA plan enrollees. 

Outside of the proposed rule, we have 

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 Medicare health plans 

that mimics the RADV audits that we 

undertake for Medicare payment 

validation. These commenters raised 

concerns that Medicare health plans 

were misrepresenting their internal 

audit activity as official CMS RADV 

audits. 

Response: Section 422.310(e) requires 

that providers who voluntarily enter 

into contracts with MA organizations 

submit data to CMS contractors/IVCs for 

RADV audits. In an effort to minimize 

the burden associated with this activity, 

we have developed best practices that 

we encourage health plans 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. 


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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 plan’s own audit or in 

accordance with an official Medicare 

program RADV audit which is subject to 

legislative 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, and 

providers may request this authorizing 

letter before responding to requests by 

the MA plan. 

We received a large number of 

comments from MA organizations, 

managed care trade associations and a 

law firm regarding the ‘‘one best medical 

record’’ policy that CMS proposed to 

apply to the RADV program. By way of 

explanation, the ‘‘one best medical 

record’’ policy specifies that for any one 

sampled beneficiary—with any one 

HCC—the MA organization is allowed 

to select and submit supporting medical 

record documentation of a face-to-face 

encounter for a physician or outpatient 

visit (one date of service) or an inpatient 

stay (range of dates from admit to 

discharge). The face-to-face encounter 

would have needed to occur at some 

point during the data collection year 

(from January 1st to December 31st). 

Comment: Commenters contended 

that the one best medical record policy 

forces plans to omit relevant data that 

could be supported through 

documentation that CMS does not 

permit—such as prescription drug data 

and lab results. 

Response: The RADV risk adjustment 

model is based upon FFS claims data 

from specific risk adjustment provider 

types, and not alternative data sources, 

such as, prescription drug data or lab 

results. Therefore, the RADV audit 

process is based upon supporting 

medical record documentation from 

provider data sources that are used to 

calibrate the model. As for the one best 

medical record policy, while MA 

organizations that voluntarily submit 

HCCs for Medicare payment are 

prospectively paid based on these 

unaudited and unvalidated HCCs 

submissions, we, upon the 

recommendation of MA organizations, 

agreed to allow any one medical record 

from across an entire data collection 

period to validate an HCC incorporated 

into the payment to the MA 

organization. 

Comment: Some commenters contend 

that if CMS is going to rely on the one 

best medical record policy to the 

exclusion of other sources of 

information that might confirm an HCC, 

the RADV appeals process should allow 

for HCC medical record review findings 

to be appealed. 

Response: To address these comments 

as described in § 422.311(c)(2) of this 

final rule, we have revised the process 

so that MA organizations may appeal 

medical record review determinations 

in accordance with the procedures 

specified in § 422.311(c)(2). 

Comment: A number of commenters 

argued that the one best medical record 

policy is flawed in that it provides an 

insufficient basis for confirming an HCC 

for members with chronic diseases 

when a collection of several records, 

perhaps from various providers, 

considered in the aggregate might better 

verify a patient’s condition. 

Response: We disagree. In the case of 

a chronic disease such as congestive 

heart failure, all that is required is 

medical record documentation from one 

visit to a physician or a hospital, over 

the course of the data collection year, to 

validate the audited HCC. 

Comment: We received several 

comments comparing the RADV audit 

and appeals process to varying program 

attributes of the Medicare FFS program. 

For example, some commenters argued 

that CMS’ one best medical record rule 

conflicts with Medicare FFS standards 

since there is no one best medical 

record rule applied to Medicare 

payment error-rate testing for FFS 

providers. 

Response: Payment error-testing 

under original Medicare is different 

than payment error testing under 

Medicare Part C. Under original 

Medicare, much of what comprises the 

error testing regimen is aimed at 

validating that a particular level of 

service was provided and therefore 

justifies a given level of Medicare 

payment. Under RADV, the payment 

error testing focuses on validating HCCs 

by examining medical records to 

determine whether they contain 

supporting diagnostic codes. This error 

testing is aimed at validating that a 

particular Medicare beneficiary indeed 

has the medical condition for which the 

MA organization has been paid for, and 

not whether a particular level of service 

(for example, level 1 office visit vs. level 

2 office visits) was provided. Moreover, 

there is no evidence to support the 

notion that the Congress, in establishing 

the Part C payment process, ever 

intended the Part C payment process to 

mimic payment processes under 

Original Medicare. Indeed, they are 

fundamentally different. 

Moreover, we believe that the one best 

medical record policy and the 

operational process associated with it 

are far less restrictive than Medicare 

FFS. MA organizations are not limited 

to the specified date(s) of service they 

reported to us with regard to selecting 

a medical record as supporting 

documentation for a specific HCC. We 

continue to believe that the one best 

medical record policy is appropriate for 

the Medicare Part C risk adjusted 

payment system which is distinct from 

a FFS payment system where payment 

is determined on a claim-by-claim basis. 

Under Part C, we only require that plans 

send one HCC for payment for an entire 

year; it therefore logically follows that 

we would only require one medical 

record to validate this HCC. 

Comment: Some commenters stated 

that the one best medical record rule 

was inconsistent with the mandate that 

MA payment adjustments be actuarially 

equivalent to the FFS sector. 

Response: It is our belief that health 

plans are confusing actuarial 

equivalence in payment amount— 

which demographic adjustments, risk 

adjustment methodology, and coding 

intensity adjustment are all designed to 

achieve—with differences in the way 

costs are documented. Because MA 

organizations are paid on a capitation 

basis, costs are not covered for a specific 

service provided. Rather, they are based 

on the actuarial value of such costs. The 

risk adjustment methodology uses 

diagnosis codes as a proxy for higher 

costs associated with a particular 

diagnosis. Because, under original 

Medicare, costs of specific services 

received are reimbursed, the diagnosis 

leading to such costs being incurred has 

a different relevance under original 

Medicare than they do under the 

Medicare Part C payment system. The 

risk adjustment methodology and RADV 

audit process that we employs to ensure 

accuracy under Medicare Part C we 

believe furthers actuarial equivalence, 

rather than conflicts with it. The 

differences between MA and original 

Medicare are simply attributable to 

differences in how payment is made. It 

is these differences that necessitate the 

actuarial equivalence standard in the 

first place. 

Comment: A commenter noted that in 

Medicare Part A and B appeal contexts, 

supplemental information and 

testimony are considered, and given 

such weight as the fact finder 

determines is appropriate. 

Response: Under our proposed 

appeals procedures that affords MA 

organizations the ability to appeal the 

Part C error calculation specifiedat 

§ 422.311(c)(3), the CMS Hearing Officer 


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has the discretion to conduct the 

hearing in alternative ways beyond 

conducting the hearing on the record. 

For example, the Hearing Officer can 

choose to conduct the hearing by way of 

teleconference or in person. The CMS 

Hearing Officer also has the discretion 

to request supplemental information or 

to accept testimony, as he or she deems 

necessary. Also, under the medical 

record review appeal processes that we 

specify at § 422.311(c)(2), we afford MA 

organizations the ability to submit 

supplemental information—the 

attestation reviewed by the IVC— to 

validate the same HCC that the Initial 

Validation Contractor (IVC) initially 

determined to be in error. 

Comment: Several commenters, 

focusing on the relationship between 

MA organizations and their providers, 

noted that errors in documentation are 

ultimately attributable to providers, not 

MA organizations. These commenters 

argued that, due to the nature of the MA 

program, while CMS makes a capitated 

payment to organizations that have 

relationships with providers, these 

providers may not have an incentive to 

document the HCCs which affect 

payment to the MA organization. The 

commenters also stated that contractlevel payment adjustments penalize MA 

organizations, while it is providers who 

are responsible for maintaining 

adequate records. A commenter also 

suggested that we accept ‘‘other data’’ to 

supplement, or substitute, a medical 

record. 

Response: Section 422.504(i)(1) 

clarifies for MA organizations that they 

are ultimately responsible for the risk 

adjustment information submitted to 

CMS. This section of the regulations 

states, ‘‘Notwithstanding any 

relationship(s) that the MA organization 

may have with first tier, downstream, 

and related entities, the MA 

organization maintains ultimate 

responsibility for adhering to and 

otherwise fully complying with all 

terms and conditions of its contract with 

CMS.’’ MA organizations are further 

directed in § 422.504(i)(2) that all their 

‘‘first tier, downstream, and related 

entities are required to agree that HHS, 

the Comptroller General, or their 

designees have the right to audit, 

evaluate, and inspect * * * medical 

records.’’ Therefore, while we 

acknowledge the comments, we 

maintain that it is the responsibility of 

MA organizations to ensure that they 

submit accurate risk adjustment 

information, and that the providers with 

whom they contract are aware that we 

have authority to audit medical records 

to verify this information. 

We do not require MA organizations 

to submit HCCs for beneficiaries; MA 

organizations choose whether or not to 

do so. For risk adjustment diagnoses 

that are submitted, it is the 

responsibility of the MA organization to 

obtain appropriate documentation. If 

MA organizations are not confident in 

the information they obtain from their 

providers, they may wish to initiate 

education efforts, or include provisions 

in their contracts that ensure providers 

appropriately document diagnoses and 

provide medical record documentation 

to the plan upon request. 

In regards to supplemental 

information, we have determined, and 

MA plans have been informed multiple 

times, that the appropriate format for 

obtaining risk adjustment information is 

a medical record. For validation 

purposes, plans are asked to submit the 

one best medical record documenting 

the HCC. We carefully determined the 

one best medical record policy, after 

consultation and input from the 

industry supporting this policy. We do 

not believe that supplemental 

information would be sufficient, or add 

value to a record that does not support 

an HCC for which the plan had been 

paid. 

Comment: Many commenters from the 

MA industry recommended that before 

CMS audit MA organizations under 

RADV, the agency first account for any 

error rates inherent in Medicare FFS 

data that affect MA error rates. These 

commenters stated that through the 

proposed RADV audit appeal process, 

CMS is imposing a set of rules regarding 

physician recordkeeping that were not 

anticipated in the ICD–9CM coding 

guidelines, is not consistent with 

standard practices and is not enforced 

on original Medicare claims. The result, 

they allege, is de facto MA payment 

adjustments based on recordkeeping 

discrepancies without an adjustment to 

original FFS Medicare risk scores for the 

same recordkeeping discrepancies. 

Response: We recognize that there 

may be potential merit in further 

refining the error rate calculation. We 

are currently studying this issue. 

Comment: A number of commenters 

stated that the CMS-defined attestation 

process was overly narrow and should 

be expanded to provide for more 

widespread use of attestations in the 

RADV audit process. Commenters 

contended that attestations should be 

expanded to provide MA organizations 

with a greater ability to correct medical 

record coding-related errors or 

deficiencies in submitted medical 

records. Commenters requested that 

CMS permit MA organizations to submit 

attestations that attest to the presence of 

medical conditions not fully supported 

in the medical record submitted to CMS. 

The commenters further argued that 

CMS should permit attestations to be 

used to validate not only the physician 

signature and credentials that are 

missing from a medical record, but also 

for patient name, identifier, date of 

service, and other documentation 

inadequacies that can result in a RADV 

medical record coding error. 

Response: Taken in the aggregate, 

commenters’ recommendations 

regarding an expanded use of 

attestations in the RADV audit process 

reflect a misunderstanding of what 

attestations are intended to accomplish. 

Many of the comments submitted 

suggest that we adopt a policy that in 

effect, allows attestations to stand in the 

place of the medical records that are 

required to validate the HCCs that have 

resulted in higher payments already 

made to MA organizations. For example, 

permitting physicians to use attestations 

to ‘‘correct’ medical record codingrelated deficiencies determined 

pursuant to medical record review; or 

allowing attestations to be an acceptable 

vehicle for the submission of new HCCs 

that were not otherwise already 

submitted to CMS for payment. 

We believe that we must validate the 

HCCs that result in additional payment 

through the existence of clear, 

unambiguous diagnostic information in 

a beneficiary’s medical record. A 

medical record provides the written 

support for the diagnosis that was made 

and must meet certain well recognized 

documentation requirements. Consistent 

with the Medicare FFS program, 

medical record documentation, rather 

than other alternative documentation, 

such as attestations, is required to 

validate information provided to us for 

the purpose of making provider 

payments. The existence of an 

accompanying attestation simply 

provides a mechanism for the physician 

to validate that the medical record that 

is missing a signature or credential is in 

fact his or her patient’s medical record. 

That is, attestations are intended to 

complement medical records, not stand 

in the place of them. 

We continue to believe that the 

Medicare program is best served by 

limiting the applicability of attestations 

to instances in which the original 

diagnosing physician submits a signed 

and dated attestation to validate that the 

medical record in question is theirs. We 

see no justifiable reason for CMS to 

expand the applicability of attestations 

beyond this intended purpose and 

therefore, we are not accepting these 

comments. 


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Comment: Several commenters 

objected to CMS’ prohibition on using 

attestations for inpatient medicalrecord-related RADV coding errors, and 

noted that CMS did not provide 

sufficient explanation why CMS would 

not permit them. The commenters 

recommended that CMS permit 

attestations to be submitted with respect 

to inpatient records. 

Response: We do not believe that 

permitting attestations for inpatient 

medical records is justifiable. The 

decision to permit attestations for RADV 

was in response to industry concerns 

about the lack of signatures in medical 

records that are generated out of 

physician-office settings and not 

hospital settings. Upon preliminary 

evaluation of RADV findings, our data 

corroborates industry concerns in that it 

clearly shows that the majority of 

RADV-identified payment errors 

associated with lack of provider 

signatures were derived from medical 

records submitted and reviewed under 

the guidelines for physician/outpatients 

settings. Indeed, the data further 

corroborates that payment errors related 

to the lack of signature in inpatient 

medical records is minuscule. 

Note that, with respect to the ongoing 

use of attestations within the RADV 

audit context, we reserve the right to 

continue to evaluate payment error 

related to physician/practitioner 

signatures, and the impact that 

attestations have upon these types of 

errors. We further reserve the right to 

amend the regulations in the future 

regarding the use of attestations should 

experience under the program justify 

this change. 

Comment: Several commenters 

recommended that CMS implement an 

administrative appeals process for 

reviewing attestation determinations 

made by CMS. 

Response: We understand the 

commenters’ concerns, but do not 

believe this additional appeals process 

is necessary. As noted in section 

§ 422.311(c), in light of the changes we 

are making in this final rule to the 

proposed RADV appeal procedures that 

permit MA organizations to appeal 

medical record review determinations 

made at the RADV IVC review-level, 

MA organizations will be permitted to 

appeal medical record review-related 

determinations whose outcome was 

determined by the existence or absence 

of an attestation. 

Comment: Some commenters 

recommended that CMS allow 

attestations to be used as acceptable 

vehicles for introducing new HCCs to 

the Medicare Part C payment process. 

Several commenters suggested that MA 

organizations be allowed to submit a 

letter from a provider group or other 

responsible party, along with an 

attestation in instances where the 

diagnosing physician is no longer able 

to sign and date an attestation—for 

example, in instances in which the 

diagnosing physician has died, moved 

or is no longer working for the medical 

practice. 

Response: As stated previously in our 

response to earlier commenters’ 

recommendations that we expand the 

applicability of attestations, we do not 

agree that attestations are acceptable 

vehicles for submitting new risk 

adjustment data and enrollee HCCs for 

payment to CMS. The data submission 

period for any given payment year 

opens 12 to 18 months before the start 

of payment year, and closes 3 months 

after the actual payment year ends, 

providing in total, at least 27 months for 

MA organizations to submit or correct 

enrollee HCC data for any given 

payment year. This provides ample time 

for MA organizations to voluntarily 

submit HCCs to CMS for Medicare 

payment. 

Furthermore, a fundamental tenet of 

RADV is validating the existence of 

diagnoses information in a medical 

record. Consistent with Medicare FFS, 

medical record documentation rather 

than other documentation, such as 

attestations, is required to validate 

information provided to us for the 

purpose of making Medicare payments. 

Therefore, we see no justifiable reason 

to abandon this principle by allowing 

the submission of unsubstantiated HCCs 

via attestations, and therefore, reject the 

commenters’ recommendations. 

Under our RADV audit policy, to the 

extent we discover acceptable diagnoses 

codes contained in the one best medical 

record that plans submit for purposes of 

HCC validation that were not earlier 

submitted to CMS for payment via the 

Risk Adjustment Payment System 

(RAPS) system (what are known as 

‘‘additional HCCs’’) —we credit these 

diagnoses codes to the submitting MA 

organization. Our reason for giving 

health plans credit for these additional 

diagnoses is precisely because they 

existed in beneficiaries’ medical 

record(s)—and not in other types of 

documentation that would not be 

acceptable in any Medicare venue for 

justifying Medicare payment. 

Comment: Several commenters stated 

that the 12-week timeframe for 

submitting attestations was 

unreasonably short. These commenters 

recommended that CMS afford plans 

additional time to gather and submit 

attestations. 

Response: We do not agree. We 

proposed that the submission timeframe 

for attestations line-up with the 

deadline for submitting medical records 

in order to simplify the medical record 

and attestation submission process for 

plans. Under the proposed process the 

medical record and associated 

attestation are submitted together. We 

strongly believe that 3 months is 

sufficient time for MA organizations to 

obtain and submit to us the medical 

records and attestations necessary to 

validate audited HCCs. To provide 

additional time beyond the 12 weeks 

afforded to MA organizations to submit 

the requested medical records would 

split-up and unnecessarily complicate 

the medical record and attestation 

submission process. Since the 

attestation is intended to in effect— 

make the medical record ‘‘whole’’ by 

way of the signature and/or credential 

attestation—we believe it is 

unreasonable to set up a submission 

system that separates the attestation 

from the submission of the medical 

record. Therefore, we are not accepting 

this recommendation and instead are 

finalizing the requirement that 

attestations be submitted to us by the 

medical record submission deadline. 

Comment: Several commenters 

recommended that CMS permit health 

plan officials to amend the CMS 

attestation form through hand-written 

annotations or to submit MA 

organization or provider-developed (that 

is, attestation forms that were not 

generated by CMS) attestation forms to 

CMS. A more limited number of 

commenters recommended that CMS 

allow physicians not involved in the 

diagnostic face-to-face encounter to 

attest to medical records in instances 

where the diagnosing physician is either 

dead or no longer at the medical 

practice or facility from which the 

medical record originated. These 

commenters reasoned that in 

extenuating circumstances such as the 

death of a provider or a provider having 

relocated, another provider within the 

medical practice could be permitted to 

sign the attestation on behalf of the 

treating provider. Under this scenario, 

the signing provider would annotate the 

CMS attestation form explaining the 

situation—for example, ‘‘Due to the 

expiration of Dr. Smith on June 1, 20xx, 

I am signing this attestation on his 

behalf.’’ 

Response: We believe opening the 

door to allowing modifications to a CMS 

payment-related document raises 

serious program integrity-related 

concerns and could result in fraud to 

the Medicare program. The extent to 

which one provider can reliably and 


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validly attest to a medical record 

prepared by another provider is 

questionable. We consulted with other 

Medicare program components within 

CMS that are or will be utilizing 

attestations or similar-like documents 

(for example, certificates of medical 

necessity, attestations used in 

conjunction with Comprehensive Error 

Rate Testing (CERT)) that have some 

bearing on Medicare payment and 

confirmed that there are very limited 

circumstances under which we permit 

external modification to any paymentrelated documents. Given these program 

integrity-related concerns, we are 

rejecting these recommendations. 

We received a large number of 

comments regarding our proposed 

RADV documentation dispute 

procedures. 

Comment: A commenter noted that 

the proposed definition of 

‘‘Documentation Dispute Process’’ in 

§ 422.2 indicates that MA organizations 

can ‘‘dispute medical record 

discrepancies that pertain to incorrect 

ICD–9–CM coding * * *’’ and appeared 

to conflict with language in proposed 

§ 422.311(c)(2)(ii)(A) stating that 

medical record coding discrepancies are 

ineligible for the documentation dispute 

process. Another commenter contended 

that the term ‘‘operational processing’’ as 

described in the regulation, was vague 

and needed to be further defined. One 

commenter recommended that CMS 

allow MA organizations 60 days to 

request documentation dispute instead 

of the proposed 30 days. Several 

commenters recommended that MA 

organizations be permitted to appeal 

documentation dispute review 

determinations. 

Many other commenters asserted that 

the proposed documentation dispute 

process was too limited in scope, and 

effectively amounted to nothing more 

than a mechanism for rectifying clerical 

errors that provided no meaningful way 

to contest the accuracy of the auditors’ 

interpretation of the medical records 

submitted, or to supplement the record 

being audited. 

Response: As noted in § 422.311(c) of 

this final rule, in light of the changes to 

the proposed RADV appeal procedures 

that we are making in this final rule that 

permit MA organizations to appeal 

medical record review determinations 

made at the RADV IVC review-level, we 

are withdrawing the proposed 

documentation dispute procedures 

described in the proposed rule. By way 

of this final rule, MA organizations that 

wish to dispute RADV medical record 

review determinations that arise out of 

operational processing of medical 

records selected for RADV audit (that is, 

determinations that arise from the 

collection and processing of medical 

records by CMS’ RADV IVC) will now 

be permitted to do so via the medical 

record appeals process described in this 

final rule at § 422.311(c). 

We received many comments from 

MA organizations and a managed care 

industry trade association regarding the 

proposed RADV appeals process at 

§ 422.311(c)(3). 

Comment: Many commenters stated 

that the proposed RADV appeals 

process was too narrow, and failed to 

allow for all relevant evidence to be 

considered as part of the appeal process. 

Of particular interest to many 

commenters was the fact that MA 

organizations were prohibited from 

appealing the substance of medical 

record coding determinations, as 

described in our proposed regulation at 

§ 422.411(c)(3). With regard to the 

RADV appeals process, these 

commenters specifically recommended 

that CMS: 

• Expand the scope of issues that may 

be raised in the appeals process to 

include, at minimum, challenges to 

medical record coding decisions and 

challenges to methodology—audit 

methodology, sampling methodology, 

and error-calculation methodology. 

• Permit MA organizations to appeal 

HCC findings from the medical record 

review process. 

• Permit MA organizations to submit 

coding corrections along with the 

additional medical records necessary to 

validate audited HCCs that CMS 

determines are in error. 

• Incorporate diagnoses identified in 

medical records, but not previously 

submitted nor assigned to a member (so 

called ‘‘additional’’) in its RADV-related 

payment adjustment calculations. 

Response: At proposed 

§ 422.311(c)(3)(ii) we specified that MA 

organizations would not be permitted to 

appeal medical record review because 

medical record review-related issues 

would be resolved as a result of the 

medical record review process and the 

attestation and documentation dispute 

processes described earlier in the 

proposed regulation. However, based on 

the public comments we received, we 

have reconsidered this proposed 

restriction, and are for purposes of this 

final rule, changing our policy to now 

allow MA organizations to appeal 

medical record review that occurs at the 

IVC level. 

Therefore, under a new final 

§ 422.311(c)(2), we are implementing a 

process that would allow MA 

organizations to appeal medical record 

review that occurs at the IVC level of 

medical record review. 

In order to be eligible for RADV 

medical record review appeal, MA 

organizations must adhere to 

established RADV audit and RADV 

appeals requirements, including the 

submission of medical records and 

documents in the manner and by the 

deadlines specified by CMS. Failure to 

do so will render the MA organization 

ineligible for RADV medical record 

review appeal. At § 422.311(c)(2)(i)(1) of 

this final rule, we specify that in order 

to be eligible for medical record review 

determination appeal, MA organizations 

must adhere to established RADV audit 

procedures and RADV appeals 

requirements. Failure to follow our rules 

regarding the RADV medical record 

review audit procedures and RADV 

appeals requirements may render the 

MA organization’s request for appeal 

invalid. 

At § 422.311(c)(2)(i)(2) of this final 

rule, we provide that the medical record 

review determination appeal process 

applies only to error determinations 

from review of the one best medical 

record submitted by the MA 

organization and audited by the RADV 

IVC. 

MA organizations must submit the 

original, IVC-audited medical record 

and any attestation reviewed by the IVC 

to CMS for consideration under the 

appeals process. MA organizations’ 

request for appeal may include the 

attestation reviewed by the IVC in 

accordance with § 422.311(c)(1) but may 

not include any additional documentary 

evidence. 

At § 422.311(c)(2)(ii), we specify that 

MA organizations may not appeal errors 

that resulted because MA organizations 

failed to adhere to established RADV 

audit procedures and RADV appeals 

requirements. This includes failure by 

the MA organization to meet the 

medical record submission deadline 

established by CMS. We also specify 

that any other documentation submitted 

to us beyond the one best medical 

record and attestation submitted to and 

audited by the IVC will not be reviewed 

by us under the medical record review 

determination appeal process. MA 

organizations’ written requests for 

medical record review determination 

appeal must specify the audited HCC(s) 

that we identified as being in error and 

eligible for medical record review 

determination appeal, and that the MA 

organization wishes to appeal. A request 

for medical record review determination 

appeal must specify the issues with 

which the MA organization disagrees 

and the reasons for the request for 

appeal. 

We describe the manner and timing of 

a request for medical record appeal at 


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§ 422.311(c)(2)(iii). We will issue each 

audited MA organization an IVC-level 

RADV audit report that provides details 

on the results of the medical record 

review findings. This RADV audit report 

will clearly specify the HCC 

determinations that are eligible for 

appeal. MA organizations will have 30 

calendar days from the date of the 

issuance of the RADV audit report to 

submit a written request for medical 

record review determination appeal. A 

request for RADV medical record review 

appeal must specify the HCCs that we 

have identified as being eligible for 

medical record review appeal and that 

the MA organization wishes to appeal. 

The request for appeal must also 

include the IVC-audited one best 

medical record and may include an 

attestation form in accordance with the 

rules at § 422.311(c)(1), but may not 

include additional documentary 

evidence. Please note that MA 

organizations are not obligated to appeal 

HCCs that we have identified as being 

eligible for medical record review 

determination appeal. 

At § 422.311(c)(2)(iv), we describe the 

process that we will undertake to 

conduct the medical record review 

appeal. We designate a Hearing Officer 

to conduct the medical record review 

determination appeal. The Hearing 

Officer need not be an ALJ. We also 

describe procedures for disqualifying a 

Hearing Officer in the event either party 

objects to the designation of a Hearing 

Officer. We provide written notice of the 

time and place of the hearing at least 30 

calendar days before the schedule date. 

The hearing is conducted by a CMS 

Hearing Officer who neither receives 

testimony nor accepts any new evidence 

that was not presented to the IVC. The 

CMS Hearing Officer is limited to the 

review of the record that was before the 

IVC. 

The CMS Hearing Officer reviews the 

IVC-audited one best medical record 

and any attestation submitted by MA 

organizations to determine whether it 

supports overturning medical record 

determination errors listed in the MA 

organization’s IVC RADV audit report. 

As soon as practical after the hearing, 

the Hearing Officer issues a decision 

which provides written notice of the 

Hearing Officer’s review of the appeal of 

medical record review determination(s) 

to the MA organization and to CMS. 

Pursuant to the Hearing Officer’s 

decision, we recalculate the MA 

organization’s RADV payment error and 

issue a new RADV audit report to the 

appellant MA organization. 

As described at § 422.311(c)(2)(v), the 

decision of the CMS Hearing Officer 

regarding RADV medical record review 

appeal will be final and binding upon 

the MA organization unless the MA 

organization requests review by the 

CMS Administrator. At 

§ 422.311(c)(2)(vi), we indicate that the 

MA organization has 30 calendar days 

to request a review of the CMS Hearing 

Officer’s determinations and that the 

CMS Administrator has discretionary 

authority whether to review the 

determination of the Hearing Officer. 

After receiving a request for review, the 

Administrator has the discretion to elect 

to review the Hearing Officer’s decision 

or to decline to review the hearing 

decision. If the Administrator elects to 

review the hearing decision, the 

Administrator must review the CMS 

Hearing Officer’s decision and 

determine, based upon this decision, the 

hearing record, and any written 

arguments submitted by the MA 

organization or CMS, whether the 

determination should be upheld, 

reversed, or modified. The 

Administrator notifies both parties of 

his or her determination regarding 

review of the hearing decision within 30 

calendar days of receiving the request 

for review. If the Administrator declines 

to review the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

CMS Hearing Officer is final. It is 

important to note that notwithstanding 

our implementing procedures that 

permit MA organizations to appeal HCC 

determinations at the IVC level of 

medical record review that we have 

identified as being eligible for medical 

record review appeal and that the MA 

organization wishes to appeal, the 

ability of MA organizations to appeal 

these IVC-level medical record review 

determinations does not otherwise alter 

MA organizations’ ability to appeal 

RADV payment error calculations 

described at § 422.311(c)(3). However, 

MA organizations cannot appeal RADV 

payment error calculations until all 

RADV medical record review-related 

appeals are finalized. 

Comment: Several commenters 

suggested that CMS afford MA 

organizations a reasonable amount of 

time after the medical record 

submission deadline to submit 

additional documentation that 

corroborates an already-submitted 

medical record. 

Response: We do not agree that the 

amount of time provided to MA 

organizations to submit medical records 

under existing RADV audit policy is 

unreasonable. We provide MA 

organizations 3 months to obtain and 

submit to CMS the medical records 

necessary to validate the HCCs that MA 

organizations voluntarily submitted to 

CMS for Medicare payment. Moreover, 

a policy that supports submitting 

corroborating evidence to accompany an 

already-submitted medical record 

violates CMS’ one best medical record 

policy. Therefore we are not accepting 

the commenters’ suggestion. 

Comment: Several commenters 

recommended that CMS afford MA 

organizations 60 days, rather than 30 

days, to submit a written request for 

reconsideration of its RADV payment 

error calculation to provide sufficient 

time to prepare for the request. 

Response: We do not agree. We 

continue to believe that 30 calendar 

days is sufficient time for any MA 

organization considering appealing its 

RADV payment error calculation to 

prepare and submit such a request. We 

are therefore, rejecting this 

recommendation. 

Comment: Several commenters 

objected to the fact that all RADVrelated appeals tasks are conducted by 

either CMS employees or agents 

employed by CMS. The commenters 

suggest that to ensure impartiality and 

an independent review of plan appeals, 

the appeals process should allow for 

independent reviewers outside of CMS. 

Plans should be allowed to choose and 

pay for a third party review of the errorrate calculation under reconsideration— 

rather than use the CMS contractor. 

Response: As described in our 

proposed rule at § 422.311(c)(3)(v) and 

(vi), the CMS officials and/or 

contractors that will adjudicate 

individual appeal cases will be fully 

independent of the initial RADV error 

determinations. One important attribute 

in constructing an independent appeal 

structure for the RADV program is 

ensuring that the review officials or 

contractors called upon to perform these 

tasks have the necessary expertise to 

serve in the capacity of an independent 

appeal official. It would be altogether 

unreasonable for us to assume that plans 

would select appeal officials that meet 

our standards, not would we be able to 

validate this process in a timely manner. 

We cannot be put in the position of 

having to review the qualifications of 

plan-selected appeal officials and still 

be able to effectively administer the 

appeals process in a timely manner. As 

such, we are rejecting the suggestion 

that plans be allowed to choose and pay 

for their own independent review 

officials. 

Comment: A commenter stated that 

the CMS’ RADV appeal rules should 

provide for a meaningful way to appeal 

payment determinations. 

Response: We believe that the 

commenter means that our ability to 


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adjust payments once RADV audit 

results are finalized should likewise be 

subject to appeal. We agree and for this 

reason, as explained in the proposed 

regulation, we are providing multiple 

avenues for MA organizations to appeal 

the RADV findings, including the ability 

to appeal mistakes in the contract 

specific payment error estimate as 

determined by our payment error 

estimate calculation methodology. 

These opportunities to appeal provide 

ample recourse to MA organizations to 

have RADV findings fairly readdressed. 

As part of this process, at § 422.311(c)(3) 

(vi)(B) and (D), we specified that we 

would hire an independent RADV 

payment error appeals contractor to 

replicate and validate the payment 

determinations that result in our errorcalculation. Therefore, MA 

organizations that seek to appeal their 

error rate calculation can rest assured 

that the payment determinations that 

result in our error calculation are 

reviewed by an independent contractor. 

Comment: Several commenters noted 

that, although the proposed rule 

provides for the review of the RADV 

calculation by a neutral third party, the 

proposed rule did not specify the 

criteria that the independent third party 

will utilize in determining whether the 

error rate calculations are correct. These 

commenters recommend that CMS be 

required to accept the third-party’s 

findings or that CMS otherwise ensure 

that the decision on the findings is not 

made by an official who has a role in the 

RADV payment error calculation that is 

under review. 

Response: The independent third 

party will utilize the same errorcalculation criteria that will be 

employed by us in calculating its initial 

error calculation. This methodology will 

be known to audited MA organizations. 

In the preamble to our proposed rule 

and as stated previously in this 

preamble, we state that we intended to 

ensure that all MA organizations 

understand the RADV payment error 

calculation methodology by providing 

notice to all MA organizations of the 

methodology that will be employed for 

calculating Part C payment errors. We 

anticipate publishing the RADV error 

calculation methodology in some type 

of CMS document—most likely some 

type of Medicare manual—and annually 

providing notice of any changes that 

will be made to this manual. In addition 

to providing an annual notice of RADV 

audit methodology, we indicated we 

would provide an expanded explanation 

of methodology as part of each RADV 

audit report that we send to MA 

organizations that undergo RADV audit. 

At proposed § 422.311(c)(3)(v) and 

(vi), we specified that a CMS official or 

contractor not otherwise involved in 

error-rate calculation activity would 

review the written request for 

reconsideration, the RADV payment 

error calculation and any written 

evidence submitted by the MA 

organization that pertains to CMS’ 

RADV payment error calculation. We 

are finalizing that proposal in this rule. 

Comment: A commenter believed that 

the level of detail proposed for the 

RADV appeals process was too specific. 

This commenter indicated that because 

MA organizations’ and CMS’ experience 

with data validation is relatively new, 

CMS should avoid putting a high level 

of detail into the regulation and should 

instead, maintain the flexibility 

necessary to do what makes sense in the 

context of the data validation. 

Response: We do not agree that our 

experience with data validation is 

relatively new, since we have been 

performing RADV audits for over 10 

years. The expertise and experience 

brought to the development of this 

function in that timeframe has enabled 

us to present a balanced level of detail 

with regard to the proposed regulation. 

While we certainly appreciate the 

commenters’ concerns regarding the 

level of specificity proposed—and now 

finalized—in the regulation, we contend 

that this level of detail is necessary in 

order for the public to fully understand 

how the RADV appeals process will 

operate. We concur with the 

recommendation that we remain flexible 

as we take further steps to implement 

these rules. 

Comment: One commenter stated that 

the compliance date proposed by CMS 

is unduly restrictive. This commenter 

recommended that CMS consider 

additional evidence and testimony after 

the compliance date has passed. 

Response: We disagree. Based on our 

experience with appeals of MA and 

Medicare Part D program contract 

determinations, it is absolutely essential 

for us to establish a compliance date to 

use as a reference point in issuing a 

ruling regarding RADV audit findings. 

In proposed § 422.311(b)(2), we 

specified that the compliance date be 

the date that MA organizations are 

required to submit medical records for 

the validation of risk adjustment data 

(§ 422.310(e)). By way of this final rule, 

we are extending the compliance date to 

include the date that MA organizations 

that choose to appeal IVC medical 

record review in accordance with 

§ 422.311(c)(2) must submit medical 

records for review by the date we 

determine for the appeal process. 

Without a specific date as a reference 

point for evaluating compliance, MA 

organizations could choose to assert that 

while they were unable to meet RADV 

audit requirements on the date we 

specified as the due date for medical 

record submission, they were later able 

to do so. Under this scenario, 

organizations would be free to assert the 

right to submit medical records in place 

of, or in addition to, records that were 

or were not, as the case may be, 

submitted to us by the RADV audit due 

date. The medical record review process 

could continue ad-infinitum, preventing 

us from closing out RADV audits and 

collecting any identified overpayments. 

The notion of considering additional 

evidence and testimony after the 

compliance date has passed negates the 

intended purpose of establishing a 

compliance date in the first place, and 

is therefore rejected. 

2. Payments to Medicare Advantage 

Organizations—Actuarial Valuation 

(§ 422.254) 

We proposed amendments to 

§ 422.254 to expressly require an 

actuarial certification for Part C bids. As 

we noted in the preamble to the 

proposed rule, operationally we require 

an actuarial certification to accompany 

every bid, for both Parts C and D. A 

qualified actuary who is a Member of 

the American Academy of Actuaries 

(MAAA) must complete the 

certification. The objective of obtaining 

an actuarial certification is to place 

greater responsibility on the actuary’s 

professional judgment and to hold him/ 

her accountable for the reasonableness 

of the assumptions and projections. This 

requirement is already set forth in the 

Part D regulations at § 423.265(c)(3). We 

noted that our change in the Part C 

regulation text will bring the Part C 

regulation at § 422.254(b)(5) in line with 

current operational requirements and 

Part D. We are adopting § 422.254(b)(5) 

as proposed into this final rule. 

Comment: We received three 

comments supporting the addition of 

this operational requirement to 

regulatory text. We also received one 

comment asking us if this requirement 

would apply to 2011 Part C bids. 

Response: The 2011 Part C bids are 

due on June 7, 2010, the first Monday 

of June. Regardless of whether this 

regulation is final by that date, we will 

expect MA organizations to submit Part 

C bids in accordance with current 

operational guidance, which guidance is 

consistent with the regulatory language 

we are finalizing in this rule. 


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3. Determination of Acceptable 

Administrative Costs by HMO/CMP 

Cost Contractors and Health Care 

Prepayment Plans (HCPPs) (§ 417.564) 

We proposed revising the regulations 

governing payments to health care 

prepayment plans (HCPPs) authorized 

under section 1833(a)(1)(A) of the Act 

and cost HMOs/CMPs authorized under 

section 1876 of the Act to clarify how 

we believe the reasonable cost 

principles in section 1861(v) should 

apply to HCPPs and HMOs/CMPs by 

specifying the methodologies that must 

be used in determining the different 

allowable administrative costs for both 

such entities. 

Specifically, we proposed revising 

§ 417.564(b)(2) to clarify how HCPP and 

cost contractors authorized under 

section 1876 of the Act must determine 

‘‘reasonable’’ administrative costs. At 

§ 417.564(b)(2)(iii), we proposed that 

personnel costs claimed for 

administrative costs in both HCPP and 

cost contracts authorized under section 

1876 of the Act must be linked to the 

specific administrative function 

performed by persons, at a specific rate 

of pay, for a specified period of time. 

We also clarified in the proposed rule 

that this level of information must be 

available to us upon request or in the 

course of a review. Additionally, we 

proposed revising § 417.564 by adding a 

new paragraph (c) that specifies that, in 

order for costs to be considered 

‘‘reasonable costs’’ within the meaning 

of section 1861(v) of the Act, which 

expressly excludes ‘‘incurred cost found 

to be unnecessary in the efficient 

delivery of needed health services,’’ the 

following costs must be excluded when 

computing reimbursable administrative 

costs: 

• Donations. 

• Fines and penalties. 

• Political and lobbying activities. 

• Charity and courtesy allowances. 

• Spousal education. 

• Entertainment. 

• Return on equity. 

In the proposed rule we specifically 

asked for comments on our clarification 

of reimbursable administrative costs. As 

indicated below, after considering the 

comments we received, we are adopting 

our proposed § 417.564(b)(2)(iii) and 

§ 417.564(c) without further 

modification in this final rule. 

Comment: We received two comments 

that supported the list of costs that we 

proposed must be excluded by HCPPs 

and HMO/CMP cost contractors when 

computing reimbursable administrative 

costs. The commenters agreed that these 

costs should not be included in cost 

reports and that the new provision 

codifies what they understood to be 

CMS’ existing policy regarding the 

exclusion of these costs. 

Response: We agree with the 

commenters supporting our proposal to 

exclude the costs described in 

§ 417.564(c) when reimbursable 

administrative costs are computed by 

HCPPs and HMO/CMP cost contractors. 

Accordingly, we are adopting 

§ 417.564(c) without further 

modification in this final rule. 

Comment: Two commenters agreed 

with our proposals to clarify how 

HCPPs and HMO/CMP cost contractors 

must determine reasonable 

administrative costs, and the 

requirement that this information be 

available to CMS upon request. 

However, these commenters wanted 

CMS to consider the following 

recommendations with respect to the 

proposed requirements—(1) providing 

guidance that would further clarify 

CMS’ expectations about how cost 

contractors will document this 

information, including examples of how 

time should be tracked and how to 

evaluate the match between skill level 

and tasks performed; (2) ensuring that 

the documentation requirements will be 

reasonable and structured in a manner 

that is not unduly burdensome to cost 

contractors; (3) providing cost 

contractors an opportunity to comment 

on this guidance before it is finalized to 

ensure that operational issues can be 

fully considered; and (4) applying the 

requirements to cost years following the 

year in which the regulation is effective. 

One of the commenters also 

recommended that CMS consider 

modifying this proposal to clarify the 

meaning of the term ‘‘task,’’ and limit the 

tracking of time for the performance of 

separate tasks performed by a single 

individual to circumstances when it is 

necessary to achieve the objectives of 

the rule (for example, when the tasks, 

consistent with CMS rules and policy, 

have different apportionment statistics). 

The commenter also suggested that CMS 

clarify in the final rule that when 

personnel perform some administrative 

functions that are included in the 

administrative and general specified 

cost areas while performing some 

administrative functions that are viewed 

as plan administration, only the time 

spent on the administrative and general 

functions should be tracked and 

documented. 

Response: We believe that it is 

important for HCPPs and HMO/CMP 

cost contractors to have the flexibility to 

establish their own methodology for 

determining reasonable administrative 

costs in order to meet the requirement 

described in § 417.564(b)(2)(iii); 

therefore, we are not providing the 

specific guidance that was requested by 

these commenters at this time. We 

intend to provide further sub-regulatory 

guidance to HCPPs and HMO/CMP cost 

contractors on issues that would 

generally impact all HCPPs and cost 

contractors. We will also provide 

assistance to individual HCPPs and cost 

contractors on a case-by-case basis. 

4. Calculation of the Minimum 

Percentage Increase Under Part C 

(§ 422.306) 

In the October 22, 2009, proposed 

rule, we proposed to revise § 422.306 to 

eliminate the 2 percent minimum 

update for all rate calculations other 

than ESRD. As we noted in the 

preamble to the proposed rule, section 

5301 of the DRA added section 1853(k) 

of the Act to create a single rate book for 

calculating MA payments and 

applicable adjustments. Section 5301 of 

DRA also modified the methodology for 

updating the MA payment rates by 

adding section 1853(k)(1)(B) of the Act. 

Beginning in 2007, the statute requires, 

for purposes of calculating the 

minimum percentage increase rate, that 

the previous year’s benchmarks be 

updated annually using only the 

national per capita MA growth 

percentage for the year—as described in 

section 1853(c)(6) of the Act. Prior to 

2007 the minimum percentage increase 

rate was the greater of 102 percent of the 

MA capitation rate for the preceding 

year, or the MA capitation rate for the 

preceding year increased by the national 

per capita MA growth percentage for the 

year. 

We noted that since the statute, as 

revised by the DRA, no longer provides 

for the 2 percent minimum update, we 

can no longer apply it to the MA rates. 

The 2 percent minimum update still 

applies to the end stage renal disease 

MA update because the statute at 

section 1853(a)(1)(H) of the Act provides 

that ESRD rates are to be calculated in 

a manner consistent with the way those 

rates were calculated ‘‘under the 

provisions of [section 1853 of the Act] 

as in effect before the date of enactment 

of the MMA.’’ The pre-2003 version of 

section 1853 of the Act included the 2 

percent minimum update. Therefore, we 

proposed to revise § 422.306 to 

eliminate the 2 percent minimum 

update for all rate calculations other 

than ESRD. We are adopting 

§ 422.306(a) as proposed into this final 

rule. 

Comment: A few commenters 

supported CMS’s proposed requirement. 

A commenter believed CMS’ 

interpretation of section 1853(k) of the 

Act was incorrect and suggested that 


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CMS retain the 2 percent minimum 

update requirement and recalculate (and 

pay) any retroactive payment from prior 

years (where the 2 percent minimum 

update would have caused payments to 

be higher than they would have been in 

its absence). The commenter contended 

that section 1853(k)(1)(B) of the Act 

only removes the minimum percentage 

increase for years prior to 2004. 

Response: We disagree with the 

commenter. Section 1853(k)(1)(B) of the 

Act is clear in saying that it applies to 

years subsequent to 2007, in other 

words, to payment years beginning with 

calendar year 2008. Section 

1853(k)(1)(B)(i) of the Act applies to all 

payment years other than years in 

which rebasing is done in accordance 

with section 1853(c)(1)(D)(ii) of the Act. 

In rebasing years, the calculation of MA 

payment rates is determined by section 

1853(k)(1)(B)(ii) of the Act where the 

amount payable is the greater of: Either 

the amount calculated under section 

1853(k)(1)(B)(i) of the Act, the MA 

payment amount for the previous year 

increased by the national per capita MA 

growth percentage; or the amount 

calculated under section 1853(c)(1)(D) 

of the Act, which is 100 percent of feefor-service costs. Further, in section 

1853(k)(1)(B)(i) of the Act, we are also 

required to ignore any adjustment under 

section 1853(c)(6)(C) of the Act for any 

year before 2004 when calculating the 

national per capita MA growth 

percentage. This adjustment, called the 

‘‘adjustment for over or under projection 

of national per capita MA growth 

percentage,’’ also did not include such 

an adjustment for years before 2004 

when the minimum percentage increase 

was calculated per section 

1853(c)(1)(C)(v) of the Act for years 

between 2004 and 2006. Finally, the 

calculation of MA payment increases 

based on the national per capita MA 

growth percentage beginning with 

payment year 2007 were never less than 

2 percent. However we note that even if 

it were, there would be no additional 

payment due MA organizations on this 

basis because the 2 percent minimum 

increase was eliminated beginning with 

2007. 

E. Changes To Improve Data Collection 

for Oversight and Quality Assessment 

This section discusses and finalizes 

four proposals in our October 22, 2009 

proposed rule intended to improve Part 

C and D data collection and use for 

oversight and quality assessment. The 

first proposal would address quality 

improvement programs and data on 

quality and outcomes measures under 

Part C. As part of this proposal, we 

proposed to address data collected by 

Quality Improvement Organizations for 

MA quality improvement and 

performance assessment purposes. 

The second and third proposals 

would address payment for beneficiary 

surveys and independent yearly audits 

of Part C and Part D measures (collected 

pursuant to our reporting requirements) 

to determine their reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by us. The last proposal 

would amend our rules on the 

collection and use of prescription drug 

event data for nonpayment-related 

purposes. 

TABLE 5—IMPROVE DATA COLLECTION FOR OVERSIGHT AND QUALITY ASSESSMENT

Provision 

Part 422 Part 423 

Part 480 

Subpart Section Subpart Section 

Requirements for Quality Improvement 

Programs under Part C.

Subpart D .............. § 422.152 

§ 422.153 

N/A ......................... N/A § 480.140 

Require that Sponsors pay for the Consumer Assessment Health Plan Survey (CAHPS).Subpart D .............. § 422.152(b)(5) Subpart D .............. § 423.156 N/A 

Require validation of reporting requirements.Subpart D .............. § 422.516 

§ 423.514 

Subpart D .............. § 423.514 N/A 

Allow collection of all PDE data elements to be collected for non-payment 

purposes.

N/A ......................... N/A Subpart D .............. § 423.505 N/A 

1. Requirements for Quality 

Improvement Programs Under Part C 

(§ 422.152, § 422.153, and § 480.140) 

In our October 22, 2009 proposed 

rule, under the authority in sections 

1851(d)(4)(D), 1852(e)(1) and 

1852(e)(3)(A) of the Act, we proposed 

several new requirements related to 

quality improvement programs and data 

on quality and outcomes measures 

under Part C. 

Section 1851(d)(4)(D) of the Act 

requires us to make available to MA 

eligible individuals information 

comparing MA plan options, including 

information on plan quality and 

performance indicators to the extent this 

information is available. Separately, 

section 1852(e)(1) of the Act requires 

that each MA organization have an 

ongoing quality improvement program 

for the purpose of improving the quality 

of care provided to enrollees in each 

MA plan offered by the MA 

organization. Section 1852(e)(3)(A) of 

the Act requires that, as part of this 

quality improvement program, MA 

organizations collect, analyze, and 

report data that permits the 

measurement of health outcomes and 

other indices of quality as part of their 

quality improvement program for their 

coordinated care plans. To the extent 

that local PPO, regional PPO, PFFS, and 

MSA plans have a network of contracted 

providers, these plan types must meet 

the same quality improvement 

requirements as other coordinated care 

plans. Section 1852(e)(3)(B)(i) of the Act 

generally limits the collection of data on 

quality, outcomes, and beneficiary 

satisfaction under section 1852(e)(3)(A) 

to facilitate consumer choice and 

program administration to ‘‘the types of 

data’’ that were collected as of 

November 1, 2003. 

a. Quality Improvement Programs 

In our October 22, 2009 proposed 

rule, we noted that under our current 

regulations at § 422.152(c) and 

§ 422.152(d), MA organizations have 

flexibility to develop criteria for chronic 

care improvement programs (CCIPs) and 

initiate any quality improvement 

projects that focus on clinical and nonclinical areas based on the needs of their 

enrolled population. However, based on 

our experience with MA organizations 

employing inconsistent methods in 

developing criteria for their CCIPs and 

quality improvement projects, we 

expressed concerns in the proposed rule 

that giving MA organizations complete 

discretion to establish their own CCIPs 

and quality improvement projects does 


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not allow beneficiaries to effectively 

compare plans and organizations to 

manage and report projects. More 

importantly, we expressed concerns that 

these projects are not addressing quality 

improvement areas that we believe best 

reflects beneficiary needs. For example, 

some projects may be designed to 

improve processes only, without linking 

the processes to clinical outcomes. We 

are interested in MA organizations 

focusing on individual as well as 

population-specific health risk needs, 

such as MA organizations’ use of 

internal data sources to identify clinical 

outcomes that not only fail to meet 

national averages, but also may 

jeopardize the overall health and quality 

of life of the beneficiary. 

As a result of our concerns, we 

proposed to revise § 422.152(a)(1) and 

§ 422.152(a)(2) to require that MA 

organizations conduct CCIPs in patient 

populations, and conduct their required 

quality improvement projects, in areas 

identified by CMS based on our review 

of data collected from MA 

organizations. Specifically, we proposed 

to determine what areas would most 

benefit from quality improvement, and 

to provide guidance on specific quality 

improvement projects for MA 

organizations to implement, either 

based on those organizations’ specific 

quality improvement needs, or quality 

improvement needs for MA plans 

generally. We also proposed suggesting 

methods and processes by which to 

manage a quality improvement project 

as appropriate. 

We proposed in the preamble to our 

October 22, 2009 proposed rule to 

annually inform MA organizations 

individually and/or generally which 

patient populations and areas we have 

determined would benefit most from a 

CCIP and quality improvement project, 

respectively. We would convey 

generally applicable information via the 

Medicare Managed Care Manual and the 

Health Plan Management System 

(HPMS), and convey information that is 

plan specific directly to the 

organizations offering the MA plans in 

question. We are adopting 

§ 422.152(a)(1) and § 422.152(a)(2) 

without further modification in this 

final rule and are clarifying, in our 

responses to comments below, that MA 

organizations will continue to have the 

flexibility to develop criteria for CCIPs 

and quality improvement projects based 

on the needs of their enrolled 

population. 

Comment: We received many 

comments that supported our proposals 

to require that MA organizations 

conduct CCIPs in patient populations, 

and quality improvement projects in 

areas, identified by CMS. Some of these 

commenters wanted CMS to consider 

additional recommendations with 

respect to our proposed requirements, 

including: (1) Providing an opportunity 

for public comments as CMS develops 

priority areas for MA organizations and 

on the process that CMS will use to 

identify specific areas for quality 

improvement with respect to particular 

MA organizations; and (2) establishing a 

fixed time period after CMS establishes 

its CCIP goals during which CMS could 

not establish new CCIP goals. 

Response: As we develop our 

requirements, we will offer 

opportunities for the industry and other 

interested parties to offer 

recommendations. While our goal is to 

keep any such requirements stable, we 

note that it may be important for us to 

modify our requirements in keeping 

with our goal of ensuring that CCIPs and 

quality improvement projects address 

those quality improvement areas we 

believe reflect beneficiary needs. 

Comment: Many commenters opposed 

our proposals to require that MA 

organizations conduct CCIPs in patient 

populations, and quality improvement 

projects in areas, identified by CMS. 

Some of the concerns commenters 

raised were: (1) CMS’ requirements may 

not be aligned with MA organizations’ 

identified priorities for benefiting their 

enrollees; (2) systemic inequities would 

develop among competing MA plans 

that would undermine the competitive 

structure of the MA program; and (3) 

organizations would lose the flexibility 

to pursue projects of special clinical and 

operational value to their enrollees. 

Response: We agree that CCIPs and 

quality improvement projects should be 

based on the needs of the plan’s 

enrolled population, and in line with 

the organizations’ identified priorities 

for benefiting their enrollees. We will 

continue to provide MA organizations 

generally with the flexibility to identify 

topics for the development of CCIPs and 

quality improvement projects based on 

the particular needs of their members. 

However, we are finalizing the revisions 

to § 422.152(a)(1) and § 422.152(a)(2) to 

require that, under certain 

circumstances, some MA organizations 

conduct CCIPs in patient populations 

and quality improvement projects in 

areas identified by CMS based on our 

review of data collected from MA 

organizations and the populations 

served by the plans. 

To date, we have communicated with 

MA organizations about specific 

operational areas and member 

populations for which we believe, based 

on data collected through HEDIS, audit 

findings, member complaints, and other 

survey data, there is a need for CCIP or 

quality improvement projects 

development due to performance and/or 

clinical outcomes. We have offered MA 

organizations identified through this 

targeted methodology assistance during 

our initial communication regarding the 

need for CCIP or quality improvement 

project development. Technical 

assistance for the development of CCIPs 

and quality improvement projects is 

also available to all MA organizations 

on an as needed basis. 

Using the HPMS, the Medicare 

Managed Care Manual, and other means 

of communication that we determine to 

be appropriate, we will annually inform 

MA organizations individually and/or 

generally of the process by which CCIPs 

and quality improvement projects must 

be conducted, which tools to use to 

report activities, and the time frame for 

submitting data and reports. We will 

also use these communication methods 

to identify the patient populations and 

areas we have determined would benefit 

most from CCIPs and quality 

improvement projects. However, as 

noted previously, this does not preclude 

MA organizations from developing 

CCIPs and quality improvement projects 

that they independently determine to be 

needed for their population. 

Comment: Many commenters 

suggested alternatives for CMS to 

consider to its proposed requirements 

for CCIPs and quality improvement 

projects. These recommendations 

generally fell into three groups—(1) 

CMS should not adopt the proposed 

policies and should allow MA 

organizations to develop their own 

CCIPs and quality improvement 

projects; (2) CMS should provide 

general guidance to MA plans on CCIPs 

and quality improvement projects and 

develop a process for approving a plan’s 

CCIPs and quality improvement projects 

prior to the plan implementing them; 

and (3) CMS should consult industry 

before making changes to CCIP and 

quality improvement project 

requirements. 

Some commenters specifically 

recommended that CMS impose CCIP or 

quality improvement project obligations 

on all MA organizations operating 

within a given geographic area rather 

than on an MA plan-specific basis and 

that CMS provide a list of programs and 

projects for MA plans to choose from 

and allow plans to select the programs, 

projects, and populations to which they 

should apply in order to maximize the 

benefit to beneficiaries. One commenter 

suggested that, to address CMS’ concern 

that some plans focus on process, rather 

than outcomes, CMS focus on those 

plans, and work with them to identify 


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more appropriate programs and projects. 

Another commenter believed that CMS 

could provide more generalized 

guidance on the types of measures that 

are acceptable (for example, the 

commenter suggested that CMS consider 

requiring that CCIPs and quality 

improvement projects link processes to 

clinical outcomes). Several commenters 

suggested that CMS consult with experts 

in the industry to before imposing 

specific CCIP and quality improvement 

project requirements on MA plans. One 

commenter recommended that CMS 

hold MA organizations accountable for 

choosing a CCIP based on their own 

population and data, and prior approve 

quality improvement project topics and 

methodologies based on specific quality 

improvement needs identified by MA 

organizations. This commenter further 

indicated that a prior approval process 

would allow CMS to assist MA 

organizations in focusing on quality 

improvement areas that reflect 

beneficiary needs and include sound 

methodologies that address clinical as 

well as process outcomes. 

Response: As discussed previously, 

MA organizations will continue to have 

the flexibility to choose CCIP and 

quality improvement project topics that 

meet the needs of their population and 

operational processes, and we will offer 

opportunities for the industry to offer 

recommendations for fine-tuning our 

CCIP and quality improvement project 

requirements. We will take into 

consideration the specific 

recommendations offered by 

commenters as we develop future 

guidance related to CCIPs and quality 

improvement projects. 

Comment: Several commenters were 

concerned that the proposed 

requirements could impinge on the 

efforts of MA organizations to satisfy 

accreditation standards for National 

Committee for Quality Assurance 

(NCQA) or other accrediting bodies. 

Response: MA organizations that 

participate in the quality improvement 

deeming program will be subject to the 

standards of their accreditation 

organization. We will continue to 

ensure that standards applied by 

deeming organizations are at least as 

stringent as those applied by us. 

Comment: Several commenters were 

concerned about special needs plans 

(SNPs) meeting the proposed 

requirements. Commenters 

recommended allowing MA 

organizations to customize overall 

quality improvement programs for their 

specialized populations in chronic care 

special needs plans (C–SNPs), deeming 

all the individual model of care and 

quality improvement initiatives 

required of C–SNPs to fulfill this 

requirement, and allowing dual-eligible 

SNPs (D–SNPs) to implement specific 

projects for the dual-eligible population. 

Several commenters were concerned 

that the CCIP and quality improvement 

project models that CMS develops may 

not be appropriate for special needs 

plans (SNPs) and that some SNPs will 

face significant challenges meeting State 

as well as MA requirements in the event 

that CMS requirements for specific 

quality improvement topics that differ 

from State requirements. 

Response: As discussed previously, 

MA organizations will continue to have 

the flexibility to choose CCIP and 

quality improvement project topics that 

meet the needs of their population and 

operational processes. When MA 

organizations are required to conduct 

CCIPs in patient populations and 

quality improvement projects in areas 

that we identify which are appropriate 

for SNPs, SNPs will follow the same 

quality improvement project and CCIP 

processes identified for other types of 

MA plans. We will not expect SNPs to 

employ quality improvement project or 

CCIP programs that are not appropriate 

for their population. We note that CMS 

may use data collected from SNPs to 

determine if there are populationspecific topics that require targeted 

monitoring in the future. 

Comment: A few commenters were 

concerned about the challenges MA 

organizations would face in allocating 

additional resources to meet the 

proposed requirements as well as the 

potential for increased administrative 

costs. 

Response: With respect to 

commenters’ concerns about the 

additional cost of implementing these 

requirements, we do not believe that 

MA organizations will experience 

significant additional financial burdens 

as a result of these requirements. 

b. New Quality Measures 

In our October 22, 2009 proposed 

rule, we stated that as we strengthen our 

oversight of quality improvement 

programs implemented by MA 

organizations, we believe it is necessary 

to collect additional data on quality and 

outcomes measures in order to better 

track plan performance. We currently 

collect from MA organizations data on 

quality, outcomes, and beneficiary 

satisfaction under the Healthcare 

Effectiveness Data and Information Set 

(HEDIS®), the Health Outcome Survey 

(HOS), and the Consumer Assessment 

Health Providers Survey (CAHPS). We 

stated in the proposed rule that we 

anticipated additional collection and 

reporting of the same types of data on 

health outcomes and quality measures 

that we currently collect as part of these 

processes. 

We also noted that we believed the 

collection of these data to be consistent 

with our authority under section 

1852(e)(3)(A) of the Act, and that we do 

not believe that the limitation described 

under section 1852(e)(3)(B) of the Act 

limits this proposed additional data 

collection because the data collected 

would be of the same ‘‘type’’ of data that 

we currently collect as part of the 

HEDIS®, HOS, and CAHPS® processes. 

In the preamble to the proposed rule, we 

noted post-surgical infections or patient 

falls as examples of additional areas on 

which we planned to collect data. 

Therefore, we proposed to modify 

§ 422.152(b)(3) and § 422.152(e)(2) to 

require MA plans to collect, analyze, 

and report quality performance data 

identified by CMS that are of the same 

type of data that plans are currently 

required to collect and report to CMS. 

We also proposed that, consistent with 

the Paperwork Reduction Act (PRA), we 

would provide the public at least two 

opportunities for public comment before 

imposing additional quality-related 

collection and reporting requirements. 

We are finalizing our proposal to 

require MA plans to collect, analyze, 

and report quality performance data 

identified by CMS as described in the 

proposed rule and adopting 

§ 422.152(b)(3) and § 422.152(e)(2) 

without further modification in this 

final rule. 

Comment: A number of commenters 

supported CMS’ proposal to require MA 

plans to collect, analyze, and report 

quality performance data identified by 

CMS that are of the same type of data 

that plans are currently required to 

collect and report to CMS. Commenters 

also supported CMS’ proposal to 

provide the public at least two 

opportunities for public comment before 

imposing additional quality-related 

collection and reporting requirements, 

consistent with the PRA. 

Response: We agree with the 

commenters supporting our proposal to 

require MA plans to collect, analyze, 

and report quality performance data of 

the same type of data that plans are 

currently required to collect and report, 

that we identify. Accordingly, we have 

finalized our proposed § 422.152(b)(3) 

and § 422.152(e)(2) in this final rule. 

Comment: A few commenters did not 

support our proposal to require MA 

plans to collect data on additional 

quality performance measures. 

Commenters were concerned about the 

administrative burden and costs 

associated with additional data 

collection and recommended that CMS 


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use existing quality measures rather 

than require new measures. One 

commenter questioned whether 

additional quality measures beyond the 

HEDIS, HOS, and CAHPS would be 

useful since these measures are 

accepted industry standards. One 

commenter questioned CMS’ efforts to 

use quality measures to ‘‘score’’ plans, 

indicating that plans with lower 

enrollment and more direct control over 

patient care, for example a closed model 

HMO, could achieve better measures 

through more intensive interventions. 

Response: As the MA program has 

evolved, attracting an increased number 

of beneficiaries that present with 

specialized health concerns, it has 

become increasingly important for us to 

focus on developing measures that meet 

the MA population’s needs. We believe 

that collection of additional data on 

quality outcomes measures is necessary 

to better track plan performance in this 

area. As noted previously, we disagree 

with commenters that MA plans will 

experience significant additional 

financial burden as a result of these 

requirements. 

Comment: Commenters provided 

suggestions on how to identify the 

measures for which additional 

collection of quality performance data 

will be required. Several commenters 

recommended that we use existing 

nationally endorsed, clearly specified 

measures for any new reporting 

requirements we place on MA 

organizations, and that the measures be 

those of national standard setting 

organizations. One commenter indicated 

that it would like to work with CMS to 

see if any of the new measures should 

be incorporated into HEDIS. Two 

commenters requested that the new 

quality measures be measurable through 

administrative data instead of chart 

reviews. One commenter supported the 

examples we provided of new quality 

reporting requirements we indicated in 

our proposed rule, specifically, postsurgical infections or patient falls and 

recommended that the reporting be 

expanded to all health care acquired 

conditions (the Medicare ‘‘never 

events’’) and all infections. Another 

commenter indicated that additional 

broad based measures, such as 

readmission rates, also could provide 

critical insights on performance. 

Additionally, one commenter suggested 

that CMS consult with the Medicare 

Payment Advisory Commission, which 

recently finalized recommendations 

related to quality in the MA program 

and the measures that could be adopted 

to compare MA plans to one another as 

well as to Original Medicare. Some 

commenters suggested that CMS involve 

the industry in the development of the 

new measures for which additional 

collection of quality performance data 

will be required. 

Response: We will identify measures 

and standards using internal CMS 

methods as well as nationally 

recognized methodologies. These 

measures and standards will be based 

on the information that is currently 

collected, as well as any additional data 

we find to be necessary to collect for 

this purpose. We have begun a year-long 

project to research and analyze 

population specific health outcomes 

and plan operations data. As an 

important part of this project, industry 

leaders, researchers, and individuals 

with expert knowledge of the Medicare 

population will be involved in the 

discussions as we identify appropriate 

quality measures and standards for the 

MA program. We plan to use this 

information to further develop and 

analyze the effectiveness of the current 

and future measures associated with 

health outcomes, operational 

procedures and processes, and member 

experience. As indicated in the 

proposed rule, we will provide the 

public at least two opportunities for 

public comment through the PRA 

process before imposing additional 

quality-related collection and reporting 

requirements. 

Comment: One commenter 

encouraged us to explore ways to 

release timely, plan-specific data to 

third parties to allow them to 

experiment with different ways to 

analyze claims data, and underlying 

plan performance data, to assist 

consumers with the identification, 

selection, and use of their MA plans or 

PDPs based on plan performance or 

quality attributes. 

Response: We do not collect claims 

data from MA and Part D plans. 

However, we do collect Part D 

prescription drug event (PDE) data, 

which is based on claims data submitted 

by pharmacies to Part D sponsors. These 

data are available for research purposes, 

consistent with § 423.505. We are 

working to provide additional public 

use files based on PDE data in the 

future. More information on PDE data 

for research purposes may be found at 

http://www.resdac.umn.edu/ 

Available_CMS_Data.asp. For the 

quality and performance data for Part C 

and Part D plans, we release a database 

with all of the contract-level individual 

measures that make up the Part C and 

Part D plan ratings. These data are 

available on the CMS Web site at 

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

PrescriptionDrugCovGenIn/ 

06_PerformanceData.asp. 

c. Use of Quality Improvement 

Organization Review Information 

In our October 2009 proposed rule, 

we asserted that data collected by 

Quality Improvement Organizations 

(QIOs) to accomplish their mission 

represent an important data resource for 

CMS in our efforts to improve quality 

under the MA program. QIOs collect 

survey, administrative, and medical 

records data in order to monitor and 

assess provider performance. These data 

are frequently required by scope of work 

contracts administered by CMS to assess 

whether or not QIOs are meeting 

performance goals. 

We discussed several proposed uses 

of the data collected by the QIOs. For 

example, certain QIO data could be used 

to develop a standardized core set of 

clinical and non-clinical quality and 

performance measures that could be 

applied to all MA plans in order to 

allow beneficiaries to make better 

comparisons across all MA plan types 

and make an informed decision when 

selecting a plan. These measures could 

also be used to rate plans according to 

their performance. 

We also outlined our plan to develop 

minimum performance levels and 

requirements that address clinical and 

nonclinical areas from the data collected 

by QIOs, as part of our efforts to provide 

meaningful information to beneficiaries 

when selecting an MA plan. In addition 

to tracking plan performance, these data 

could also be used to monitor plan 

compliance with MA contract 

requirements and support compliance 

or enforcement actions against plans 

that are poor performers on certain 

quality and performance measures. 

These data would also be appropriate 

for use in a competitive value-based 

purchasing program based on quality of 

care. 

Finally, we explained our intent to 

use one particular type of information 

already collected by QIOs, that is, 

quality review study (QRS) information 

(defined in 42 CFR 480.101(b)) and 

retool the data elements to make them 

specific to beneficiaries enrolled in MA 

plans. A QRS is ‘‘an assessment, 

conducted by or for a QIO, of a patient 

care problem for the purpose of 

improving patient care through peer 

analysis, intervention, resolution of the 

problem and follow-up.’’ By QRS 

information, we mean all 

documentation related to the QRS 

process. We proposed to obtain from the 

QIO only the data that relate to MA plan 

beneficiaries, providers, practitioners, 

and services and to then aggregate the 

data applicable to each MA plan based 

on beneficiary enrollment. 


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Accordingly, we proposed adding a 

new § 422.153 to indicate that we would 

obtain and use quality review study 

information that is generated, collected, 

or acquired by QIOs under 42 CFR part 

480. We stated our intent to use these 

data for the following functions: 

• Enabling beneficiaries to compare 

health coverage options and select 

among them, measuring performance 

under the plan. 

• Ensuring compliance with plan 

requirements under Part 422. 

• Other purposes related specifically 

to MA plans, as specified by CMS. 

We also clarified that we did not plan 

to disclose any beneficiary identifiable 

information. 

In addition, we proposed amending 

§ 480.140 to add a new paragraph (g), 

authorizing our use of quality review 

study information solely for the 

purposes specified in § 422.153. As 

described below, we are modifying 

§ 422.153 and § 480.140(g) in this final 

rule. 

Comment: A number of commenters 

were concerned about the use of data 

collected from QIOs to measure plan 

performance and recommended that 

CMS reconsider its proposal. One 

commenter recommended that CMS 

discuss current MA experience with 

QIO studies and the potential future 

uses of QRS information with plans. 

Some of the concerns cited by 

commenters are that— 

• There may be inconsistencies 

among QIOs on their assessments and 

findings, which may disadvantage some 

plans. Individual QIOs may offer 

consistent and reliable data sources, but 

aggregating data from multiple Statespecific entities may dilute the 

consistency and reliability that would 

be required to accomplish CMS’ 

proposed uses; 

• Some MA organizations have 

experienced delays in the receipt of QIO 

study findings; therefore, the 

organizations do not have timely notice 

of any deficiencies and are not able to 

use the findings in their quality 

improvement activities. The delay in 

dissemination of findings may not be 

sufficiently timely for CMS’ intended 

purpose; 

• Depending on the QIO, there is 

often a substantial lag in the availability 

of QIO data. Current MA performance 

assessment should not be assessed 

based on data that are 2 or 3 years old; 

and 

• There may be additional burden 

placed on deemed plans that do not 

submit to the QIOs so that the data 

could be all inclusive from the QIOs. 

Commenters recommended that CMS 

clarify whether plans that are already 

deemed by NCQA would also be 

required to send additional information 

to their QIO to comply with the 

proposed regulation. One commenter 

indicated that the use of QIO review 

information would be administratively 

burdensome and duplicative of current 

reporting measures such as HEDIS. 

Response: We share the concerns 

raised by commenters about the 

inconsistency and timeliness of the data 

collected by QIOs. These concerns relate 

to QIO review of beneficiary quality of 

care concerns, medical necessity 

reviews, appeals, and other case 

reviews. 

After reviewing these comments, we 

have discovered that the data that will 

be needed to meet the functions 

described in § 422.153 is not collected 

from QIO case reviews. Instead, 

hospitals report this information to us as 

part of the Reporting Hospital Quality 

Data for Annual Payment Update 

(RHQDAPU) program, which is 

authorized under section 

1886(b)(3)(B)(viii) of the Act. Much of 

this data is self-reported by hospitals on 

a quarterly basis, and some is validated 

for accuracy. Further, the data does not 

possess any of the timeliness and 

reliability issues cited by the 

commenters. Hospitals self-report 

patient-level quality measure data for 

patients covered by MA plans, Original 

Medicare, and other payors to CMS for 

the RHQDAPU program. 

In response to the comments we 

received, we are narrowing the scope of 

our proposed § 480.140(g) to provide 

that QIOs must disclose to us QRS 

information collected as part of the 

RHQDAPU program following hospital 

review of the data (with identifiers of 

MA plan beneficiaries, hospitals, 

practitioners, and services) when we 

request this information for the sole 

purpose of conducting activities related 

to MA organizations as described in 

§ 422.153. We believe that restricting 

our access to include only RHQDAPU 

hospital quality data that we may use 

for the functions described in § 422.153 

will address the concerns about the 

timeliness and reliability of this data. 

We are also modifying § 422.153 to 

indicate that we will acquire RHQDAPU 

data from QIOs and may use it for the 

limited functions described in 

§ 422.153. As proposed, we do not plan 

to disclose any beneficiary identifiable 

information. We also do not plan to 

disclose any provider or practitioner 

identifiable information. 

Comment: Many comments supported 

our proposal to obtain and use QRS 

information that is generated, collected, 

or acquired by QIOs. Commenters also 

supported CMS’s proposal to use these 

data to enable beneficiaries to compare 

health coverage options and select 

among them, measure performance 

under the plan, and ensure compliance 

with plan requirements under Part 422, 

and other purposes related specifically 

to MA plans as specified by CMS. 

Commenters agreed that CMS should 

not plan to disclose any beneficiary 

identifiable information. 

Some of these commenters asked CMS 

to consider additional recommendations 

with respect to our proposals. Some of 

the recommendations were that CMS 

should ensure that an adequate sample 

of QIO data for dual eligibles is 

reviewed; allow plans to review the 

information the QIO intends to submit 

to CMS in order to give plans the 

opportunity to correct errors; ensure 

appropriate procedures are available for 

plans that may dispute the data that 

CMS intends to make available to 

beneficiaries before those data are 

released; provide ample notice to plans 

of the specific data that CMS intends to 

collect to allow for programming and 

testing of data collection tools prior to 

submission to CMS; and make Original 

Medicare data available to beneficiaries, 

where available, along with MA plan 

data. 

One commenter indicated that CMS 

should develop a methodology to 

stratify the data so that MA 

organizations would be grouped by local 

or regional MA organizations, and 

defined by statewide or selected 

geographic areas such as number of 

counties within a State, benefit design, 

and plan type. This commenter also 

indicated that data provided to 

beneficiaries would be misleading if 

CMS compared all MA organizations in 

a State without classifying these 

organizations by type and service area. 

Response: As we refine our work plan 

for using the data collected under 

section 1886(b)(3)(B)(viii) of the Act 

(RHQDAPU data) for the functions 

described in § 422.153, we will consider 

these commenters’ recommendations to 

ensure we achieve our goals of 

providing meaningful information to 

beneficiaries, developing minimum 

performance levels and requirements 

that address clinical and non-clinical 

areas from the data collected by QIOs, 

and ensuring plan compliance with MA 

contract requirements. 

Comment: Commenters recommended 

that CMS ensure that the measures it 

develops are based on nationally 

endorsed measures, are collected in a 

uniform fashion, and have large enough 

sample sizes to support public reporting 

as well as any value based purchasing 

decisions. One commenter 

recommended that CMS specify that 


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plans will have multiple opportunities 

to comment on any performance 

measures proposed for the MA program. 

Response: We will identify measures 

and standards using internal CMS 

methods as well as nationally 

recognized methodologies. The process 

for developing measures based on data 

collected by the QIOs is not subject to 

the PRA review process since it does not 

represent a new data collection 

requirement for MA plans. 

2. CAHPS Survey Administration Under 

Parts C and D (§ 417.472, § 422.152, and 

§ 423.156) 

In the October 22, 2009 proposed rule, 

under the authority of sections 

1857(e)(1), 1860D–12, and 1876(i)(3)(D) 

of the Act to impose additional contract 

requirements that the Secretary finds 

‘‘necessary and appropriate,’’ we 

proposed to revise the regulations to 

require that MA organizations, Part D 

sponsors, and section 1876 cost 

contractors would pay for the data 

collection costs of the annual CAHPS 

survey beginning in 2011. As we noted 

in the preamble to the proposed rule, in 

the 2010 Call Letter to Part C and D 

sponsoring organizations, we informed 

all MA and Part D contracts with at least 

600 enrollees as of July 1 of the prior 

calendar year that they would be 

expected to pay for the data collection 

costs of the CAHPS survey starting with 

the administration of the 2011 annual 

CAHPS survey. The proposed rule set 

forth this requirement in regulations at 

§ 422.152 for Part C, § 417.472 for 

section 1876 cost contracts, and 

§ 423.156 for Part D. 

The proposed rule would require only 

MA organizations, Part D sponsors, and 

section 1876 cost contractors with 600 

or more enrollees to pay for the data 

collection costs of the CAHPS survey. 

For reasons of statistical precision, a 

target minimum of 300 or more 

completed Medicare CAHPS Surveys 

must be received for each contract. In 

order to obtain 300 or more completed 

surveys, we determined that plans 

would need to have 600 or more 

enrollees because some enrollees will 

not be eligible to receive the survey, 

such as institutionalized enrollees, and 

not all enrollees selected to be surveyed 

will respond to the survey. 

In making this proposal, we noted 

that we conduct other Medicare quality 

surveys, such as the Hospital CAHPS 

and the Medicare Health Outcomes 

Survey (HOS) for which the MAOs are 

responsible for the cost of the data 

collection, and that this model for data 

collection is standard industry practice. 

For example, Federal Employees Health 

Benefit (FEHB) plans pay for the 

administration of the CAHPS survey to 

their members. Under our proposal, Part 

C & D contractors and section 1876 cost 

contractors would select a vendor from 

a CMS list of approved vendors to 

conduct the survey on their behalf. We 

also noted that this change would 

provide the sponsoring organizations 

with the flexibility of adding their own 

questions to the Medicare CAHPS 

survey. 

We also noted that the first survey 

using the new model of data collection 

would be conducted in early 2011. 

Contracts that were in effect on or before 

January 1, 2010, would use the number 

of enrollees in a plan as of July 1, 2010 

to determine whether they are required 

to conduct the 2011 CAHPS survey. In 

late 2010, all MA and Part D contracts 

that are subject to the CAHPS survey 

requirement in 2011 would need to 

select an approved Medicare CAHPS 

survey vendor to administer the survey. 

Finally, we noted that, in addition to 

approving a list of survey vendors to 

conduct the survey on behalf of all MA 

and Part D contracts, we would select 

the sample of enrollees to be surveyed 

for each contract, approve survey 

vendors, provide oversight of survey 

vendor activities, analyze the CAHPS 

data for plan ratings, and produce 

individual-level reports for quality 

improvement use by MA and Part D 

contracts. Vendors will be trained by 

CMS to collect and submit data within 

specified timeframes. 

After reviewing the comments 

received in response to this proposal, 

we are adopting the proposed CAHPS 

data collection requirements as final. 

However, we are revising § 417.472 and 

§ 422.152 to clarify the distinction 

between cost contracts under section 

1876 and coordinated care plans. 

Specifically, the revised wording is: ‘‘All 

coordinated care contracts (including 

local and regional PPOs, contracts with 

exclusively SNP benefit packages, 

private fee-for-service contracts, and 

MSA contracts), and all cost contracts 

under section 1876 of the Act, with 600 

or more enrollees in July of the prior 

year must contract with approved 

Medicare Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS) survey vendors to conduct the 

Medicare CAHPS satisfaction survey of 

Medicare plan enrollees in accordance 

with specifications and submit the 

survey data to CMS.’’ 

Comment: CMS received comments 

concerning the proposed requirements 

for Part C and D contracts regarding the 

CAHPS survey. A few commenters 

noted that CMS did not provide any 

estimate of, or other information related 

to, the costs associated with collection 

of data for the CAHPS survey, asserting 

that this information is necessary in 

order to appropriately account for the 

costs in their annual bid submissions. 

Response: We respectfully disagree. 

Both the estimated CAHPS costs and 

burden were addressed in the proposed 

rule. As stated therein, the estimated 

mean annual cost per contract is 

approximately $5,000 for MA 

organizations, cost contracts, and Part D 

sponsors with more than 600 enrollees 

for the CAHPS annual survey. (74 FR 

54711). Data collection is to be 

performed by a contractor hired by the 

MAO or Part D sponsor. 

Comment: A few commenters noted 

that proposed § 422.472(i) would 

require section 1876 cost contractors to 

contract with approved CAHPS survey 

vendors to conduct the Medicare 

CAHPS satisfaction survey for ‘‘MA plan 

enrollees.’’ However, they assert that 

cost plans do not have MA plan 

enrollees. Moreover, cost plans are not 

‘‘coordinated care plans,’’ which is a 

term that describes certain MA plans. 

The commenters recommend that CMS 

delete the references to coordinated care 

plans and other MA references. 

Response: We appreciate the 

commenters’ suggestions and are 

revising § 417.472 and § 422.172 as 

follows: ‘‘All coordinated care contracts 

(including local and regional PPOs, 

contracts with exclusively SNP benefit 

packages, private fee-for-service 

contracts, and MSA contracts), and all 

cost contracts under section 1876 of the 

Act, with 600 or more enrollees in July 

of the prior year must contract with 

approved Medicare Consumer 

Assessment of Healthcare Providers and 

Systems (CAHPS) survey vendors to 

conduct the Medicare CAHPS 

satisfaction survey of Medicare plan 

enrollees in accordance with 

specifications and submit the survey 

data to CMS.’’ 

Comment: Several commenters 

expressed approval and support for 

CAHPS, applauding CMS’s efforts to 

provide enrollees with consumer-tested, 

standardized information about plan 

choices. The commenters also support 

changes that will increase data 

collection, provide beneficiaries with 

additional information with which to 

make plan comparisons, and overall 

improve quality of plans. 

Response: We appreciate these 

commenters’ support of our quality 

efforts. 

3. Validation of Part C and Part D 

Reporting Requirements (§ 422.516 and 

§ 423.514) 

In the October 22, 2009 proposed rule, 

under the authority of sections 1857(e) 


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and 1860D–12 of the Act, we proposed 

to amend § 422.516 and § 423.514 to 

state that each Part C and Part D sponsor 

be subject to an independent yearly 

audit of Part C and Part D measures 

(collected pursuant to our reporting 

requirements) to determine their 

reliability, validity, completeness, and 

comparability in accordance with 

specifications developed by us. 

Additionally, in the preamble we 

noted that our rationale for making this 

proposed change, which was also 

announced in the 2010 Call Letter to 

Part C and D sponsoring organizations, 

was that only an independent data 

validation audit conducted by an 

external entity under contract to the 

MAO or PDP sponsoring organization 

would ensure that the results of the 

audit are in accordance with CMS 

specifications, that data used to develop 

plan performance measures are credible 

to other stakeholders, and that 

information used to respond to 

Congressional and public inquiries are 

reliable. We noted that we were working 

with a contractor to develop data 

validation specifications to ensure that 

the goals of reliability, validity, 

completeness, and comparability are 

met at the conclusion of the data 

validation audit. We intend that these 

specifications will focus on how 

organizations and sponsors compile 

numerators and denominators, take into 

account appropriate data exclusions, 

and verify the sponsor’s calculations, 

computer code, and algorithms. In 

addition, the specifications will be used 

to inform CMS as to how the MAOs, 

cost plans, and Part D sponsors collect, 

store, and report data. We expect that 

these specifications will be utilized by 

the auditors hired by MAOs and Part D 

sponsors to conduct the data validation 

audits, the results of which will be 

forwarded to us. We indicated that we 

expected to make these specifications 

available on our Web site for public 

comment early in 2010. We solicited 

comment on this approach. 

Subsequent to publication of the 

proposed rule, in an HPMS 

memorandum dated December 23, 2009, 

we noted that after careful review of the 

reporting requirements and CMS’ 

continued data needs, the amount of 

data required to be reported to CMS for 

CY 2010 and contract years contract 

beyond was to be reduced. We noted 

that the reason for the reduction in 

reporting was that some of the data 

could be derived from other means (that 

is, through analyses of prescription drug 

event data already collected by CMS). 

We believe these adjustments reduce the 

overall burden on sponsoring 

organizations while maintaining the 

integrity of the CMS data collection, 

plan reporting, and plan validation 

processes so that needed data for 

monitoring and public reporting are 

timely, reliable, valid, and comparable 

among organizations. Specifically, the 

following changes became effective 

January 1, 2010: 

• Part C Reporting Requirements 

++ Reporting of the Agent 

Compensation and Agent Training and 

Testing measures will be suspended. 

++ The frequency of reporting of two 

Part C measures will be reduced. 

— Only annual reporting for Plan 

Oversight of Agents will be required; the 

quarterly reporting will be suspended. 

— Only annual reporting for 

Employer Group Plan Sponsors will be 

required; the semiannual reporting will 

be suspended. 

++ Validation of PFFS Provider 

Payment Dispute Resolution and PFFS 

Plan Enrollment verification calls will 

not be required. 

• Part D Reporting Requirements 

++ Reporting of five sections will be 

suspended: Vaccines, Generic Drug 

Utilization, Transition, Drug Benefit 

Analyses, and Agent Training and 

Testing. 

++ The frequency of reporting of six 

Part D sections will be reduced as 

follows: 

— Only annual reporting for 

Employer/Union-sponsored Group 

Health Plan Sponsors, Fraud, Waste and 

Abuse Compliance Programs, Long 

Term Care (LTC) Utilization, and 

Medication Therapy Management 

Program (MTMP) will be required; the 

semi-annual reporting will be 

suspended. 

— Only annual reporting for Plan 

Oversight of Agents and P & T 

Committees/Provision of Part D 

Functions will be required; the quarterly 

reporting will be suspended. 

++ Validation of eight sections will 

not be required: Enrollment, Access to 

Extended Days. 

— Supply, Prompt Payment by Part D 

Sponsors, Pharmacy Support of 

Electronic Prescribing, P&T 

Committees/Provision of Part D 

Functions, Pharmaceutical Rebates, 

Discounts and Other Price Concessions, 

Licensure & Solvency, and Fraud, Waste 

and Abuse Compliance Programs. 

We are also excluding PACE 

organizations from CY 2010 Part D 

Reporting Requirements, which is 

consistent with Part C Reporting 

Requirements. 

These changes will be incorporated in 

the final CY 2010 Part D Reporting 

Requirements document and the Part C 

and D Reporting Requirement Technical 

Specifications documents, which will 

be updated and posted to our Web site. 

The data validation standards will also 

be updated and provided for comment 

as part of a PRA package in 2010. We 

note that these changes do not affect our 

proposal to require an annual 

independent audit of Part C and Part D 

measures. Rather, because these changes 

reduce the amount of data that must be 

submitted by plan sponsors, they will 

make the data validation audits 

somewhat less time-consuming. 

After considering the comments 

received in response to the proposed 

rule, in this final rule, we adopt the 

requirements as proposed. 

Comment: Several commenters argued 

that plans need information regarding 

the data validation requirement in a 

timelier manner to allow for 

consideration during preparation of the 

2011 bids. They also noted that CMS 

should provide plans with sufficient 

information and time to modify their 

operations to incorporate any new 

requirements prior to the data validation 

mandates taking effect. 

Response: With this final rule, we 

believe that we are providing plans with 

information in sufficient time to allow 

for consideration in their 2011 bids. A 

regulatory impact analysis for this 

proposed requirement was included in 

the October 22, 2009 proposed rule. The 

proposed rule also contained the 

information collection requirements. 

Plans should be able to use the burden 

and cost estimate information to 

develop an estimate of any increase in 

resources and costs associated with the 

implementation of these provisions. 

Additionally, two HPMS memoranda 

were released this fall: Part C and Part 

D reporting requirements and data 

validation dated November 23, 2009 and 

Implementation changes in the 

Medicare Part C and Part D Reporting 

Requirements and Data Validation dated 

December 23, 2009. These memoranda 

contain detailed, updated information 

on changes in implementation of the 

data validation requirement. The first 

memorandum clarified the timing of 

implementation (that is, the data 

validation needs to occur in the spring 

of 2011 for reported 2010 data), while 

the second memorandum reduced the 

overall data validation and reporting 

requirements for Part C and Part D 

measures. 

Comment: While one commenter 

supported the implementation of the 

data validation audit requirements for 

2011, others recommended we delay 

codifying the data validation audit 

requirement. They argued that codifying 

the requirement before the process has 


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been evaluated and finalized is 

premature and will take away CMS’ 

flexibility to refine the requirements as 

it gains experience with the process. 

The commenters were also concerned 

that the validation mechanisms are very 

preliminary and should be vetted 

through the subregulatory process. They 

noted that the validation approach 

stipulated in the proposed regulation 

places the full cost burden of the audit 

on the health plan. One commenter 

specifically recommended that the 

proposed new paragraphs (g) be revised 

by striking Each Part C [Part D] sponsor 

must and inserting instead, CMS may 

require each Part C [Part D] sponsor to 

* * * and strike independent audit and 

insert audit. 

Response: We disagree with the 

recommendation to delay codifying the 

data validation audit. We have begun 

evaluating the data validation audit 

process and will have completed a pilot 

evaluation by May 2010, that is, 

approximately 10 months before the 

implementation of the data validation 

audits. Therefore, we believe we will 

have sufficient time to perform any 

needed refinements of the requirements 

well before actual implementation of the 

data validation process. We strongly 

believe that it is important to have the 

data validation audit process in place by 

2011 since there is a need to monitor the 

Part C and D programs effectively and 

to respond to questions from Congress, 

oversight agencies, and the public with 

data that are timely, reliable, valid, and 

allow for comparisons among plans. 

We also disagree that the data 

validation audit requirements should be 

provided only in subregulatory 

guidance. We proposed to implement 

these requirements through notice-andcomment rulemaking in order to ensure 

that, if they were adopted, they would 

be enforceable with the full force and 

effect of law. Detailed procedures for 

meeting the regulatory requirements 

will be provided through sub-regulatory 

guidance and will also undergo the PRA 

process. As a result, we believe we will 

retain sufficient flexibility to make 

necessary changes before the 

requirements are implemented as well 

as to update the procedures in the future 

as necessary. We further believe that it 

is necessary to conduct the data 

validation audit on all plans so that 

there is assurance that all the data are 

reliable, valid, and can be used to 

compare health plan performance. If we 

find through the data validation audit 

process that some plans are not 

reporting accurate data, then it will be 

possible to take this factor into account 

when reporting plan performance and in 

comparing performance among plans. 

Comment: Several plans expressed 

concern that the cost of implementing 

the data validation audit will be high or 

excessive. 

Response: We do not agree that the 

costs of implementing the data 

validation audit will be excessive. In the 

October 22, 2009 proposed rule (74 FR 

54711), we estimated that the costs of 

these independent audits would be 

approximately $5,200 per plan. Because 

the costs on a per plan basis are not 

excessive, they will likely be reflected 

in only minimally higher bid prices 

across the board. 

Comment: Two commenters stated 

that plans should have the option of 

using their own internal auditing staff. 

Response: We disagree that plans 

should have the option of using their 

own internal auditing staff in lieu of an 

independent, external auditor. The data 

validation needs to be credible to 

stakeholders, including Congress and 

the American public. We believe that 

only an external independently 

conducted audit can establish this 

credibility. 

Comment: One commenter requested 

clarification as to whether CMS intends 

to issue a list of certified contractors 

from which an organization may select 

a vendor. This commenter also 

recommended that the validation and 

testing of a plan’s compliance with 

Fraud, Waste, and Abuse (FWA) 

programs regulations include the use of 

a certified fraud investigator. 

Response: At this time, we do not 

expect to issue a list of certified 

contractors from which an organization 

may select a vendor to conduct data 

validation audits. Instead, we will be 

issuing standards for selected vendors. 

A draft of these standards was issued for 

informal comments last fall and a 

revised version will be issued with the 

PRA package associated with the data 

validation specifications that will be 

available for public comment. We also 

note that the commenter’s second 

recommendation is likely in reference to 

a CMS program audit. Because this 

proposal relates to a data validation 

audit, we do not believe that plans 

should be required to use a certified 

fraud investigator. 

Comment: One commenter stated that 

flexible criteria should be considered in 

the data validation audit’s report 

specifications, that is, CMS should 

consider using flexible criteria in 

developing the specifications for the 

data validation report. 

Response: We agree that the criteria 

used in developing the specifications for 

the data validation report should 

accommodate different types of 

reportable data that a plan collects for 

each Part C and D measure. We believe 

that the standards and procedures under 

development for the data validation 

effort provide sufficient flexibility to 

accommodate different types of 

available reportable data. 

Comment: One commenter states that 

any final rule on data validation 

requirements should take into 

consideration the plan’s state regulatory 

requirements and the plan’s processes 

required to comply with state mandates, 

laws, and regulations and consider 

deeming in areas of overlap. 

Response: We appreciate that plans 

may also have state reporting 

requirements with respect to licensure 

and solvency. We believe, however, that 

deeming with respect to issues subject 

to state reporting requirements is 

outside the scope of this proposal, 

which is to require an independent data 

validation audit of information reported 

to CMS. 

Comment: One commenter questioned 

whether CMS needed to define 

performance benchmarks so plans can 

manage and monitor data before they 

are submitted to CMS. 

Response: We will be defining the 

data validation standards prior to the 

data validation audit. Performance 

benchmarks relevant to these standards 

will be made available prior to the data 

validation audit. 

Comment: One commenter offered to 

review the measures on behalf of CMS 

and explore ways for including them in 

the HEDIS measurement set and audit 

program. 

Response: Although we appreciate the 

commenter’s interest in this issue, we 

are not committing to the inclusion of 

the new Part C and D measures as part 

of the HEDIS measurement set and audit 

program at this time. 

4. Collection of Additional Part D 

Claims Elements for NonpaymentRelated Purposes (§ 423.505) 

In the October 22, 2009 proposed rule, 

we proposed to use the authority under 

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

collect all additional elements added to 

the prescription drug event (PDE) record 

beyond the original 37 elements 

currently collected under section 

1860D–12(b)(3)(D) of the Act. As a 

result, we would be able to use these 

data elements for nonpayment-related 

purposes. 

As we explained in the preamble to 

the proposed rule, section 1860D– 

12(b)(3)(D) of the Act, which 

incorporates section 1857(e) of the Act, 

provides the Secretary with authority to 

include in Part D sponsor contracts any 

terms or conditions the Secretary deems 

necessary and appropriate, including 


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requiring the organization to provide the 

Secretary with such information as the 

Secretary may find necessary and 

appropriate. We noted that under this 

authority, in the May 28, 2008 Federal 

Register (73 FR 30664), we published a 

final rule that allowed the Secretary to 

collect Part D ‘‘claims’’ data from the 

prescription drug event (PDE) record 

and use the information gathered for 

non-payment purposes. However, this 

rule limited what data (hereinafter 

referred to as PDE elements) we may 

collect and use for nonpayment 

purposes to the original 37 elements 

reported on the PDE record. The rule 

also described circumstances under 

which we may disclose the data to other 

government and external entities, and 

the limitations associated with any such 

release. 

In the October 2009 proposed rule, we 

also noted that in 2008 the number of 

PDE elements collected was expanded 

from the original 37 elements to 39 

elements. The additional PDE elements 

are ‘‘Rebate Amount Applied to the 

Point-of-Sale Price’’ and ‘‘Vaccine 

Administration Fee.’’ The ‘‘Rebate 

Amount applied to the Point-of-Sale 

Price’’ is generally the standard amount 

of a rebate that the plan sponsor has 

elected to apply to the negotiated price 

as a reduction in the drug price made 

available to the beneficiary at the point 

of sale. The ‘‘Vaccine Administration 

Fee’’ is the amount charged for the 

administration of a vaccine separate 

from the actual vaccine. 

In the 2010 Call Letter to Part C and 

D sponsoring organizations, we noted 

that we were planning to make 

mandatory the collection of a new (40th) 

element to the PDE record, referred to as 

the ‘‘Prescription Origin Code.’’ (at 

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

PrescriptionDrugCovContra/Downloads/ 

CallLetter.pdf). The prescription origin 

code is designed to capture the 

frequency with which providers use eprescribing. 

Under our proposal, we would be able 

to utilize these data for non-payment 

related purposes. Similarly, we would 

be able to release these elements to 

governmental and external entities, 

under the authority of section 1106 of 

the Act, using the same process that we 

now use to release the original 37 

elements, namely our minimum 

necessary data policy, our data sharing 

procedures, and the encryption of 

certain identifiers and aggregation of 

cost data to protect beneficiary 

confidentiality and commercially 

sensitive data of Part D sponsors. 

Our proposal would allow us to 

collect and use for non-payment-related 

purposes any data obtained as a result 

of the addition of new elements to the 

PDE record without undertaking 

rulemaking for each additional element 

added in the future. We believe that the 

May 28, 2008 Part D Claims Data final 

rule (73 FR 30664) resolved any 

statutory ambiguity surrounding our 

broad authority to collect PDE data 

under section 1860D–12(b)(3)(D) of the 

Act. Accordingly, we may use this same 

authority to collect additional elements 

that have been added to the PDE record 

since 2007. Once data have been 

collected under section 1860D– 

12(b)(3)(D) of the Act, we may use these 

data for nonpayment-related purposes 

and may release PDE data consistent 

with our minimum necessary policy and 

our data sharing procedures. 

We also noted in the preamble to the 

proposed rule that we believe the ability 

to analyze new claims-related elements 

added to the PDE record will increase 

both specific and general knowledge of 

Medicare beneficiaries’ healthcare and 

the operation of the Part D program and 

would aid our ability to conduct 

program oversight, support operational 

tasks, and provide more information for 

use in internal and external healthcare 

research studies. Moreover, as a result of 

the proposal, we would not be required 

to undertake a separate rulemaking and 

public comment process each time new 

elements are added to the PDE record, 

but rather would automatically begin 

collecting for nonpayment purposes 

elements added to the PDE record using 

our authority under section 1860D– 

12(b)(3)(D) of the Act and § 423.505(f)(3) 

of the regulations. However, because we 

did not propose any change to our data 

sharing procedures or our minimum 

data necessary policy, we will continue 

to— 

• Ensure that beneficiary, prescriber, 

or pharmacy identifiers are not released 

unless absolutely necessary for a project 

(for example, to link to another 

database); 

• Encrypt Part D plan identifiers and 

aggregate cost data elements (ingredient 

cost, dispensing fee, and sales tax) when 

sharing PDE data with external 

requesters; and 

• Subject each request to our data 

sharing procedures which includes 

ensuring that requestors have the 

appropriate experience and are working 

for, or on behalf of, a reputable 

institution and that, when appropriate, 

make their project results public. 

External requests concerning beneficiary 

identifiable data would continue to be 

reviewed by the CMS Privacy Board, 

and would require the requestor to sign 

a data use agreement. 

We also noted our current policy of 

protecting various Part D elements when 

responding to external research 

requests. Thus, the beneficiary ID, plan 

ID, prescriber ID, and pharmacy ID are 

encrypted prior to release to external 

entities. However, in the case of 

beneficiary ID, prescriber ID, and 

pharmacy ID, this information may be 

provided in an unencrypted format 

when needed to link to another data set. 

In contrast, under the current rule, there 

is no exception to the requirement that 

plan identifiers be encrypted for all 

external research requests. Under the 

current regulation, grantees of HHS 

agencies are treated as external entities 

and may not access plan identifiers. 

However, contractors acting on behalf of 

HHS are not considered to be external 

entities and may receive unencrypted 

plan identifiers when necessary for a 

particular project. 

Because some HHS agencies 

accomplish their mission through 

grants, rather than contracts, and hence 

cannot rely on the access that is 

provided to HHS contractors and the 

fact that research performed by HHS 

grantees will advance the interests of 

Medicare beneficiaries, who may also be 

served by other HHS programs, we 

proposed to revise § 423.505(m)(iii)(C) 

to permit CMS disclosure to HHS 

grantees of unencrypted plan identifiers 

when certain conditions are met. The 

conditions we proposed to be met 

include— 

• The plan identifier is essential to 

the study and there is no other source 

of CMS data that would substitute for 

plan identifiers in order to carry out the 

study; 

• The study is key to the mission of 

the sponsoring agency; 

• The study provides a benefit to the 

Medicare program; and 

• The requestor attests that any 

public findings or publications will not 

identify plans or plan sponsors. 

In evaluating requestors’ proposals to 

determine whether these conditions are 

met, we propose the following 

evaluation standards: 

• Plan identifier, we will evaluate the 

requestor’s rationale to determine 

whether an encrypted plan identifier 

would be sufficient for the study design 

or if the real identifier is necessary for 

the study. 

• Agency mission, we will review the 

requestor’s agency’s rationale for the 

study and how the study would help the 

agency achieve its mission. 

• Medicare program benefit, we will 

review the requestor’s rationale for the 

importance of study findings to the 

Medicare program. 

• Public reporting, we require an 

attestation from the requestor that the 

requestor will not identify specific plans 


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or plan sponsors in any public 

reporting. 

In the proposed rule, we indicated 

that we believed that these conditions 

would mitigate the risk of unauthorized 

use or disclosure of commercially 

sensitive plan information. We also 

solicited comments on whether it would 

be appropriate to extend the proposal to 

permit grantees of other Federal 

agencies to have access to plan 

identifiers when this access may be 

necessary for a particular research 

project and that project otherwise meets 

the conditions described above. After 

considering the comments received in 

response to our proposals, we are 

finalizing the proposed changes to 

§ 423.505(f) and (m) without 

modification. 

Comment: Some commenters 

questioned CMS’ authority to share PDE 

data for non-payment purposes given 

the limiting language in section 1860D– 

15 of Act. One commenter alleges the 

approach outlined in the proposed rule 

would result in a potential violation of 

the Trade Secrets Act. Another 

commenter mentioned that section 

1927(b)(3)(D) of the Act protects pricing, 

rebates and other financial information 

from disclosure except to very specific 

recipients (such as CBO or the 

Comptroller), which does not extend to 

HHS grantees. One commenter does not 

want the release of rebate data, 

estimated or otherwise, stating that 

rebates at point of sale reflect 

proprietary business information. 

Response: We respectfully disagree 

with the commenters’ assertions. In the 

May 28, 2008 Federal Register (73 FR 

30664), we published a final rule 

regarding the collection and use of Part 

D claims data. This regulation resolved 

the statutory ambiguity between 

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

15 of the Act, noting that section 

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

incorporation of section 1857(e)(1)) of 

the Act) provide broad authority to the 

Secretary to require Part D sponsors to 

provide the Secretary with ‘‘such 

information as the Secretary may find 

necessary and appropriate’’ and that 

when information is collected through a 

statutory authority independent of 

section 1860D–15 of the Act, the 

restrictions of section 1860D–15 of the 

Act would not apply. Following the 

issuance of this Part D claims data final 

rule, Congress enacted the Medicare 

Improvements for Patients and 

Providers Act of 2008 (MIPPA). Section 

181 of MIPPA added clause (ii) to 

section 1860D–12(b)(3)(D) to provide 

that any Part D data collected under the 

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

‘‘shall be made available to 

Congressional support agencies (in 

accordance with their obligations to 

support Congress as set out in their 

authorizing statutes) for the purposes of 

conducting Congressional oversight, 

monitoring, making recommendations, 

and analysis of the program under this 

title.’’ While section 181 of MIPPA did 

not directly address the issues of 

statutory ambiguity associated with Part 

D claims data collected by CMS, it can 

be read as an implicit Congressional 

ratification of the arguments presented 

by CMS, in the Part D claims rule, as the 

legislation only overrides one provision 

of that rule. Specifically, under section 

181 of MIPPA the Secretary must make 

data collected under section 1860D– 

12(b)(3)(D) available to Congressional 

support agencies, without regard to 

CMS’ minimum data necessary 

standard. Accordingly, for reasons 

detailed in our May 29, 2008 final rule, 

we believe the restrictions of section 

1860D–15 of the Act do not apply to 

PDE data collected under the authority 

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

result, these data may be used for 

purposes other than payment. 

In response to concerns about 

releasing proprietary data to external 

entities, we note that this rule pertains 

to additional elements added to 

prescription drug event data and does 

not extend to plan bid or reconciliation 

payment data provided outside of the 

PDE. Because PDE data are collected 

under section 1860D–12(b)(3)(D), rather 

than section 1860D–2(d)(2), they are not 

subject to the limitations on disclosure 

under section 1927(b)(3)(d). In addition, 

as we explained in the May 28, 2008 

final rule (73 FR 30680), because 

§ 423.505(m) was issued under the 

authority of section 1106 of the Act, any 

release of potentially proprietary data 

pursuant to this provision would be also 

be authorized by law under the Trade 

Secrets Act. Furthermore, we also note 

that rebates applied at point of sale are 

not the same as aggregate rebates 

estimated by plans as part of their bid 

or actual rebates received from 

manufactures that are submitted outside 

of the claim for payment reconciliation 

purposes. Rather, they most often reflect 

a standard amount that the 

manufacturer is providing to a 

particular sponsor for a specific drug 

that is then passed through to 

consumers as part of the plans’ price at 

point of sale, the net amount of which 

is available to beneficiaries as an 

estimate on the drug plan finder tool. 

We also remind commenters that we 

place certain limitations on PDE data 

when released outside of CMS. Through 

the application of our ‘‘minimum data 

necessary policy,’’ additional 

restrictions to protect beneficiary 

confidentiality and commercially 

sensitive data of Part D sponsors, and 

our data sharing procedures (which 

ensure the agency’s compliance with the 

Health Insurance Portability and 

Accountability Act of 1996 (HIPAA), the 

Privacy Act of 1974, and other 

applicable laws), we limit the use and 

disclosure of Part D claims data to 

ensure that the data are only used or 

disclosed as permitted or required by 

applicable law, and not inappropriately 

disclosed in a manner which could 

undermine the competitive nature of the 

Part D program. 

Comment: We received a number of 

varied comments on the sharing of PDE 

data. Several commenters provided 

recommendations related to the sharing 

of Part D PDE information for nonpayment purposes, suggesting that 

CMS— 

• Use only non-identifiable 

information for any public analysis, 

arguing that research can be done 

without an actual plan ID; 

• Exclude data elements that could 

because of geographic information, and/ 

or other aggregated information 

indirectly identify plan sponsors; and 

• Share information (especially plan 

IDs, or PHI) only with written approval 

from the sponsor and publish guidance 

well before adding another element to 

the PDE format. 

Another commenter stated that 

despite the restrictions in sharing plan 

IDs, certain plans could easily be 

identified. A few other commenters 

stated that CMS has no specific 

restrictions in the regulation protecting 

price information. 

Response: We believe these comments 

are outside of the scope of the proposed 

rule, which was issued not to reopen 

our May 28, 2008 final rule on Part D 

claims data but rather to address the use 

and disclosure of additional PDE data 

elements beyond the original 37 

elements that were the subject of the 

May 28, 2008 final rule. To the extent 

the comments are applicable, we 

disagree with the recommendations on 

using only aggregate data and obtaining 

written plan approval prior to use of the 

PDE data. Our rationale is the same as 

the one we expressed in response to a 

similar comment to the May 28, 2008 

final rule on Part D claims data: if PDE 

data are collected only under the 

authority of section 1860D–15 of the Act 

CMS, HHS and external entities can 

never use the data for evaluations, 

analyses, and research important to 

public health, and vital to program 

oversight. In the Part D claims data final 

rule we provided a detailed description 


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of the potential purposes for which 

these data might be used, including 

evaluating the effectiveness of the 

prescription drug benefit and its impact 

on health outcomes, performing 

Congressionally mandated or other 

demonstration and pilot projects and 

studies, reporting to Congress and the 

public regarding expenditures and other 

statistics involving the Medicare 

prescription drug benefit, studying and 

reporting on the Medicare program as a 

whole, and creating a research resource 

for the evaluation of utilization and 

outcomes associated with the use of 

prescription drugs. Balancing these 

important objectives with the potential 

sensitivity of PDE data, we implemented 

a rule that ensures that, subject to many 

safeguards put in place to guard against 

inappropriate use and disclosure of 

commercially sensitive and beneficiary 

identifiable information, Part D PDE 

data are available for research purposes 

under similar data sharing processes to 

those used for sharing Parts A and B 

claims data. While we agree with the 

commenter that in some situations, even 

if we provide samples of PDE data with 

masked plan identifiers, public 

information may be added to the PDE 

record to identify the particular plan, 

we believe that our data sharing 

procedures mitigate against any 

inappropriate use or disclosure. Under 

these procedures, we require each 

researcher to sign a Data Use Agreement 

(DUA) that spells out the multiple 

restrictions on the use of the data and 

the penalties for any failure to comply 

with the terms of the agreement. In 

addition, we require research using 

beneficiary identifiable data to be 

conducted by an experienced entity at a 

reputable organization, with an 

appropriate research design, and with 

assurances to protect beneficiary 

confidentiality. Research is to be made 

available to the public and identifiable 

data is not released for commercial 

purposes. Further we will only release 

beneficiary identifiable data for research 

purposes if the CMS privacy board 

approves the data release and then, will 

only release the minimum data 

necessary for the study. We believe 

these procedures allow us to safely 

balance the need to support legitimate 

research while at the same time 

guarding against the misuse or 

inappropriate disclosure of data that is 

sensitive in nature. 

Comment: A commenter asked to 

what extent are PDE data uses and 

disclosures subject to requests under the 

Freedom of Information Act (FOIA). 

Response: Requests for Part D PDE 

data should be directed through our 

contractor, the Research Data Assistance 

Center, at http://www.resdac.umn.edu/, 

as opposed to FOIA. However, as noted 

in our May 28, 2008 final rule on Part 

D claims data, if a FOIA request is 

received for PDE data used for nonpayment purposes, we will follow our 

ordinary FOIA procedures and not 

release under FOIA data the agency 

determines are trade secrets, or 

commercial or financial information 

protected by FOIA Exemption 4 (5 

U.S.C. 552(b)(4). 

Comment: Commenters opposing the 

rule pointed out that it does not place 

any perimeters on the type of additional 

data CMS may classify as claims data, 

and thereby make available for 

disclosure. The commenters expressed 

concern that nothing in the proposed 

regulation would require confidentiality 

of rebate and pricing information if it 

were collected under section 1860D–12 

of the Act. 

One commenter also questioned CMS’ 

conclusion that we could use section 

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

new elements to the PDE record without 

undertaking rulemaking for each 

additional element added in the future. 

Response: We reiterate that our 

authority to collect PDE elements for 

non-payment purposes has already been 

decided with the clarification of our 

authority under 1860D–12(b)(3)(D) of 

the Act, as set forth in Medicare Part D 

Claims Data rule published on May 28, 

2008. Because that final rule was 

expressly limited to the 37 original 

elements of the PDE claim, it was 

necessary for us to undertake further 

rulemaking in order to collect new 

elements that have been added to the 

PDE record. Rather than proposing to 

collect only the 3 new elements that 

have been added to the PDE record 

since 2007, we concluded that it was 

appropriate to propose to collect all 

elements that are currently part of the 

PDE record or that may be added to the 

PDE record in the future. As we stated 

in the preamble to the October 22, 2009 

proposed rule, we believe that the 

ability to analyze new claims-related 

elements added to the PDE record 

would increase both specific and 

general knowledge of Medicare 

beneficiaries’ healthcare and the 

operation of the Part D program and 

would aid in our ability to conduct 

program oversight, support operational 

tasks, and provide more information for 

use in internal and external healthcare 

research studies. These rationales apply 

not only to the collection of the 3 new 

PDE elements that have been added 

since 2007, but also to the collection of 

any new elements that may be added in 

the future. Furthermore, the addition of 

more PDE elements beyond those that 

are currently collected is at the 

Secretary’s discretion and will be 

diligently reviewed and accorded the 

proper protection consistent with the 

principle outlined in the May 28, 2008 

final rule. Plan sponsors will be notified 

of any changes to the collection of PDE 

data through the CMS Call Letter to Part 

D plan sponsors, or via HPMS 

memoranda. Therefore, we do not 

believe it is necessary to undertake a 

separate rulemaking to authorize CMS, 

to use section 1860D–12 of the Act to 

collect each new element that we may 

add to the PDE record in the future. 

Comment: Some commenters opposed 

sharing the Plan identification element 

from the PDE record in an unencrypted 

form with HHS grantees expressing 

concern about the data security and the 

need to protect sensitive data, and 

arguing that encrypted data should 

satisfy most research needs. Other 

commenters supported the PDE data 

sharing provisions in the proposed rule, 

with some supporting a proposed option 

in the preamble of the proposed rule 

that would also permit grantees of nonHHS Federal agencies access to plan 

identifiers. One commenter supporting 

the rule asked that we go further and 

with proper restrictions allow access to 

plan identifiers to all legitimate 

researchers. 

Response: After the Part D Data rule 

was published in May 2008, we limited 

the use of actual plan identifiers, but 

after gaining experience in releasing 

Part D data it soon became apparent that 

there was a compelling need for other 

HHS (such as FDA and NIH) agencies to 

use plan identifiers in their linking, 

oversight and research (for example, 

influence of brand name recognition, 

and benefit design on consumer choice) 

under certain conditions. These 

agencies cannot possibly conduct all of 

their own research. Accordingly, they 

engage grantees to perform approved 

studies. These studies often assist CMS 

in better understanding and improving 

the Medicare program. Furthermore, 

HHS is able to affect more oversight of 

its own grantees through the threat of 

future withdrawal of funding—a great 

disincentive for researchers—should 

any terms of the data use agreements be 

broken (as opposed to a study 

independently funded by a University). 

Therefore, with this final rule we are 

permitting access to plan identifiers 

HHS grantees for nonpayment purposes 

when the following conditions are 

present: 

• The plan identifier is essential to 

the study and there is no other source 

of CMS data that would substitute for 

plan identifiers in order to carry out the 

study; 


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• The study is key to the mission of 

the sponsoring agency; 

• The study provides a benefit to the 

Medicare program; and 

• The requestor attests that any 

public findings or publications will not 

identify plans or plan sponsors. 

While we believe that similar benefits 

may accrue to grantees of non-HHS 

entities and to many external 

researchers conducting studies of 

beneficiary plan choices, we believe that 

additional time is needed to evaluate 

this issue. Therefore, for now, we will 

limit the exception to the prohibition 

against releasing unencrypted plan 

identifier elements to external entities 

in § 423.505(m)(1)(C) to HHS grantees at 

this time. 

Comment: One commenter asked for 

clarification on whether or not CMS 

intended to allow unencrypted data to 

be transmitted to requesters of data. The 

commenter had concerns with regard to 

potential risk of violation of the security 

rules under HIPAA. 

Response: We ensure that any data 

transmission is done only after 

undergoing an approval process that 

requires requesters to detail their 

security procedures during 

transmission, storage of and access to 

Part D data. 

Comment: Another commenter 

wanted clarification as to whether the 

fields discussed in the proposal had 

already been added to the PDE layout. 

Response: We note that the vaccine 

administration fee and the rebate at 

point-of-sale were added to the original 

37 elements for CY 2008, and that in the 

2010 Call Letter we notified sponsors 

that a 40th element, Prescription Origin 

Code, collected on an optional basis in 

2009, would be part of the mandatory 

reporting requirements beginning 

January 1, 2010. 

Comment: A commenter asked about 

downstream entities, noting that the 

rule does not specify who may have 

access to this sensitive data. 

Response: We share the commenter’s 

concerns over the re-release of data to 

entities not included on the DUA. 

Under our current data sharing 

procedures, researchers or other 

external entities wishing to re-release 

Part D data must notify us and receive 

express permission for any subsequent 

release, with appropriate modifications 

made to any DUAs. 

F. Changes To Implement New Policy 

This section addresses two policies 

under Parts C and D respectively. Under 

Part D, we proposed new regulatory 

requirements pertaining to the required 

inclusion of protected drug categories 

and classes on Part D formularies. While 

our proposals initially were intended to 

implement provisions in section 1860D– 

4(b)(3)(G) as in effect at the time of our 

October 22, 2009 proposed rule, since 

that time on March 23, 2010 section 

3307 of the PPACA was enacted. 

Rather than specifying statutory 

criteria for identifying protected classes 

of drugs, as did section 1860D– 

4(b)(3)(G)(i) of the Act at the time of the 

proposed rule, section 1860D–4(b)(3)(G) 

of the Act now provides that the 

Secretary shall establish criteria for 

determining ‘‘classes of clinical 

concern’’ and until such time as the 

Secretary establishes such criteria, the 

following six classes of drugs shall be 

protected: anticonvulsants, 

antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and 

immunosuppressants for the treatment 

of transplant rejection. As there are 

many provisions in the PPACA affecting 

Medicare Part D beneficiaries, we 

believe it is important to take some time 

to thoughtfully consider how best to 

establish appropriate criteria. As such, 

and in accordance with 1860D– 

4(b)(3)(G) of the Act, we are protecting 

the six statutorily-specified drug classes 

and categories of drugs of ‘‘clinical 

concern’’ and will turn in the future to 

consider the criteria the Secretary 

would issue under the statute. 

Under Part C, we proposed to revise 

our rules to allow beneficiaries who 

elect MSAs as a type of health insurance 

plan to pay only a pro-rated deductible 

if their MSA deposit is pro-rated 

because they enroll after January 1. 

These revisions are detailed in Table 6. 

TABLE 6—REVISIONS TO IMPLEMENT NEW POLICY

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Provide Criteria and a Process for identifying Protected Classes of

Drugs.

N/A ............... N/A Subpart C ..... § 423.120(b)(2)(v) 

Pro-rating the Plan Deductible for Part C MSA Enrollments Occurring 

During an Initial Coverage Election Period.

Subpart C ..... § 422.103 N/A ............... N/A 

1. Protected Classes of Concern Under 

Part D (§ 423.120(b)(2)(v)) 

In the October 22, 2009 proposed rule, 

based on comments that we received on 

an earlier January 16, 2009 interim final 

rule with comment period (IFC) (74 FR 

2881), we proposed criteria and 

procedures for identifying ‘‘protected 

classes’’ of drugs, within which all 

covered Part D drugs must be included 

in Part D formularies. While we had 

previously identified six such classes 

under our authority in section 1860D– 

11(e)(2)(D) of the Act to ensure that 

formularies were not discriminatory, 

section 176 of MIPPA added a new 

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

which required the Secretary, effective 

plan year 2010, to address the issue of 

protected classes and undertake to 

identify classes of drugs that met two 

criteria specified statutory criteria: 

• Restricted access to the drugs in the 

category or class would have major or 

life threatening clinical consequences 

for individuals who have a disease or 

disorder treated by drugs in such 

category or class. 

• There is a significant need for such 

individuals to have access to multiple 

drugs within a category or class due to 

unique chemical actions and 

pharmacological effects of the drugs 

within a category or class. 

Under section 176 of MIPPA, the 

Secretary was provided discretion to 

establish exceptions permitting Part D 

sponsors to exclude from their 

formularies, or to otherwise limit access 

to (including utilization management 

restrictions or prior authorization), 

certain Part D drugs in the protected 

categories and classes. Section 176 of 

MIPPA required that such exceptions be 

subject to a public notice and comment 

process. 

In the October 22, 2009 proposed rule, 

we proposed interpreting several of the 

statutory terms used in the criteria set 

forth in section 176 of MIPPA to better 

define the scope of the protections 

afforded under that section. To that end, 

we proposed to add several new 

definitions at § 423.100, including: 

‘‘restricted access,’’ ‘‘major or lifethreatening clinical consequences,’’ 

‘‘significant need for access to multiple 


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drugs,’’ ‘‘a short period of time,’’ and 

‘‘multiple drugs.’’ Further, we proposed 

that the MIPPA protections did not 

apply to non-Part D drugs and their 

exclusion from the formulary 

requirements would not be based on the 

exceptions authority under section 

1860D–4(b)(3)(G)(iii) of the Act. 

We also proposed to add a new 

paragraph to § 423.120(b)(2) to identify 

exceptions to the inclusion of all drugs 

meeting the criteria set forth in section 

176 of MIPPA and our implementing 

regulations. Under proposed 

§ 423.120(b)(2)(vi), exceptions would 

include the following: 

• Drug products that are determined 

to be therapeutic equivalents under the 

FDA’s Orange Book. 

• Edits that limit the quantity of 

drugs due to safety. 

• Other drugs that we may specify 

through a process that is based upon 

scientific evidence and medical 

standards of practice (and, in the case of 

antiretroviral medications, is consistent 

with the Department of Health and 

Human Services Guidelines for the Use 

of Antiretroviral Agents in HIV–1– 

Infected Adults and Adolescents) and 

which permits public notice and 

comment. We welcomed comment on 

these proposed definitions and 

clarifications. 

Finally, we noted in the preamble to 

the October 22, 2009 proposed rule that 

we continue to believe that the best way 

to determine which drug classes and 

categories should be identified as a 

protected class and category is through 

a data-driven process, which includes 

an analysis of prescription drug event 

data, a review of widely used treatment 

guidelines, validation of the results by 

a expert committee of clinicians, and 

acceptance by the Secretary. 

We also offered two approaches for 

consideration, and solicited comment 

on which option the public believed 

would allow us to make timely 

determinations in a transparent manner. 

Those options were— 

• Option 1: Announce protected 

classes through subregulatory guidance 

(for example, the Call Letter) that 

provides a notice and comment process 

but does not entail formal Federal 

Register notice and comment 

rulemaking; and 

• Option 2: Announce the protected 

classes through formal notice and 

comment rulemaking. 

Since issuance of the October 22, 

2009 proposed rule, the PPACA was 

enacted. Accordingly, new section 

1860D–4(b)(3)(G) of the Act replaces 

section 176 of MIPPA. Section 1860D– 

4(b)(3)(G) of the Act requires a PDP 

sponsor to include ‘‘all’’ covered part D 

drugs in the categories and classes 

identified by the Secretary as classes 

and categories of ‘‘clinical concern.’’ It 

requires the Secretary to establish 

criteria to determine, as appropriate, 

categories and classes of drugs of 

‘‘clinical concern.’’ It provides for an 

exceptions authority similar to the one 

included in section 176 of MIPPA. 

Section 3307 of PPACA further requires 

that until the Secretary establishes 

criteria to determine classes of ‘‘clinical 

concern,’’ the following categories and 

classes of drugs shall be identified and 

protected as classes of ‘‘clinical 

concern’’: anticonvulsants, 

antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and 

immunosuppressants for the treatment 

of transplant rejection. 

Given that PPACA was recently 

enacted and there are many provisions 

affecting Medicare Part D beneficiaries, 

we need time to thoughtfully consider 

how best to establish criteria to identify 

classes and categories of drugs of 

‘‘clinical concern.’’ Accordingly, 

consistent with the PPACA, at this time 

we are requiring that PDP sponsors 

include all covered part D drugs in the 

following categories and classes: 

anticonvulsants, antidepressants, 

antineoplastics, antipsychotics, 

antiretrovirals, and 

immunosuppressants for the treatment 

of transplant rejection. This requirement 

will be in effect for plan year 2011 and 

until such time as we undertake 

additional notice-and-comment 

rulemaking to establish the criteria for 

identifying classes and categories of 

drugs of ‘‘clinical concern.’’ Continuing 

to protect the current six classes of 

‘‘clinical concern’’ will ensure that 

beneficiaries will continue to have 

access to the medications they need and 

will not experience a disruption in care. 

We note that PPACA requires that 

sponsors cover ‘‘all’’ Part D drugs rather 

than ‘‘all or substantially all’’ as required 

under section 30.2.5 of the Prescription 

Drug Manual. 

Consistent with this approach, we 

have decided to adopt, in regulatory 

text, neither the criteria we proposed in 

the October rule which were specified 

by MIPPA for identifying classes and 

categories of drugs of ‘‘clinical concern,’’ 

nor the definitions used to interpret the 

MIPPA criteria. However, we are 

retaining the exceptions process in the 

regulatory text, as new Section 1860D– 

4(b)(3)(G) of the Act retains the 

exceptions process established under 

MIPPA. 

Comment: Several commenters 

expressed opposition to our exception 

that inclusion of ‘‘all covered Part D 

drugs’’ on formulary from a protected 

class or category does not extend to the 

inclusion of all brand-name drugs and 

generic versions of a covered drug in 

question. They argue that this exception 

is inconsistent with other CMS 

formulary requirements, namely our 

midyear formulary change policy for 

which they argue that CMS makes it 

clear that a brand-name drug and its 

generic counterpart are different ‘‘drugs’’ 

for the purpose of submitting formulary 

changes. In addition, one commenter 

expressed concerns about different 

exceptions in therapeutic equivalent 

products, stating that some may not 

provide the same benefit in the 

physician’s judgment. 

Response: We disagree with the 

commenters’ arguments. It is important 

to distinguish our formulary change 

policy from the definition of a ‘‘drug’’ for 

the purpose of explaining therapeutic 

equivalence. For the protection of 

beneficiaries who may experience cost 

sharing changes, we require that when 

a new generic equivalent is released into 

the market and a plan sponsor proposes 

to add the new generic to its formulary 

and remove the brand-name drug, we 

approve the change and notice be sent 

to affected beneficiaries to make them 

aware that a generic equivalent is 

available and that there may be a change 

in their cost-sharing if they continue to 

take the brand-name. 

For the purpose of formulary 

submission to us, our regulations 

specify at § 423.120(b)(2)(i) that two 

therapeutically equivalent drugs cannot 

be used to satisfy our requirement that 

there be at least two drugs per category 

and class on formulary. Contrary to the 

commenters’ assertions, we believe this 

existing formulary requirement is 

consistent with our proposal in that 

both standards acknowledge that 

therapeutically equivalent products are 

the same drug. Further, as stated in our 

January 28, 2005 Part D final rule (70 FR 

4260), inclusion of ‘‘all covered Part D 

drugs’’ within a class or category of 

clinical concern does not extend to 

inclusion of all brand-name drugs and 

generic versions of the covered drug in 

question. The Orange Book, published 

by the FDA, is a widely accepted 

standard for determining therapeutically 

equivalent drugs within the same class/ 

category (see http://www.accessdata. 

fda.gov/scripts/cder/ob/default.cfm). 

Therefore, we disagree that our policy 

stating that inclusion of ‘‘all covered 

Part D drugs’’ on formulary from a 

protected class or category does not 

extend to the inclusion of all brandname drugs and generic versions of a 

covered drug in question is somehow 

inconsistent with other formulary 

policies. 


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Finally, with regard to the one 

comment that some therapeutically 

equivalent drugs may not provide the 

same benefit in the physician’s 

judgment, we note that a beneficiary, 

working with his or her physician, may 

pursue an exception if they believe that 

a drug considered to be a therapeutic 

equivalent is not providing the same 

benefit as the brand drug originally 

prescribed. 

Comment: Several commenters 

oppose the application of any utilization 

management edit applications for 

protected class drugs. Other 

commenters contended that our 

proposal undermines the benefits of 

formulary and utilization management 

processes. A few commenters in 

particular oppose our exception for 

drugs ‘‘with very limited applicability to 

the Medicare Part D population and 

non-Part D drugs’’ to be included on 

formulary under the regulatory 

protected classes provision, arguing that 

if a drug fits the criteria, it should be 

protected. 

Response: We disagree with these 

commenters. Consistent with the 

definition of a Part D drug under 

§ 423.100, we do not require inclusion 

on formularies those drugs that are paid 

for under Part B (for example, ‘‘incident 

to’’ drugs supplied and administered by 

physicians during patient visit and paid 

for under Part B), and drugs whose 

regulatory status under the definition of 

a Part D drug is unknown. To do so 

when they are not payable under Part D 

would lead to beneficiary confusion. 

Therefore, we are maintaining this 

policy in this final rule. 

Comment: A few commenters 

expressed concern over CMS’s proposal 

permitting the use of utilization 

management processes that limit the 

quantity of drugs under protected 

classes due to safety. One commenter 

argues that this policy would create a 

significant opening for plans to expand 

‘‘restrictive policies’’ and that CMS 

should be clear on what we mean by 

safety edit. The commenter asserted that 

it is important for CMS to further define 

what a valid safety edit is and to 

specifically link it to prevention of 

imminent harm to the health of the 

beneficiary. Another commenter 

asserted that the safety of any course of 

drug therapy is a clinical concern and 

it is critical for utilization controls not 

to interfere with appropriate clinical 

decisionmaking. This commenter notes 

that the imposition of safety-based 

quantity limitations—even where wellintentioned—may harmfully interfere 

with patient needs if his or her clinical 

context is not fully taken into account. 

The commenter suggested that in 

evaluating safety-based exceptions, CMS 

should not rely only on information 

contained in the package insert, but 

should also consider clinical trial data 

and accepted standards of care. 

Response: We have been clear on 

what is meant by a safety edit. As 

indicated in section 30.2.2.1of Chapter 6 

of the Medicare Prescription Drug 

Manual (see http://www.cms.hhs.gov/ 

PrescriptionDrugCovContra/downloads/ 

R2PDBv2.pdf), safety edits refer to 

point-of-sale (POS) edits implemented 

to satisfy concurrent drug utilization 

review (DUR) requirements set forth in 

§ 423.153(c)(2). Examples include 

screening for therapeutic duplication, 

age or gender-related contraindications, 

over-utilization, under-utilization, drugdrug interactions, incorrect drug dosage 

or duration of drug therapy, drug-allergy 

contraindications, and clinical abuse/ 

misuse. For the protection of 

beneficiaries, we continue to believe 

that the protected classes provision 

must not interfere with this POS DUR to 

help ensure that adverse events do not 

occur. We believe that such edits must 

be consistent with FDA labeling to 

ensure that they are based on scientific 

evidence and medical standards of 

practice. To the extent that an 

individual’s clinical needs require a 

quantity greater than permitted under 

the FDA labeling, we believe that the 

exceptions process is the appropriate 

vehicle for resolution of such cases. 

Finally, in response to the comment that 

permitting the use of safety edits would 

create a significant opening for plans to 

establish restrictive policies, we 

disagree. Rather, our guidance is clear 

that edits need to conform to FDA 

labeling. To the extent that a plan 

sponsor would establish safety edits that 

were more restrictive than FDA labeling 

contrary to our guidance, we would 

likely uncover such edits through 

complaints or through a review of 

exceptions and appeals data and would 

instruct the plan to revise its processes 

immediately. 

Comment: A commenter requested 

that CMS clarify what is meant by 

‘‘scientific evidence’’ and specify how 

the use of such evidence would be 

validated with respect to CMS’ 

proposed language that we may identify 

other exceptions ‘‘through a process that 

is based upon scientific evidence and 

medical standards of practice (and, in 

the case of antiretroviral medications, is 

consistent with the Department of 

Health and Human Services Guidelines 

for the Use of Antiretroviral Agents in 

HIV–1–Infected Adults and 

Adolescents) and which permits public 

notice and comment).’’ Another 

commenter urged CMS to establish any 

exception to the inclusion of all drugs 

and biologicals in a protected category 

or class only when warranted by 

scientific evidence and medical 

standards of practice, and only after a 

notice and comment period. 

Response: We will undertake future 

rulemaking to identify additional 

exceptions, as necessary. Further, where 

appropriate, we will provide the citation 

for the supporting scientific evidence 

and medical standards of practice to 

support our findings. We note that an 

example of scientific evidence may 

include information contained in the 

FDA drug approval records or may 

include evidence referenced in widelyused treatment guidelines, such as those 

approved by the Agency for Healthcare 

Research and Quality (AHRQ). 

2. Pro-rating the Plan Deductible for Part 

C MSA Enrollments Occurring During 

an Initial Coverage Election Period 

(§ 422.103) 

In the October 22, 2009 proposed rule, 

we proposed to revise the regulations to 

provide for the pro-rating of the plan 

deductible under an MA MSA plan in 

the case of enrollments occurring during 

an initial coverage election period at a 

time other than the beginning of the 

year. As we noted in the preamble to the 

proposed rule, section 1851(a)(2)(B) of 

the Act provides that Medicare 

Advantage Medical Savings Account 

(MSA) plans are a type of MA plan that 

a MA-eligible Medicare beneficiary can 

elect to receive his or her Medicare Part 

A and B benefits. An MSA plan 

combines both a tax advantaged Medical 

Savings Account (MSA) and a highdeductible health insurance policy. 

Under this MA plan option, Medicare 

pays the MA organization offering the 

MA plan the premium amount charged 

by the organization for a highdeductible insurance policy and the 

remainder of the MA payment amount 

is deposited in the enrollee’s MSA. If an 

individual enrolls in such a plan 

midyear, under section 1853(e) of the 

Act, a pro-rated share corresponding to 

the number of months remaining in the 

calendar year is placed into the 

individual’s savings account. However, 

as provided under § 422.103(d) 

beneficiaries newly eligible for 

Medicare who enroll in MSAs midyear 

pursuant to an initial coverage election 

period (ICEP) are currently required to 

pay the full ‘‘high deductible’’ for the 

calendar year. For example, an enrollee 

whose 65th birthday is in May and who 

chooses to enroll May 1 will be given 8/ 

12ths of the deposit that has been 

approved for the plan for the year, but 

this enrollee is required to pay the full 

deductible approved for the plan for the 


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entire calendar year. An enrollee whose 

65th birthday is later in the year could 

enroll, for example, on September 1 and 

would receive a pro-rated deposit 

representing only 4/12ths of the year; 

however, this enrollee would also be 

required to pay the full calendar year 

deductible. 

The deductible under an MSA plan is 

governed by section 1859(b)(3)(B) of the 

Act, which specifies the maximum 

amount of what the statute refers to as 

the ‘‘annual deductible’’ under an MSA 

plan. In the October 22, 2009 proposed 

rule, we proposed to infer from the 

statute’s use of the term ‘‘annual’’ that 

the deductible amount at issue was 

intended to apply to a full 12-month 

period, and thus to specify in a 

proposed revised § 422.103(d) that an 

individual who enrolls in an MSA plan 

under an ICEP other than at the 

beginning of the calendar year would 

only be subject to that portion of the 

‘‘annual’’ deductible corresponding to 

the number of months in which the 

individual is enrolled. Interested 

beneficiaries would be able to inquire 

with organizations sponsoring MSA 

plans about their options prior to 

enrollment, and, upon enrollment, 

would receive a confirmation of 

enrollment letter that would inform 

them of both their pro-rated deposit 

amount and their pro-rated deductible. 

As the result of our review and 

consideration of commenter support for 

our proposal, we are modifying 

§ 422.103(d) in this final rule to provide 

for a pro-rated deductible in the case of 

any beneficiary enrolling in an MSA 

plan after January 1, not just an 

enrollment pursuant to an ICEP. 

Comment: A commenter supported as 

‘‘positive’’ our proposal to ‘‘revise the 

regulations to specify that beneficiaries 

who enroll in a Part C MSA during the 

year’’ be required to ‘‘pay only a prorated deductible consistent with a prorated deposit.’’ 

Response: While the commenter’s 

point in support of the policy rationale 

for our proposed revision to 

§ 422.103(d) was made in the context of 

our proposal to pro-rate deductibles for 

beneficiaries who enroll after January 1 

under an ICEP, the commenter’s point 

in support of symmetry between a prorated deposit and a pro-rated deductible 

would apply to any situation in which 

a beneficiary enrolls in an MSA plan 

after January 1. It is noteworthy that the 

language in section 1853(e) of the Act 

limiting the Medicare payments to 

months in which the individual is 

enrolled is not limited to a late 

enrollment under an ICEP. We thus 

believe that the symmetry supported by 

the commenter should apply in all cases 

of midyear enrollment in an MSA plan. 

For example, a beneficiary who receives 

a special election period for relocating, 

and enrolls in a MSA plan after January 

1, should be required to pay only a prorated deductible. Therefore, we are 

modifying § 422.103(d) in this final rule 

to allow all beneficiaries who enroll in 

a MSA plan midyear to pay a pro-rated 

deductible. 

G. Changes to Clarify Various Program 

Participation Requirements 

This section addresses proposals from 

the October 22, 2009 proposed rule that 

would either clarify existing regulations 

or implement new requirements 

consistent with existing policy 

guidance, to assist MA organizations 

with and PDP sponsors in attaining the 

goals envisioned by the Congress when 

the legislation implementing the 

Medicare Advantage and Prescription 

Drug Benefit programs was first passed. 

These clarifications are detailed in 

Table 7. 

TABLE 7—CLARIFICATIONS OF VARIOUS SPONSOR PROGRAM PARTICIPATION REQUIREMENTS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Clarify what we mean by 

uniform benefits.

Subpart C .......................... § 422.100(d) ...................... Subpart C .......................... § 423.104. 

Ensure security of protected health information 

and other personally 

identifiable information.

Subpart K .......................... § 422.504 ........................... Subpart K .......................... § 423.505. 

Require plans to report 

other payer information 

to support coordination 

of benefits (COB).

Subpart C .......................... § 422.108 ........................... Subpart C .......................... § 423.464. 

Visitor/Traveler Benefit 

under Part C for the Purpose of Extending Enrollment up to 12 Months.

Subpart B .......................... § 422.74 ............................. N/A .................................... N/A. 

Codify authority to establish (MTM) Program requirements.N/A .................................... N/A .................................... Subpart D .......................... § 423.153(d). 

Clarify Pharmacy & Therapeutics (P&T) Committee 

requirements.

N/A .................................... N/A .................................... Subpart C .......................... § 423.120. 

Generic equivalent disclosure.N/A .................................... N/A .................................... Subpart C .......................... § 423.132. 

Application of access 

standards at application 

level.

N/A .................................... N/A .................................... Subpart C .......................... § 423.120. 

Standard Timeframe for 

coverage determinations.

N/A .................................... N/A .................................... Subpart M ......................... § 423.568. 

Clarify Novation requirements.N/A .................................... N/A .................................... Subpart L .......................... § 423.551. 


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TABLE 7—CLARIFICATIONS OF VARIOUS SPONSOR PROGRAM PARTICIPATION REQUIREMENTS—Continued 

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Cost Contract Program revisions: Appeals and 

Marketing Requirements.

Subpart O .......................... § 417.428 ...........................

§ 417.492 ...........................

§ 417.494 ...........................

§ 417.500 ...........................

§ 417.640 ...........................

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

1. Uniform Benefits Under Parts C and 

D (§ 422.100(d) and § 423.104(b)) 

In the October 22, 2009 proposed rule, 

we proposed to revise § 423.104(b) to 

mirror the language at § 422.100 to 

specify that Part D sponsors apply 

uniform premiums and cost-sharing. As 

we noted in the proposed rule, section 

1852(d)(1)(A) of the Act requires a MA 

organization offering a plan to select the 

providers from whom the benefits under 

the plan are provided so long as the 

organization makes such benefits 

available and accessible to each 

individual electing the plan within the 

plan’s service area with reasonable 

promptness and in a manner which 

assures continuity in the provision of 

benefits. Section 1860D–2(a) of the Act 

defines qualified prescription drug 

coverage to mean access to standard or 

actuarially equivalent prescription drug 

coverage and access to negotiated prices 

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

of the Act). We codified these sections 

of the statute in our regulations at 

§ 422.100(d) and § 423.104(b) prior to 

the proposed rule, but believed that 

§ 423.104(b) should be further clarified 

in regards to the PDP sponsor’s 

imposition of uniform premiums and 

cost sharing. In this final rule, we adopt 

this provision as proposed with a minor 

revision. 

Comment: One commenter is 

concerned about how the uniform 

requirement would be applied in 

unusual circumstances that may not be 

in the enrollee’s best interests. For 

example, the commenter asked what 

would happen if an enrollee has already 

paid the applicable cost sharing amount 

once, but by no fault of the beneficiary, 

the drug is either no longer usable, or 

available because of a natural disaster. 

Waivers should be considered in these 

special circumstances. 

Response: The circumstance the 

commenter refers to is more 

appropriately addressed by our 

emergency access policy and not by a 

revision to, or waiver of, the uniform 

benefit requirement. Our emergency 

access policy is currently provided in 

Chapter 5 of the Medicare Prescription 

Drug Benefit Program Manual and 

outlines our expectations of Part D 

sponsors when administering the Part D 

benefit during a natural disaster or 

public health emergency. 

2. Ensuring the Security of Protected 

Health Information (PHI) and Other 

Personally Identifiable Information 

(§ 422.504 and § 423.505) 

In our October 2009 proposed rule (74 

FR 54690), we specified that we 

interpret the Secretary’s right to audit or 

inspect the facilities of MAOs and Part 

D sponsors to monitor compliance with 

MA and Part D program regulations as 

including the evaluation of compliance 

with our requirements for maintaining 

the privacy and security of protected 

health information (PHI) and other 

personally identifiable information of 

Medicare enrollees. In order to clarify 

our policy that beneficiaries’ PHI and 

other personally identifiable 

information must remain secure, we 

proposed to revise § 422.504 and 

§ 423.505 to make this interpretation 

explicit. In a related change, we 

proposed to clarify that we interpret the 

term ‘‘facilities’’ to include an MAO’s or 

Part D sponsor’s computer or other 

electronic systems. We proposed to 

implement these proposed changes at 

§ 422.504(e)(1)(ii) and § 423.505(e)(1)(ii). 

We also proposed conforming changes 

to the contract requirements related to 

downstream entities at § 422.504(i)(2)(i) 

and § 423.505(i)(2)(i), respectively. We 

noted in the preamble to the proposed 

rule that we may review systems and 

computer information generated by 

downstream and related entities for 

compliance with privacy and security 

requirements. Such information 

includes, but is not limited to, backup 

tapes, print outs of screen shots, CDs, 

and similar information, whether in the 

possession of a downstream or related 

entity or obtained from such entities by 

the MAO or Part D sponsor. We are 

adopting the revisions to § 422.504 and 

§ 423.505 as specified in the proposed 

rule. 

Comment: Several commenters 

supported the proposed provisions with 

one commenter suggesting that CMS 

draw upon its expertise in evaluating 

and assessing plan compliance with 

personal health information-related 

requirements. 

Response: We appreciate the 

suggestion and will consider this as we 

develop any additional guidance on 

PHI-related requirements. 

Comment: A commenter questioned 

CMS’ authority to request backup tapes 

and computer-generated information 

held by pharmacies as part of CMS’ 

review of privacy/security of PHI 

requirements. The commenter writes 

that tapes and computer data can 

contain information beyond that 

normally submitted by plans and which 

is often unrelated to a pharmacy’s Part 

D contract. If CMS is, in fact, asking for 

information outside of that provided as 

part of the pharmacies’ contracts with 

Part D plans or claims data that 

pharmacies routinely submit, the 

commenter requests that CMS clarify its 

authority for doing this. 

Response: Although we have the 

authority to review information 

generated in connection with the 

downstream or related entity’s contract 

with an MAO or Part D sponsor, 

including information related to 

compliance with privacy and security 

requirements, it has never been our 

intent to review documents or 

information unrelated to a pharmacy’s 

or other downstream or related entity’s 

Part C or Part D contract. 

3. Requirement for Sponsoring 

Organizations Under Parts C and D to 

Report Other Payer Information to the 

Coordination of Benefits Contractor 

(§ 422.108, § 423.462, and § 423.464) 

In the October 22, 2009 proposed rule, 

under the authority of sections 

1852(a)(4) and 1860D–2(a)(4) of the Act, 

we proposed to require the reporting of 

other coverage information in § 422.108 

for MA organizations and § 423.462 and 

§ 423.464 for PDP sponsors. Our 

rationale for proposing these changes 

was the importance of the other payer 

information for Medicare Seconday 

Payer (MSP) procedures and for 

prescription drug program coordination 

of benefits. We proposed to limit 

required reporting to that information 


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which is reported to the sponsor as 

being inconsistent with existing 

information on the COB file. 

As we noted in the October 22, 2009 

proposed rule, MA organizations are 

responsible for identifying payers that 

are primary to Part C of Medicare, 

determining the amounts payable by 

those payers, and for coordinating the 

benefits the plan offers with the benefits 

of such payers. Additionally, MA 

organizations must take into account 

Part C costs that could have been 

recovered or avoided due to MSP when 

determining costs in the base period for 

purposes of their MA plan bids. MA 

organizations must account for Part C 

MSP amounts in one of three ways. MA 

organizations must— 

• Recover from liable third parties; 

• Avoid Part C costs by directing 

providers to bill liable third parties 

directly; or 

• Account for Part C costs that could 

have been recovered or avoided, but that 

were actually not recovered or avoided, 

by not including them in Part C base 

period costs. 

MA organizations and PDPs are 

required to follow the same rules 

regarding— 

• Their responsibilities under the 

MSP statutory and regulatory 

provisions; 

• Collection of payment from 

insurers, group health plans and large 

group health plans, the enrollee, or 

other entities for covered Part D drugs; 

and 

• The interaction of MSP rules with 

State laws. 

A Part D sponsor must also coordinate 

with SPAPs, as well as other drug plans, 

including Medicaid programs, group 

health plans, FEHBP, military coverage, 

and other plans or programs providing 

prescription drug coverage. To support 

the required benefit coordination, 

section 1860D–2(b)(4)(D)(ii) of the Act 

permits Part D sponsors to request 

information on third party insurance 

from beneficiaries. In addition, we 

noted that the growing number of CMS 

data sharing agreements with other 

payers has improved the volume and 

quality of other payer information 

available to MA organizations and 

prescription drug sponsors on the COB 

data file provided by CMS. New 

mandatory insurer reporting of MSP 

group health plan coverage, liability 

insurance, no-fault insurance, and 

workers’ compensation, required by 

section 111 of the Medicare, Medicaid, 

and State Children’s Health Insurance 

Program (SCHIP) Extension Act of 2007 

(P.L. 110–173) (MMSEA), further 

expands the other payer information 

available for MA organization and PDP 

MSP procedures and for Part D sponsor 

COB (see 42 U.S.C. 1395y(b)(7) and (8)). 

Most insurers will need to report their 

own coverage already. It is only when 

an MA organization becomes aware of 

coverage that is primary to Medicare 

offered by another insurer that it will 

need to report under this rule. 

Accordingly, given the importance of 

the other payer information to MA 

organization and PDP MSP procedures 

and for prescription drug program 

coordination of benefits, we proposed to 

include in regulatory text the 

requirement that MA organizations and 

Part D sponsors, upon being notified of 

credible new information regarding 

other payers, or changes to existing 

other payer information, report this 

information to the CMS COB Contractor 

(COBC) in accordance with the 

processes and timeframes established by 

us. The proposed changes would change 

the requirement on MA organizations, 

but would not change current MSP and 

coordination of benefits policy for the 

prescription drug program. 

We noted that by ‘‘credible’’ we mean 

information that is consistent with 

conventions for how group health 

insurance coverage is identified, for 

instance, information that includes the 

name and address of the insurance 

company and the policy identification 

number. We also proposed to extend the 

reporting requirements to MA 

organizations as they relate to other 

primary payers. We noted that original 

Medicare, MA organizations, or Part D 

sponsors should never be reported to 

CMS as a ‘‘primary’’ payer. In the 

absence of another (that is, nonMedicare) primary payer, original 

Medicare, an MA organization, or a Part 

D plan are always primary. This is not 

to say that if an enrollee has primary 

individual or employer group coverage 

with the same insurer or organization 

through which they also have MA or 

Part D coverage, such primary coverage 

should not be reported. In fact, such 

coverage must be reported. However, 

reporting original Medicare, an MA or 

Part D plan themselves as primary 

serves no purpose and merely causes 

confusion. 

After reviewing the comments 

received in response to the proposed 

rule, we are adopting § 422.108(b)(3) 

and § 423.462(b) as proposed. 

Comment: A commenter supported 

CMS’ proposed Part C reporting 

requirement. Another commenter 

requested that we revise the new 

regulatory language to reference the fact 

that we will only require MAOs and 

PDPs to report ‘‘credible’’ new 

information and that CMS either revise 

the regulatory language or mention in 

the preamble discussion to the final rule 

that we will only require reporting on 

information that is inconsistent with 

that in the COB data file. 

Response: In this final rule, we are 

reiterating that the portion of the 

preamble discussion in the proposed 

rule related to the requirement to report 

only MSP and COB information that is 

inconsistent with existing information 

on the COB data file. We have also 

repeated the preamble discussion of 

what we mean by ‘‘credible’’ new 

information and confirmed that we only 

expect MAOs and PDPs to report such 

‘‘credible’’ new information to the 

COBC. We have not modified the 

regulatory language since we believe it 

is unnecessary to do so. However, we 

have added § 423.464(h), which we 

inadvertently omitted from the 

proposed rule. Operational guidance, in 

the form of our implementing 

instructions, will be consistent with 

preamble language in both the proposed 

rule and this final rule. 

Comment: One commenter pointed 

out the apparent discrepancy between 

the 30-day timeframe for reporting 

credible MSP/COB information to the 

COBC we mentioned in the preamble of 

the October 2009 proposed rule, and the 

45-day timeframe for correcting 

discrepancies in MSP status (with an 

additional 10 days to submit 

corrections) discussed in Chapter 5 of 

the MSP Manual. The commenter 

requested that CMS retain the existing 

45-day timeframe, with an additional 10 

days for submission to the COBC. 

Response: As noted in the preamble of 

the proposed rule, section 50.2 of the 

Coordination of Benefits chapter of the 

Medicare Prescription Drug Benefits 

Manual (CMS Publication # 100–18, 

Chapter 14, last updated in September 

2008) provides for reporting within 30 

days of receipt and can be accessed on 

the Internet at: http://www.cms.hhs.gov/ 

prescriptiondrugcovcontra/ 

12_PartDManuals.asp. 

We will consider this comment as we 

develop operational guidance related to 

the reporting of MSP information 

related to Part C by MAOs. However, we 

note that the timeframe for reporting 

MSP status in section 10.1 of Chapter 5 

of the MSP manual is actually the lesser 

of 10 calendar days from completion of 

the evaluation or 45 calendar days from 

receipt. 

Comment: A commenter asked if the 

requirements in § 422.108 and § 423.462 

apply to only MA plans, or if these 

requirements also apply to Group 

Health Plans. 

Response: The regulations at 

§ 422.108 apply to MA organizations, 

while the regulations at § 423.462 apply 


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to both MA organizations offering Part 

D benefits as MA–PDs and free standing 

PDPs. Information on the rules related 

to Group Health Plan reporting of 

insurance coverage required by section 

111 of MMSEA can be found on the 

following Internet Web site: http:// 

www.cms.hhs.gov/mandatoryinsrep/. 

Comment: A commenter noted an 

inconsistency between the preamble 

and the regulation language. The 

commenter stated that CMS seems to 

have failed to include regulation 

language at § 423.464 requiring Part D 

sponsors to report new or changed 

supplemental prescription drug 

coverage information. 

Response: In the preamble of the 

proposed rule, we indicated our 

intention to revise § 423.464 to include 

a new requirement for Part D sponsors 

to report new or changed other 

prescription drug coverage information 

to the CMS COB Contractor. However, 

due to an oversight, the regulatory 

language for this requirement was not 

included in the proposed rule. However, 

the preamble discussion of this 

proposed requirement put interested 

parties on notice that we were 

considering imposing a new 

requirement on Part D sponsors to 

report new or changed prescription drug 

coverage information to the CMS COB 

contractor. Furthermore, we continue to 

believe that this reporting requirement 

is necessary to support the effective 

coordination of prescription drug 

benefits. Accordingly, we are including 

this new requirement at § 423.464(h) in 

this final rule. 

4. Visitor/Traveler Benefit Under Part C 

for the Purpose of Extending Enrollment 

Up to 12 Months (§ 422.74) 

In the October 2009 proposed rule, we 

proposed to revise our requirements for 

MA visitor/traveler benefits under Part 

C. Section 422.74(d)(iii) currently 

provides that an MA plan can offer a 

‘‘visitor’’ or ‘‘traveler’’ (V/T) type program 

which would allow its enrollees to 

remain enrolled in the MA plan while 

out of the plan’s service area for up to 

12 months. Although we stated in the 

preamble of the final rule in which 

§ 422.74(d)(iii) was promulgated 

(August 22, 2003 (68 FR 50848)) that the 

visitor or traveler program must cover 

the ‘‘the full range of services available 

to other members,’’ we did not specify 

in regulation text what we intended by 

‘‘full range of services.’’ 

In order to clarify an MA 

organization’s obligation to cover 

services out of the service area, we 

proposed to amend § 422.74(d)(4)(iii) to 

specify that an MA organization may 

offer an extended enrollment V/T 

benefit option under an MA plan if that 

plan furnishes all plan covered services, 

that is, Medicare Parts A and B services 

and all mandatory and optional 

supplemental benefits at in-network 

cost-sharing levels consistent with 

Medicare access and availability 

requirements at § 422.112. Under this 

proposed clarification, MAOs that offer 

a V/T benefit under an MA plan would 

be required to make the option available 

to all plan enrollees. We proposed that 

the V/T benefit must be available to all 

plan enrollees who are temporarily in 

the areas where the V/T benefit is 

offered for the 6 to 12 months the 

member may remain in the area and stay 

enrolled in the MA plan. We are 

adopting our proposed revision to 

§ 422.74(d) (4) (iii) without further 

modification in this final rule. 

Comment: A few commenters 

supported our proposed revisions to the 

V/T benefit requirements. They 

indicated that currently there is 

confusion surrounding the V/T benefit, 

and many beneficiaries have found the 

benefit does not provide them with 

access to Medicare-covered services 

they expected to have when outside 

their plan’s network. 

One commenter supported providing 

Medicare-covered services under the 

V/T benefit, but opposed our proposed 

requirement to also include optional 

supplemental benefits. The commenter 

believed that this change would require 

organizations to adjust plan premiums 

and could ultimately impact an 

organization’s decision to offer optional 

supplemental benefits if a plan is not 

able to develop and meet network 

access requirements in the areas in 

which it intended to offer the V/T 

benefit. 

Another commenter objected to the 

fact that the proposed revisions are less 

flexible than the existing rules 

governing V/T benefits and opposed the 

proposed requirement to provide 

supplemental benefits under the V/T 

benefit. The commenter indicated that it 

may be more feasible for MA 

organizations to enter into arrangements 

with providers in other areas of the 

country to provide access to Medicarecovered benefits than supplemental 

benefits. The commenter recommended 

that CMS defer incorporating the 

proposed changes into the MA 

regulations and instead issue draft subregulatory guidance for public 

comment. 

Response: We agree with the 

commenters supporting our proposal to 

require MA organizations that offer a V/ 

T benefit under an MA plan to furnish 

all plan-covered services (Medicare 

Parts A and B services and all 

mandatory and optional supplemental 

benefits) at in-network cost sharing in 

the areas where the V/T benefit is 

offered. We note that it is optional for 

MA organizations to offer a V/T benefit 

and that a V/T benefit gives MA 

organizations the flexibility to retain 

their members when they are outside 

the service area for extended periods of 

time when they might otherwise be 

required to disenroll them for residing 

outside the service areas for more than 

6 months. We do not agree that 

supplemental benefits should be 

excluded from a V/T benefit. Since MA 

organizations will receive full capitation 

payments for enrollees that reside 

outside the plan’s service areas for more 

than 6 months, we believe that requiring 

the plan to cover all plan-covered 

benefits will allow the enrollees to 

continue to realize the complete benefit 

package for which they enrolled in the 

plan. An MA organization that is not 

able to form a network of direct 

contracted providers to furnish 

supplemental benefits may, with CMS 

approval, allow its enrollees to obtain 

these services from non-contracted 

providers in the areas in which it offers 

the V/T benefit. We are therefore 

retaining our proposed changes to 

§ 422.74(d)(4)(iii) in this final rule. 

5. Medication Therapy Management 

Program Requirements (§ 423.153) 

In the October 22, 2009 proposed rule, 

we proposed to codify our policy 

guidance regarding medication therapy 

management programs (MTMPs) in the 

Part D regulations at § 423.153. As we 

noted in the preamble to the proposed 

rule, based on the experience garnered 

from the first few years of the Part D 

program, and as we await further 

development of MTMP outcomes 

measures that can serve the Part D 

program, we have determined that it is 

necessary to have more specific Part D 

MTMP requirements for enrollment 

methods, targeting procedures, and 

MTM services. The 2010 Call Letter 

included policy guidance regarding the 

implementation of MTMPs that 

reflected common practices among Part 

D MTMPs that were derived from 

extensive review of MTMP applications, 

plan-reported data, exploratory research 

on MTM, informational interviews with 

Part D sponsors, and other relevant 

literature and data. In the proposed rule, 

we indicated that codifying this MTM 

guidance in the Part D regulations 

would promote greater consistency 

across the Part D program, and allow for 

better evaluation and comparison of 

MTMPs when outcomes measures 

become available. 


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Specifically, in accordance with 

sections 1860D–4(c)(1)(C) and 1860D– 

4(c)(2) of the Act, we proposed to add 

the following regulatory requirements 

regarding MTMPs— 

• Section 423.153(d)(1)(v) to require 

Part D sponsors to enroll beneficiaries in 

their MTMPs using only an opt-out 

method of enrollment. The opt-out 

method of enrollment is currently the 

preferred method of enrollment among 

Part D sponsors, used by approximately 

85 percent of current MTMPs, and has 

increased enrollment of targeted 

beneficiaries into MTMPs; 

• Section 423.153(d)(1)(vi) to require 

Part D sponsors to target beneficiaries 

for enrollment in the MTMP at least 

quarterly during each plan year. 

Currently, more than 95 percent of Part 

D sponsors target beneficiaries for 

enrollment in their MTMPs on a daily, 

weekly, monthly, or quarterly basis; and 

• Section 423.153(d)(1)(vii) to require 

Part D sponsors to offer a minimum 

level of MTM services for each 

beneficiary enrolled in the MTMP that 

includes interventions for both 

beneficiaries and prescribers; annual 

comprehensive medication reviews; and 

quarterly targeted medication reviews. 

In addition, we proposed to revise 

§ 423.153(d) to clarify which 

beneficiaries should be targeted for 

MTMP services. 

In this final rule, based on the public 

comments we received in response to 

the proposed rule, we adopt these 

provisions with some modification, as 

explained below. Specifically, at 

§ 423.153(d)(2)(iii), we adopt a specific 

dollar threshold of $3,000 in incurred 

annual costs for covered Part D drugs, 

instead of, as proposed, relying on the 

Initial Coverage Limit (ICL) as the 

threshold at which plans must target 

beneficiaries for MTM services. The 

$3,000 cost threshold will be indexed 

using the annual percentage increase in 

average per capita aggregate 

expenditures for Part D drugs, which is 

found in § 423.104(d)(5)(iv). We note 

that these provisions are consistent with 

the changes made in PPACA. 

Comment: One commenter is 

concerned that the proposed rule does 

not ensure adequate payment to 

pharmacies for MTM services. The 

commenter believes plan sponsors may 

shift costs associated with MTMPs to 

providers (specifically pharmacies) 

through lowered payments. The 

commenter urges CMS to require 

quarterly reporting of payment to 

pharmacies for MTM services and 

should ensure that pharmacies are paid 

adequately for furnishing these services. 

Response: We disagree with the 

commenter’s recommendation that CMS 

require reporting of MTM payment data 

to ensure payment adequacy. The noninterference provision at section 1860D– 

11(i) of the Act explicitly provides that 

the Secretary may not interfere with the 

negotiations between pharmacies and 

PDP sponsors, which would include 

payment negotiations between the Part 

D sponsors and pharmacies for MTM 

services. 

Comment: One commenter 

encouraged CMS to require Part D 

sponsors to disclose to CMS their 

criteria for determining whether a 

comprehensive medical review (CMR) 

will be performed face-to-face or by 

phone. 

Response: We appreciate this 

comment, but believe that as long as the 

CMR is interactive and person-toperson, plans continue to have the 

discretion to determine whether it can 

be achieved through a phone or other 

alternative real-time method. We will 

monitor MTM program outcomes and 

performance to ensure best practices are 

adopted. In the event we receive data 

revealing weaknesses in this approach 

to CMR, we may consider revising the 

CMR minimum requirements in future 

rulemaking. 

Comment: One commenter suggests 

that when enrollees are provided with a 

written summary of the interactive 

consultation, such summary be 

provided promptly to all prescribers 

involved in an enrollee’s care. 

Response: We agree with the 

commenter and believe such written 

summaries should be provided 

promptly to the provider. However, we 

believe the timeframe for the release of 

such summaries to providers is better 

addressed in the agreements between 

the MTM providers and the plans. The 

written summaries from the CMR will 

vary in complexity, depending upon an 

individual’s diagnoses and medication 

usage; therefore, the time needed for 

preparation of such summaries will 

vary. 

Comment: A few commenters 

indicated that the outcomes of MTMPs 

would be enhanced by requiring at least 

one initial face-to-face consultation with 

a pharmacist to review the patient’s 

drug regimen and by offering another 

face-to-face consultation at least 

quarterly. Another commenter indicated 

that the quarterly reviews should be 

done person-to-person as this 

interaction permits evaluation of cues 

that may otherwise be missed if 

performed through lower touch 

interventions. Furthermore, periodic reevaluations must be conducted and 

MTMPs should initiate programs to 

detect proactively, on a monthly-basis, 

under-utilization of prescribed 

medicines for all chronic therapies. 

MTMPs should also be required to 

initiate interventions to address 

underutilization on at least a quarterly 

basis. 

Response: We appreciate these 

comments, but not all beneficiaries can 

access the MTM services face-to-face or 

at the provider’s location. Furthermore, 

we believe permitting alternative 

interactive methods (for example, by 

telephone or Web cam) will allow the 

sponsors to try innovative techniques 

that may better serve the beneficiary, 

especially when the beneficiary resides 

in a remote location or cannot travel to 

the provider’s location. We emphasize, 

however, that when using alternative 

interactive methods, the CMR 

interaction must remain a real-time 

interaction. 

We do not require the quarterly 

assessment to be interactive because we 

believe lower touch interventions, 

coupled with the annual comprehensive 

medication review will allow the 

patient to be adequately served. 

However, we encourage plans, to follow 

up with a person-to-person interaction if 

the quarterly review reveals that the 

patient is facing medication related 

problems. 

Comment: One commenter indicated 

that CMS should clarify what it means 

by interactive, person-to-person 

consultation. For some hearing impaired 

or technically savvy beneficiaries the 

Internet is a valuable communication 

tool. CMS should allow the use of 

emerging technologies to conduct the 

CMR. 

Response: As indicated in an earlier 

response, we agree that the use of 

alternative interactive methods be used 

by Part D sponsors, as long as the CMR 

is conducted in real-time. 

Comment: One commenter 

recommends sponsors have the 

flexibility to determine if an MTMP 

intervention should be for member, 

prescriber or both. Another commenter 

indicated that additional clarification is 

needed about any and all prescriber 

interventions to ensure that MTM 

services are coordinated with and do 

not adversely impact on, or interfere 

with, the relationship between the 

enrollee and his/her prescriber. 

Response: Section 423.153(d)(1)(vii), 

would require Part D sponsors to offer 

interventions to the enrolled beneficiary 

and his/her prescriber. As indicated in 

the preamble to the proposed rule, this 

does not mean that all interventions 

must be targeted to both the beneficiary 

and prescriber. Instead, sponsors must 

determine, based upon the specific 

nature of the intervention, whether it 

should be targeted to the beneficiary, 


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the prescriber, or both, in order to 

promote coordinated care. 

Comment: One commenter indicated 

that it is important that CMS clarify how 

the MTM requirements will be applied, 

if at all, in the long-term care setting. 

Furthermore, this commenter asked how 

Part D sponsors will coordinate their 

efforts with the consultant pharmacists 

who conduct monthly drug regimen 

reviews for all residents in Medicare/ 

Medicaid certified facilities. 

Response: The same MTM program 

requirements apply to long-term care 

residents as apply in the outpatient 

setting, except that Part D sponsors are 

not required to offer an interactive CMR 

to targeted beneficiaries in an LTC 

setting. The Part D sponsor will still be 

required to do the quarterly medication 

reviews and offer interventions targeted 

to the individual’s prescribers. Part D 

sponsors are not required to coordinate 

their MTM services with the monthly 

drug regimen reviews of the facilities’ 

consultant pharmacists at this time. 

Comment: We received several 

comments regarding performance 

measures for pharmacists. Commenters 

made the following recommendations: 

• CMS should continue to use 

validated performance-based measures 

for pharmacy providers, such as the 

Pharmacy Quality Alliance (PQA) 

measures. These measures will give 

further definition to MTMPs, 

distinguish among different pharmacy 

providers and the types of MTMPs 

provided and appropriately compensate 

pharmacists that are able to improve 

quality of care. 

• CMS should consider additional 

performance measures, in conjunction 

with participating pharmacists, and the 

performance measures should be made 

available publicly, on a yearly basis. 

The commenter suggested that CMS 

adopt only performance measures 

established by national voluntary 

consensus building. 

• CMS should continue to allow as 

much flexibility as possible until 

evidence can demonstrate what aspects 

of an MTMP bring desired results. 

• CMS should expand upon existing 

data collection and reporting 

requirements. At a minimum, reported 

data should include— 

++ Number of adverse drug events 

avoided, categorized by reason; 

++ Data on adherence and 

persistence by enrollees to their 

prescribed drug therapies; 

++ Information on the form, 

frequency, and types of interventions; 

and 

++ Data on the per capita 

administrative and drug costs under 

each program. 

Response: We appreciate the 

commenters’ interest in this issue. We 

will continue to utilize valid 

performance measures such as the 

measures developed by the PQA. In 

addition, we will evaluate MTM 

outcome data that we receive under the 

Part D reporting requirements to ensure 

that Medicare beneficiaries are receiving 

effective and appropriate MTM services. 

We will also continue to evaluate 

MTMPs to ensure consistent guidelines 

are applied, and issue best practices 

when necessary. We note that an MTM 

contract was awarded through 2010 to 

assist CMS in monitoring and evaluating 

sponsor’s MTM programs. 

Comment: Two commenters indicated 

that MTM services should be included 

as part of access standards for retail 

pharmacies. Another commenter 

requested that CMS ensure that 

pharmacists working in community 

pharmacy practice settings (network 

pharmacies), and pharmacists 

unaffiliated with network pharmacies, 

have the opportunity to contract with 

Part D plans to provide MTM services. 

Response: These comments are 

outside the scope of this rulemaking and 

therefore we will not be addressing 

them in this rule. 

Comment: A few commenters 

recommend that CMS consider 

requiring, or signaling a preference for, 

pharmacists to provide MTM services. 

Another commenter requested 

clarification regarding the 

characteristics of an ‘‘other qualified 

provider’’ in the regulation and at a 

minimum, a requirement that the 

provider have demonstrated expertise in 

medication use management. 

Response: At present, 99 percent of 

the MTMPs are utilizing the services of 

pharmacists. While CMS believes 

pharmacists will continue to be the 

main provider of MTM services, the 

statute at 1860D–4(c)(2) of the Act 

permits plans the flexibility to use other 

qualified providers to perform the 

MTM. At this time, CMS does not 

believe it is necessary to issue 

regulations to govern the qualifications 

for providers of MTM services, but may 

consider rulemaking in the future, if 

further data reporting and experience 

reveal that additional refinement of the 

policy is needed. 

Comment: Several commenters 

recommend that CMS not set specific 

program requirements in regulatory 

language, but continue to use the 

subregulatory mechanism offered by the 

annual industry call letter. They believe 

there is insufficient experience to 

include MTM policies in regulation, and 

the implications of the more detailed 

criteria for targeting beneficiaries for 

MTMPs are not yet clear. 

Response: We disagree with these 

commenters regarding placing the 

requirements in regulation. This 

rulemaking process has afforded both 

Part D plans and the public the 

opportunity to comment on the MTMP 

requirements prior to any changes being 

made to the existing requirements. 

Furthermore, because the MTMP 

requirements are being incorporated in 

our regulations, in the event a Part D 

sponsor fails to meet its MTMP services 

requirements, our ability to enforce 

those requirements has been enhanced. 

Accordingly, we believe that including 

these MTMP requirements in our 

regulations will help to ensure that 

targeted beneficiaries receive 

appropriate MTM services. 

Comment: One commenter 

recommends that CMS develop 

standardized billing and documentation 

data sets to eliminate the need for 

pharmacists to utilize specific platforms 

to obtain payment from different plans. 

A standardized data set should include 

a measure of a patient’s clinical 

outcomes as well as the rates at which 

the patient’s providers accept the 

pharmacist’s recommendations. 

Response: We agree that the adoption 

of standardized documentation for 

MTM could be helpful in measuring the 

outcome of MTM. However, we believe 

any such standard documentation or 

billing be developed via an industry 

standard-setting group, and not by CMS. 

Comment: Several comments were 

received regarding the MTM targeting 

criteria. Specifically, commenters 

suggested that CMS— 

• Decrease the maximum number of 

medications that a plan could require 

for a targeted beneficiary to be eligible 

for MTM services; currently that 

number is eight. One commenter 

recommended decreasing the number to 

six, to prevent patients taking 

combination drug products from being 

unintentionally excluded from the 

program because a single medication 

has replaced two separate drug 

products; 

• Allow Medicare beneficiaries who 

do not qualify for MTM services to 

receive MTM services through a referral 

or prior authorization process initiated 

by their prescriber or pharmacist. Some 

patients with only one chronic disease 

or less than 8 medications may still 

have medication use issues that would 

benefit from participation in their plan’s 

MTM program; and, 

• Require MTM services upon 

discharge from the hospital or anytime 

a beneficiary undergoes a transition of 

care. In both situations beneficiaries 


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would benefit from receiving MTM 

services because MTM has the potential 

to reduce costly hospital readmissions 

due to medication misuse or nonadherence. 

Response: The regulation governing 

the number of prescriptions an 

individual must take before he or she is 

targeted for MTM services sets both a 

ceiling and a floor on the number of 

prescriptions that may be required. 

Therefore, a plan sponsor has the 

discretion to determine whether to 

target beneficiaries taking anywhere 

from two to eight medications. Our data 

indicate that 85 percent of the plans 

reviewed targeted beneficiaries in a 

range of two to eight medications. 

As for targeting certain other 

beneficiaries for MTMP services, our 

regulations provide that sponsors must 

provide a minimum level of MTM 

services to targeted beneficiaries. To the 

extent a Part D plan wants to offer 

additional MTM services, or provide 

MTM services to individuals who do 

not meet the targeting criteria, including 

those individuals who have undergone 

a transition in their level of care, they 

may do so. However, additional 

administrative reimbursement will not 

be available for the provision of these 

additional services. 

Comment: We received some 

comments regarding MTM targeting 

frequency. One commenter indicated 

that CMS should consider increasing the 

minimum requirements regarding the 

frequency with which plans conduct 

outreach to eligible beneficiaries for 

enrollment in MTM programs, and 

specifically recommended that 

beneficiaries be targeted for enrollment 

at least monthly. 

Response: The requirement of 

quarterly targeting that was included in 

the proposed rule, and that is being 

adopted into this final rule, is a floor 

that Part D sponsors may build upon. 

Sponsors may adopt more frequent 

targeting than the minimum quarterly 

outreach threshold required under the 

regulation. We will also continue to 

monitor and evaluate MTM programs to 

determine if there is any significant 

difference in MTM outcomes when 

beneficiaries are targeted more 

frequently and will consider making 

further changes to our requirements if 

warranted. 

Comment: One commenter believed a 

better method for targeting beneficiaries 

would be to examine an individual’s 

historical and expected aggregate health 

care spending using a cost threshold for 

eligibility that is based on total 

projected Medicare spending, rather 

than just Part D spending. 

Response: We do not agree with this 

approach. Pursuant to section 1860D– 

4(c)(2)(A)(ii)(III) of the Act, targeted 

beneficiaries are defined as Part D 

eligible individuals who ‘‘are identified 

as likely to incur annual costs for 

covered Part D drugs that exceed a 

specified level by the Secretary.’’ 

Accordingly, the statute does not afford 

CMS the flexibility to permit plans to 

target individuals for MTM services 

based upon their expected aggregate 

health care spending. Furthermore, 

given the complexity of this suggested 

alternative, we believe the collection 

and review of health care spending data 

prior to determining whether an 

individual will be targeted for MTM 

services would only delay access to 

MTM services. 

Comment: One commenter indicated 

that a Part D sponsor’s use of an opt-out 

only enrollment process for placing 

beneficiaries in its MTM programs must 

be carried out thoughtfully and 

carefully. CMS should require MTM 

program policies that promote patient 

collaboration with their physicians, 

provide adequate enrollment 

notification and include clear 

instructions on opt-out. CMS should 

also undertake an outreach initiative to 

physicians. 

Response: We appreciate the 

commenter’s concerns regarding the 

application of the opt-out method to 

enroll beneficiaries into MTMPs. 

However, we believe the opt-out 

approach is critical for the health and 

well-being of the Medicare population. 

The elderly and disabled populations 

are most at risk of polypharmacy 

consequences. Therefore, an opt-out 

enrollment policy that requires no 

further action by the enrollee helps to 

ensure that vulnerable individuals will 

be enrolled in MTMPs, which we 

believe will reduce adverse drug 

reactions and ensure safe prescription 

drug practices, before their health is at 

risk. In addition, CMS has found that 

the opt-out enrollment method is the 

preferred method among Part D 

sponsors to increase the number of 

beneficiaries participating in MTMPs. In 

2008, fewer than 15 percent of MTMPs 

utilized an opt-in method. We will 

continue to monitor Part D plans to 

ensure they engage in best practices 

when applying the opt-out enrollment 

method to their plan members. 

Comment: One commenter was 

concerned that the use of the initial 

coverage limit (ICL) as a targeting 

benchmark for Part D MTM may elevate 

cost considerations over clinical 

considerations in targeting beneficiaries 

for the Part D MTM program. 

Response: To the extent that the 

commenter appears to be stating that it 

is improper to consider cost 

considerations in targeting beneficiaries 

for the MTM program, we disagree. As 

discussed above, section 1860D– 

2(c)(2)(A)(ii)(III) of the Act expressly 

instructs CMS to consider costs for Part 

D drugs when targeting beneficiaries for 

MTM. However, following further 

consideration of this issue, reliance on 

the ICL, which is specifically tied to the 

cost structure of the Part D benefit to 

target beneficiaries for MTM may be 

problematic. There have been further 

legislative proposals to restructure the 

Part D benefit, including revising the 

ICL, that may have unintended 

consequences for basing the MTM 

targeting criteria on the ICL. 

Accordingly, we believe the 

establishment of a specific dollar 

threshold is more appropriate and are 

reverting back to the $3000 limit, which 

we previously established in the 2010 

call letter. Consistent with statutory 

requirement that drug costs be 

considered in targeting beneficiaries for 

MTM, we will apply an index that is 

equal to the annual percentage increase 

in average per capita aggregate 

expenditures for Part D drugs. 

Specifically, we will adjust the $3000 

threshold by the index used to increase 

the ICL, as originally proposed, which is 

currently found at § 423.104(d)(5)(iv). 

The decision to apply a $3000 

threshold is based upon program 

experience and our analysis of PDE 

data. We originally established the 

initial $4000 cost threshold at the 

inception of the Part D program. At that 

time, it was estimated that 

approximately 25 percent of the Part D 

eligible population would meet the 

three criteria and be targeted for MTM 

services. After two years of experience 

and analysis of plan reported data, we 

found that only 10.0 percent of 

beneficiaries enrolled in a Part D plan 

with an approved MTMP were eligible 

for MTMP in 2006 (13.1 percent were 

eligible for MTMP in 2007). In 2008, we 

conducted an analysis using PDE data 

from contract years 2006 and 2007 

obtained from the Integrated Data 

Repository (IDR) system. The total gross 

drug cost and number of beneficiaries 

that incurred annual drug costs (below) 

or (greater or equal) to the $4000 cost 

threshold was determined. The average 

number of PDE fills and average cost per 

beneficiary was also calculated. Further 

analysis examined cost breakouts in 

$500 increments to determine the 

distribution of beneficiaries, as well as 

the number of fills, and gross drug cost 

for beneficiaries with annual drug costs 


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within these breakouts. It was 

determined that close to 25 percent of 

Part D enrolled beneficiaries with drug 

utilization (beneficiaries with at least 

one PDE during the study period) 

during 2006 and 2007 had annual gross 

drug costs of at least $3000. Therefore, 

CMS lowered the cost threshold to 

$3000 in the 2010 Call letter. Based 

upon our analysis of the most recent 

data, it appears that this threshold will 

continue to ensure that approximately 

25 percent of these beneficiaries 

utilizing the Part D benefit receive MTM 

services. Accordingly, we are adopting 

the $3000 cost threshold in this final 

rule. 

6. Formulary Requirements— 

Development and Revision by a 

Pharmacy and Therapeutics Committee 

(§ 423.120) 

In the October 22, 2009 proposed rule, 

we offered further clarifications 

surrounding our formulary requirements 

associated with pharmacy & 

therapeutics (P&T) committees. As we 

explained in the preamble to the 

proposed rule, section 1860D–4(b)(3)(A) 

of the Act requires Part D sponsors to 

use a P&T committee to develop and 

review the formulary if the Part D 

sponsor uses a formulary. In developing 

and reviewing the formulary, section 

1860D–4(b)(3)(B) of the Act requires the 

P&T committee to base clinical 

decisions on the strength of scientific 

evidence and standards of practice, 

including accessing peer-reviewed 

medical literature, such as randomized 

clinical trials, pharmacoeconomic 

studies, outcomes research data, and on 

such other information as the committee 

determines to be appropriate. The P&T 

committee must also consider whether 

the inclusion of a particular Part D drug 

in a formulary or formulary tier has any 

therapeutic advantages in terms of 

safety and efficacy. 

Based upon our experience with the 

formulary development process since 

the beginning of the Part D program, we 

have come to recognize that the 

application of prior authorization (PA) 

criteria, step therapy, and quantity 

limits are as important to the clinical 

soundness of a formulary as the drugs 

that are included. Access to Part D drugs 

may be influenced as much by the 

application of PA criteria, step therapy 

requirements, or quantity limit 

restrictions as it can be by exclusion of 

a Part D drug from a Part D formulary. 

Therefore, in accordance with section 

1860D–4(b)(3)(A) and (b)(3)(B) of the 

Act, we proposed adding new paragraph 

§ 423.120(b)(1)(ix) to require P&T 

committees to review and approve all 

clinical PA criteria, step therapy 

protocols, and quantity limit restrictions 

applied to each covered Part D drug. 

In this final rule, we adopt these 

provisions as proposed. 

Comment: One commenter is 

concerned that utilization management 

(UM) requirements have become 

barriers to timely access, especially for 

the low-income population for whom 

the exceptions, reconsideration, and 

appeals processes are difficult to 

navigate. While UM tools may be used 

appropriately by a Part D plan, they may 

also result in impeding appropriate and 

timely access to prescribed medications 

and in themselves, can be 

discriminatory in beneficiary selection 

of the Part D plans to the extent that 

beneficiaries are even aware of the 

restrictions. 

Response: It is our intention that the 

changes adopted specifying the 

responsibilities of the P&T committee in 

this final regulation will address this 

commenter’s concern regarding 

potentially discriminatory practices that 

may affect beneficiary protections. We 

believe P&T committees are in the best 

position to ascertain whether certain 

UM tools, when applied to covered Part 

D drugs, will inappropriately impede 

access to these drugs, since the 

committee’s membership includes 

independent practicing pharmacists and 

physicians with the clinical knowledge 

necessary to provide an unbiased review 

of the impact of UM tools on the Part 

D sponsor’s formulary. 

Comment: One commenter indicates 

that it supports CMS’ improvement of 

the rigor of evidence supporting 

decisions of P&T committees, but 

encourages CMS to strengthen its 

evidence requirements even further. 

This commenter is concerned that the 

widely used treatment guidelines or 

clinical literature standard may not be 

specific enough and recommends that 

CMS amend § 423.120 to provide that a 

Part D sponsor may require that 

beneficiaries try drugs supported solely 

by off-label indications only if the 

sponsor demonstrates that there are 

generally accepted, widely used and 

evidence-based treatment guidelines or 

substantial and credible clinical 

literature that recommend patients use 

an off-label indication. 

Response: The policy regarding a plan 

member’s use of drugs for off-label 

indications is out of the scope of this 

final rule. However, we have recently 

adopted in our guidance (see the 2010 

Call Letter released on March 30, 2009) 

that as part of our assessment of a 

formulary’s appropriateness, Part D 

sponsors will not be permitted to 

require an enrollee to try and fail drugs 

supported only by an off-label 

indication (an indication only 

supported in the statutory compendia) 

before providing access to a drug 

supported by an FDA approved 

indication (on-label indication) unless 

the off-label indication is supported by 

widely used treatment guidelines or 

clinical literature that we consider to 

represent best practices. Generally, we 

require such authoritative guidelines to 

be endorsed or recognized by Federal 

government entities or medical specialty 

organizations. 

Comment: One commenter indicated 

that they agree, theoretically, that the 

P&T committee should not have to 

approve administrative PA criteria, such 

as Part B versus Part D coverage, but 

their experience has been that plans 

utilize administrative criteria as excuses 

not to cover drugs. Therefore, they 

believe P&T committees should review 

the administrative criteria to make sure 

they are being applied properly. 

Another commenter indicated that CMS 

allow plan sponsors to implement nonclinical UM criteria without the input 

and prior approval of their P&T 

committees. 

Response: Consistent with the 

operational guidance in Chapters 6 and 

7 of the Medicare Prescription Drug 

Benefit Program Manual, we continue to 

require Part D sponsors to submit 

utilization management requirements, 

such as prior authorization, step therapy 

and quantity limits not based upon the 

FDA’s maximum daily dose limits, as 

part of their Health Plan Management 

System (HPMS) formulary submission. 

We believe these UM tools should be 

reviewed by Part D sponsor P&T 

committees for the reasons stated above. 

However, we continue to believe that 

the administrative criteria a plan uses 

should not be subject to the P&T 

committee review because they do not 

require clinical information or 

justification. Moreover, we believe that 

when a beneficiary is subject to an 

administrative UM tool (that is, one that 

is not a coverage determination) that the 

beneficiary believes unfairly denies 

access to his/her prescription drugs, 

such cases can be addressed through the 

plan’s grievance process. In accordance 

with § 423.564, Part D sponsors must 

provide meaningful procedures for 

timely hearing and resolving enrollee 

grievances. Chapter 18 of the Medicare 

Prescription Drug Benefit Manual 

defines a grievance as any complaint or 

dispute other than one that involves a 

coverage determination or a low-income 

subsidy or late enrollment penalty 

determination, expressing 

dissatisfaction with any aspect of the 

operations, activities, or behavior of a 

Part D sponsor, regardless of whether 


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remedial action is requested. Because 

another avenue exists for redress of a 

beneficiary’s concern about 

administrative criteria such as ‘‘B versus 

D’’ determination, we decline to adopt 

the commenter’s suggestion. 

Comment: One commenter questioned 

the value of committing the resources of 

a P&T committee to review and approve 

quantity limits. 

Response: We believe there is value to 

P&T committees reviewing quantity 

limits since the imposition of quantity 

limits can affect clinical outcomes. As 

we previously stated in the preamble to 

the proposed rule, quantity limits are as 

important to the clinical soundness of a 

plan’s formulary as the drugs that are 

included on the formulary. The P&T 

committee, as a body of clinicians, 

should review the quantity limits to 

ensure restrictions do not affect a plan 

member’s access to covered Part D drugs 

that could lead to health or lifethreatening outcomes, especially when 

quantity limits are not based upon the 

FDA’s maximum daily dose limits. 

Comment: One commenter indicated 

that CMS provide Part D sponsors with 

minimum standards for P&T 

committees’ clinical review and make 

those standards publicly available to 

further strengthen the clinical 

appropriateness of formularies. 

Response: We disagree with the 

commenter’s suggestion that we dictate 

minimum standards for P&T 

committees’ clinical review. Section 

1860D–4(b)(3)(B) of the Act requires the 

P&T committee base clinical decisions 

on the strength of scientific evidence 

and standards of practice, including 

accessing peer-reviewed medical 

literature, such as randomized clinical 

trials, pharmacoeconomic studies, 

outcomes research data, and on such 

other information as the P&T committee 

determines to be appropriate. Since the 

statute specifically directs P&T 

committees to make these clinical 

decisions, we believe it does not have 

the authority, or the capability, to 

establish clinical review criteria for the 

P&T committees. 

Comment: One commenter urged 

CMS to continue to engage in robust 

formulary review to ensure that a plan 

formulary appropriately reflects the 

clinical needs of Medicare beneficiaries. 

Response: We appreciate the 

comment, but changes to CMS’ 

formulary review are outside the scope 

of this final rule. We are not making any 

further changes to our current formulary 

review process at this time because we 

believe we already conduct a robust 

formulary review consistent with the 

statutory and existing regulatory 

parameters, and current guidance. 

Comment: One commenter indicated 

that plans inform beneficiaries of 

utilization management criteria prior to 

selecting their plans. 

Response: As provided in § 423.128(c) 

(2), a Part D plan, upon the request of 

a Part D eligible individual, must 

provide the procedures the Part D plan 

uses to control utilization of services 

and expenditures. CMS guidelines for 

marketing materials spell out that as 

part of a plan’s formulary, Part D plans 

must indicate any applicable utilization 

management tools (such as, prior 

authorization, step therapy, and 

quantity limit restrictions) for the drug. 

Also, formulary and utilization 

management criteria must be 

appropriately displayed on the plan’s 

Web site. 

Comment: One commenter requested 

that CMS require that P&T committee 

decisions be in writing, including the 

rationale behind formulary and 

utilization management policies, and 

that the committee’s decisions be made 

public. 

Response: As stated in response to the 

previous comment, utilization criteria 

are made available to the public prior to 

enrollment, and to enrollees of the plan. 

Additionally, § 423.120(b)(1)(viii) 

requires the Part D sponsor’s P&T 

committee decisions regarding 

formulary development or revision, as 

well as utilization management 

activities, be documented in writing. 

However, the Part D sponsors may 

consider decision by their P&T 

Committees to be proprietary and for 

this reason, we decline to require plans 

to make them public. 

7. Generic Equivalent Disclosure Under 

Part D (§ 423.132) 

In the October 22, 2009 proposed rule, 

we proposed revisions to part D 

requirements related to the disclosure to 

Part D enrollees who are residents of 

long term care institutions of any 

differential in pricing of drugs 

dispensed compared to generic 

equivalents. As we explained in the 

preamble to the proposed rule, section 

1860D–4(k)(1) of the Act requires a Part 

D sponsor to have each of their network 

pharmacies inform enrollees of any 

difference between the price of the 

drug(s) they are purchasing via the plan 

and the price of the lowest priced 

therapeutically equivalent generic 

product available to the pharmacy. 

Section 1860D–4(k)(2)(A) of the Act 

requires that this information be 

provided at the time of purchase except 

for purchases delivered by mail when it 

must be provided at the time of 

delivery. Under section 1860D– 

4(k)(2)(B) of the Act the Secretary has 

the authority to waive this requirement 

for certain entities in certain cases as 

specified in § 423.132(c). 

When we issued the January 28, 2005 

(70 FR 4273) Part D final rule, we 

specified that for enrollees in long-term 

care pharmacy settings, the timing 

portion of the disclosure requirement 

(that is, the requirement that the 

enrollee be informed at time of 

purchase) may be waived. Accordingly, 

sponsors were required to disclose the 

differential (if any) in pricing for longterm care network pharmacies by 

requiring that this information be 

provided in the explanation of benefits 

(EOB). However, over time, we have 

heard from sponsors, as well as 

pharmaceutical benefit managers on 

behalf of sponsors, that providing this 

information in the EOB is unworkable 

from a plan operational standpoint. 

We also came to realize that the 

generic equivalent information provided 

on the EOB is of no value to the longterm care beneficiary. Unlike the 

enrollee standing at the retail pharmacy 

counter at time of service, enrollees in 

long-term care institutions have limited 

opportunities to effect a switch to a 

lower-priced generic substitute before 

dispensing. 

For the aforementioned reasons, we 

proposed revising § 423.132(c) by 

adding long-term care network 

pharmacies to the list of entities for 

which from the public disclosure 

requirement is waived, and revise 

§ 423.132(d) to remove the requirement 

that long-term care network pharmacies 

provide the pricing differential 

information in enrollees’ EOBs. In this 

final rule, we adopt these provisions as 

proposed. 

Comment: A number of commenters 

supported this change. One commenter 

wanted to go even further and eliminate 

this requirement for all areas of 

pharmacy practice because it imposes 

an unreasonable administrative burden. 

Response: We disagree that 

elimination of this requirement should 

be extended to all areas of pharmacy 

practice. Providing this information to 

the beneficiary at the time of purchase 

enables the beneficiary to choose the 

lowest priced product available at the 

pharmacy. The pharmacy can avoid the 

administrative burden by dispensing the 

lowest priced product. 

Comment: Only one commenter did 

not support this change and thought 

that providing this information in the 

EOB would help identify fraud, waste, 

and abuse and enable the beneficiary to 

change at a later date. 

Response: Although we agree that this 

information may have some value to a 

beneficiary in the long-term care setting, 


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the primary reason for removing this 

requirement is that it is unworkable 

from a plan operational standpoint 

considering the variable nature of 

generic pricing and the programming 

maintenance effort required, and we 

continue to believe that the value to the 

beneficiary, given the circumstances, 

does not justify the burden of 

maintaining the requirement. 

8. Access to Covered Part D Drugs 

(§ 423.120) 

In the October 22, 2009 proposed rule, 

we made corrections to current 

regulatory requirements that would 

align the regulations with the intent of 

the statute with regard to the level of 

analysis that should be conducted for 

access to Part D drugs, namely at the 

Part D sponsor level, rather than at the 

plan level. As we noted in the preamble 

to the proposed rule, the statute at 

sections 1860D–4(b)(1)(C) and 1860D– 

21(c)(1) of the Act establishes the 

standards for convenient access for 

network pharmacies for PDP sponsors 

and other Part D sponsors. This section 

of the statute requires that the sponsor 

of a PDP shall secure the participation 

in its network of a sufficient number of 

pharmacies that dispense (other than by 

mail order) drugs directly to patients to 

ensure convenient access consistent 

with the rules established by the 

Secretary, and as long as they are no less 

favorable than the TRICARE pharmacy 

access standards. These standards are— 

• Urban—a pharmacy within 2 miles 

of 90 percent of the beneficiaries; 

• Suburban—a pharmacy within 5 

miles of 90 percent of the beneficiaries; 

and 

• Rural—a pharmacy within 15 miles 

of 70 percent of the beneficiaries. 

We adopted into regulation the 

TRICARE standards, but instead of 

specifying them at the contract or PDP 

sponsor level, erroneously established 

them at the plan level. Specifically, in 

§ 423.120(a) of the regulation, which 

describes the requirements to assure 

pharmacy access, we inadvertently used 

the term ‘‘plans’’ instead of the correct 

terminology of PDP sponsor or other 

Part D sponsors. This error is 

problematic when considering the 

definitions outlined in § 422.2 (for MA) 

and § 423.4 (for Part D) because the term 

‘‘plan’’ is intended to mean a specific 

benefit package offered to beneficiaries 

living in a geographic area. For any 

given service area, Part D sponsors 

frequently offer multiple plans under 

one contract with CMS, and any given 

plan may be offered within a subset of 

the Part D sponsor’s total service area. 

For example, a Part D sponsor may offer 

a high and low option at one price in 

part of the contract’s service area, and 

also offer a high and low option at a 

different price in the remaining portion 

of the contract’s service area. 

We noted that our intention has 

always been to ensure adequate access 

to Part D covered drugs at sponsor level, 

not at the plan level. For one, the statute 

explicitly states that access should be 

ensured at the PDP sponsor level. 

Further, assessing adequacy of 

pharmacy access is one of the most 

critical steps in the Part D application 

review process and determining access 

to Part D covered drugs at the plan level 

is not possible during application 

review. This is because plan service 

areas (potentially subsets of Part D 

sponsor or organization service areas) 

are not determined until the time of the 

bid submission, which occurs after 

applications are reviewed. However, 

sponsor service areas are known at the 

time of application submission. 

Our correction would align our 

regulations with the intent of the statute 

with regard to the level of analysis that 

should be conducted for access to Part 

D drugs, namely at the Part D sponsor 

level, rather than at the plan level. We 

also noted in the preamble that as a 

practical matter and consistent with the 

current drafting of the regulation, if the 

Part D sponsor’s entire service area is 

larger than one State, we will continue 

to ensure access at no greater than the 

State level for multistate regions. We 

noted that this approach is necessary to 

ensure that pharmacies are not unduly 

clustered in one part of the region. 

Therefore, based on the preceding, we 

proposed to revise the text of the 

regulation that discusses pharmacy 

access in § 423.120(a)(1) through (a)(7) 

to refer to PDP sponsors, MA 

organizations offering local and regional 

MA–PD plans, and cost contracts rather 

than plans. Additionally, since 

§ 423.120(a) (defining access 

requirements for Part D drugs) 

references a definition provided in 

§ 423.112(a) (establishment of PDP 

service areas), it was necessary to 

correct the terminology in that location 

as well. Therefore, we proposed revising 

§ 423.112(a) to specify the establishment 

of service areas for PDP sponsors. We 

are adopting the above changes without 

further modification into this final rule. 

Comment: One commenter fully 

supported the proposed revision to the 

regulation clarifying access to Part D 

drugs be measured at the sponsor level, 

rather than at the plan level. 

Response: We appreciate the support. 

Comment: One commenter asked 

CMS to exercise its statutory authority 

to adopt regulations that would apply 

access standards more favorable to 

beneficiaries to Part D sponsors by 

increasing the urban and suburban 

percentages to 95 percent, and 

increasing the rural standard to 10 miles 

and 85 percent. This commenter 

believes that the current access 

standards are too lax, especially in rural 

areas. Additionally, this commenter 

noted that measuring distance ‘‘as the 

crow flies’’ when evaluating pharmacy 

access may not be representative of true 

driving distance in certain locations. 

Response: Our proposed regulatory 

change addressed only the 

organizational level at which the 

pharmacy access standards would be 

applied, not whether a change in those 

standards is warranted. While we 

appreciate the comment, we will not 

address it at this time as it is outside the 

scope of our proposal. 

However, we wish to allay the 

commenter’s concern that measuring 

distance ‘‘as the crow flies’’ may actually 

underrepresent true driving distance. 

Presently, the software used by Part D 

sponsors to demonstrate they meet our 

retail pharmacy access standards has a 

feature that allows distance to be 

measured as estimated driving distance, 

and sponsors are instructed to use this 

feature. 

Comment: One commenter suggested 

that CMS move toward a more 

automated and streamlined process for 

conducting the initial review and 

ongoing monitoring of Part D sponsor’s 

retail pharmacy networks. The 

commenter suggests CMS consider 

establishing a certification process 

whereby a first tier entity, such as a 

PBM, may submit one set of access 

reports in support of its certification. If 

found acceptable by CMS, all Part D 

sponsors using that PBM could 

demonstrate their compliance with the 

pharmacy access standards by 

submitting an attestation that the 

network they are using is already CMSapproved. 

Response: We appreciate the 

comment and note that we are working 

on developing a more automated system 

for the submission of pharmacy network 

information. That said, the issue of our 

review of network adequacy and the 

processes we use is outside the scope of 

our proposal, and we therefore decline 

to address it in this rule. 

Comment: One commenter urged 

CMS to create retail pharmacy access 

standards to ensure that beneficiaries 

have the choice of obtaining medication 

therapy management (MTM) services 

from their retail community pharmacies. 

Response: This comment concerns the 

administration of MTM programs, not 

the methodology for the calculation of 

retail pharmacy access standards. 


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Therefore, we will not address this 

comment as it concerns an issue outside 

the scope of our proposed regulatory 

change. 

9. Standard Timeframe and Notice 

Requirements for Coverage 

Determinations Under Part D (§ 423.568) 

In the October 22, 2009 proposed rule, 

we proposed to make several changes to 

§ 423.568 related to the standard 

timeframes and notice requirements for 

coverage determinations under Part D. 

The first change we proposed was a 

technical change that would require Part 

D plan sponsors to accept standard 

coverage determination requests orally 

and in writing. This change would not 

apply to standard requests for payment, 

which must be submitted in writing 

unless the plan sponsor adopts a policy 

for accepting those requests orally. As 

we explained in the preamble to the 

proposed rule, we proposed this change 

to § 423.568 because section 1860D–4(g) 

of the Act requires Part D sponsors to 

follow the same procedures as MA 

organizations with respect to 

organization determinations and 

reconsiderations, and we were 

proposing to make an identical revision 

to § 422.568 of the MA appeals 

regulations. 

We also proposed to revise the 

timeframe for a Part D plan sponsor to 

notify an enrollee of a payment 

determination in § 423.568(b), and 

proposed to establish a regulatory 

timeframe for making payment to an 

enrollee when a decision is partially or 

fully favorable. The regulation currently 

requires a plan sponsor to notify an 

enrollee of its payment determination 

no later than 72 hours after receipt of a 

request, and manual guidance requires 

plan sponsors to make payment for fully 

or partially favorable decisions within 

30 days of the request. The proposed 

revisions to § 423.568(b) would require 

a Part D plan sponsor to notify an 

enrollee of a payment decision no later 

than 14 calendar days after receiving a 

reimbursement request. If the decision 

is partially or fully favorable, the plan 

sponsor must also make payment within 

the same 14-day timeframe. For 

example, for partially and fully 

favorable decisions, a plan sponsor must 

both notify the enrollee of the decision 

and make payment no later than 14 

calendar days after receiving the 

request). As noted in the preamble, we 

proposed to revise the reimbursement 

timeframes because we believe the 

existing 72-hour requirement is virtually 

impossible for plan sponsors to meet, 

and as a result, plan sponsors are 

issuing perfunctory denials. This 

outcome is not in the best interest of 

Medicare’s Part D enrollees. We were 

also concerned that the existing 

requirement would in effect force 

enrollees into the Part D appeals process 

despite the fact that the majority of 

these claims could have been paid 

within the 30-day reimbursement 

timeframe. Based on our experience and 

previous discussions with Part D plan 

sponsors, we determined Part D plan 

sponsors generally are capable of 

making reimbursement decisions and 

payment within a 14-day period 

following receipt of reimbursement 

requests. We believe the proposed 

revision to the timeframes for notifying 

enrollees of payment determinations 

will significantly increase the number of 

timely payment-related decisions by 

plan sponsors, and the revised 

timeframes for making payment will be 

more meaningful for the typical 

Medicare beneficiary who often cannot 

afford to wait 30 days to be reimbursed. 

Finally, we proposed to add new 

paragraphs (d) and (e) to § 423.568, to 

explain the form and content of 

favorable coverage determination 

decisions. In § 423.568(d), we proposed 

requiring plan sponsors to send written 

notice of fully favorable decisions to 

enrollees. We also proposed to allow 

plan sponsors the option of providing 

the initial notice orally so long as a 

written follow-up notice is sent to the 

enrollee within three calendar days of 

the oral notification. In § 423.568(e), we 

proposed to require notice of fully 

favorable decisions to include the 

conditions of the approval in a readable 

and understandable manner. We noted 

these changes were necessary because 

prescription drugs are often provided to 

beneficiaries on a recurring basis (unlike 

most MA services which are generally 

provided to beneficiaries only once), 

and requiring plans to provide the terms 

of an approval in writing helps ensure 

continuity of care for Medicare 

beneficiaries who receive prescription 

drugs under Part D. 

After reviewing the comments 

received in response to these proposals, 

in this final rule, we adopt the proposed 

changes without modification. In 

addition, as explained below, we are 

adding paragraph (a)(3) to § 423.568, 

which will require plan sponsors to 

establish and maintain a method of 

documenting all oral requests and 

retaining the documentation in the case 

file. 

Comment: Several commenters 

supported the proposed technical 

change that would require Part D plan 

sponsors to accept standard coverage 

determination requests orally and in 

writing, except for standard requests for 

payment which must be submitted in 

writing. A commenter asked CMS to 

clearly articulate how plans are to 

record, track, and report oral requests. 

Another commenter suggested allowing 

plan sponsors to require the use of planspecific forms for payment requests. 

Response: We appreciate the 

comments we received in support of 

this proposal, and the commenter’s 

concern about the processes plan 

sponsors should have in place to record, 

track, and report oral requests. We agree 

that it is important for plan sponsors to 

document and track requests that are 

submitted orally in order to determine 

if plan sponsors are processing requests 

in a timely manner. Therefore, in this 

final rule, we are adding a new 

paragraph (a)(3) to § 423.568, which will 

require plan sponsors to establish and 

maintain a method of documenting all 

oral requests and to retain that 

documentation in the case file. We do 

not agree with the suggestion to require 

the use of plan-specific forms for 

payment requests. We have, since the 

inception of the Part D program, 

required plan sponsors to accept any 

written request submitted by enrollees 

and prohibited plan sponsors from 

requiring the use of plan-specific 

request forms. We do not believe there 

is a compelling reason to depart from 

this standard. During this time, we have 

also received numerous requests to 

standardize the Part D coverage 

determination and appeals processes in 

order to create consistency and 

predictability for Part D enrollees, and 

we are continuously looking to improve 

the coverage determination and appeals 

processes. Allowing each plan to require 

the use of different forms for different 

requests moves us further away from 

creating a process that is easier for 

enrollees to navigate. Although we 

understand plan sponsors often need 

enrollees to submit specific information 

with reimbursement requests, requiring 

the use of a specific form does not 

guarantee that an enrollee will provide 

all information a plan sponsor needs to 

process the request (for example, an 

enrollee may not complete part of the 

form). When a reimbursement request is 

not complete, plan sponsors must either 

obtain the missing information or deny 

the request within the applicable 

decision making timeframe. Because we 

are extending the timeframe for 

resolving payment requests in this final 

rule, plan sponsors have more time to 

evaluate payment requests and obtain 

missing information when necessary. 

Comment: We received many 

comments in response to the proposed 

revisions to § 423.568(b), which would 

require a Part D plan sponsor to notify 

an enrollee of a payment decision and, 


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if appropriate, make payment no later 

than 14 calendar days after receiving a 

reimbursement request. Some 

commenters that supported the 14-day 

timeframe for making a decision 

opposed the requirement to make 

payment within the same 14-day 

timeframe. The commenters objected 

because a 14-day payment cycle is not 

consistent with current industry 

standards, and moving the payment 

cycle to 14 days would require great 

expense to update current processes and 

systems, and would not offer any real 

benefit to enrollees who already have 

the prescription drugs in dispute. For 

these reasons, the commenters 

suggested maintaining the current 30- 

day payment timeframe. As an 

alternative, some of the commenters 

suggested allowing plan sponsors an 

additional 14 calendar days to make 

payment after a decision has been made. 

Other commenters suggested that CMS 

defer implementation of the 14-day 

timeframe until 2011. 

We also received support for the 

proposed 14-day timeframe from a 

number of commenters, but the 

commenters also opposed extending the 

72 hour decision-making timeframe. 

The commenters objected because 

extending the timeframe would cause an 

additional financial hardship for 

enrollees who pay out-of-pocket for 

prescriptions. The commenters argued 

the proposal would extend the appeals 

process by up to eleven days for 

enrollees who receive denials, and 

would prevent those enrollees from 

obtaining a decision by the Part D 

Independent Review Entity before a 30- 

day prescription runs out. For that 

reason, most of the commenters 

suggested retaining the 72-hour 

decision-making timeframe for 

reimbursement requests. As an 

alternative, a few of the commenters 

suggested that CMS maintain a 72-hour 

decision-making timeframe for payment 

requests that involve exceptions, and a 

14-day decision-making timeframe for 

all other payment requests. Finally, one 

commenter believed that a 7-day 

timeframe would be acceptable for 

making payment-related decisions. 

Response: After careful review and 

consideration of the numerous 

comments and suggestions we received 

about this provision, we continue to 

believe that the timeframes established 

in proposed § 423.568(b) strike the right 

balance between ensuring plan sponsors 

have enough time to properly adjudicate 

reimbursement requests, and creating a 

reimbursement timeframe that does not 

impose an undue hardship on Medicare 

beneficiaries who often cannot afford to 

wait 30 days before being reimbursed. 

Some commenters raised concerns 

about plan sponsors not being able to 

make payment within 14 calendar days 

after receiving a reimbursement request 

in large part because most Part D plan 

sponsors process reimbursement 

requests under a 30-day billing cycle, 

which is the industry standard. 

However, we note that plan sponsors 

already have prior experience 

processing some reimbursement 

requests in less than 30 days. Pursuant 

to section 171 of MIPPA and the PDP 

Sponsor Application, Part D plan 

sponsors are required to make payment 

for certain reimbursement requests from 

out-of-network pharmacies within 14 

calendar days. Although the 14 calendar 

day MIPPA requirement applies to 

reimbursement requests that are 

submitted electronically, we note the 

MIPPA requirement to illustrate that a 

14-day timeframe for processing 

reimbursement requests is not 

unprecedented under the Part D 

program, and that plan sponsors 

currently have systems in place to 

accommodate billing cycles that are less 

than 30 calendar days. As noted in the 

preamble to the proposed rule, our 

experience and previous discussions 

with Part D plan sponsors on this issue 

led us to conclude that plan sponsors 

are capable of processing 

reimbursement requests and sending 

payment, when required, to enrollees 

within 14 calendar days after receiving 

a reimbursement request. In the 2009 

Call Letter, we indicated that we would 

exercise our enforcement discretion to 

decline to bring an enforcement action 

for non-compliance with the 72-hour 

timeframe in § 423.568 if the plan 

sponsor processes a reimbursement 

request and submits reimbursement 

(when appropriate) within 14 calendar 

days after receipt of the request. As a 

result, plan sponsors have been 

permitted the option of either notifying 

enrollees of their reimbursement 

decisions within 72 hours and making 

payment within 30 days, or, providing 

notice of a reimbursement decision and 

sending payment (when a decision is 

partially or fully favorable) to the 

enrollee within 14 calendar days after 

receiving a reimbursement request. 

We also understand the concerns 

about enrollees receiving decisions as 

quickly as possible. In particular, some 

commenters indicated the need for 

shorter timeframes when a request 

involves an exception. We agree, but 

note that the reimbursement process 

was intended primarily for use in 

resolving out-of-network issues. 

Consequently, we do not believe that it 

is the most efficient way to obtain 

coverage decisions for non-formulary 

drugs or drugs subject to a utilization 

management requirement. Furthermore, 

using the reimbursement process to 

obtain coverage decisions for nonformulary drugs or drugs subject to a 

utilization management requirement 

does not obviate the need to provide 

medical documentation either 

demonstrating that an exception is 

needed or that a utilization management 

requirement has been met. In the former 

case, if the reimbursement request is 

submitted without a prescriber’s 

supporting statement, the plan sponsor’s 

decision making timeframe is tolled 

until the statement is received. Thus, we 

believe enrollees who need prescription 

drugs that either are non-formulary, or 

are subject to utilization management 

requirements that they cannot meet, 

would be better served by using the 

exceptions process. Under § 423.568(a), 

a plan sponsor must respond to a 

standard exception request within 72 

hours of receiving the request and the 

prescriber’s supporting statement, and 

consistent with § 423.572(a), a plan 

must respond to an expedited request 

within 24 hours of receiving the request 

and the prescriber’s supporting 

statement. 

Finally, we appreciate some 

commenters’ concerns that the 14-day 

timeframe may result in enrollees 

receiving unfavorable payment 

determinations beyond the current 72- 

hour timeframe. Thus, in order to 

ensure that enrollees are able to access 

the appeals process as quickly as 

possible, we encourage plan sponsors to 

issue unfavorable determinations sooner 

than 14 days. 

Therefore, we are finalizing the 

proposed revisions at § 423.568(b) to 

require Part D plan sponsors to notify an 

enrollee of a payment decision no later 

than 14 calendar days after receiving a 

reimbursement request. If the decision 

is partially or fully favorable, the plan 

sponsor must also make payment within 

the same 14 calendar-day timeframe. 

Comment: We received a number of 

comments supporting the proposal to 

allow Part D plan sponsors to make the 

initial notice of favorable standard 

coverage determination decisions orally, 

so long as a written confirmation of the 

decision is mailed to the enrollee within 

three calendar days of the oral notice. 

However, one commenter suggested 

revising the three calendar day 

requirement to three business days. 

Response: For the reasons noted in 

our response to a similar comment 

about the timeframe for providing 

written follow-up of notice of a fully 

favorable expedited redetermination 

decision, we do not agree that it is 


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necessary to revise ‘‘calendar days’’ to 

‘‘business days.’’ 

Comment: We received numerous 

comments supporting the proposal to 

require plan sponsors to include 

specific information (such as, the 

conditions of approval) in favorable 

coverage determination notices. 

However, one commenter opposed the 

proposed requirement and suggested 

allowing plan sponsors to provide the 

approval conditions on request. 

Response: As noted above in our 

response to a similar comment relating 

to favorable redetermination decisions, 

we believe requiring plan sponsors to 

provide the condition(s) of approval in 

writing is an important enrollee 

protection that helps ensure continuity 

of care for Medicare beneficiaries who 

receive prescription drugs under Part D, 

and the commenter’s suggested 

approach would diminish that 

important protection. 

Comment: We received several 

comments asking us to develop a model 

letter for fully favorable coverage 

determination decisions under 

§ 423.568. 

Response: As noted in our response to 

a similar comment regarding fully 

favorable redetermination decisions, we 

will explore developing either a model 

or standard notice for favorable 

decisions, and will publish any such 

notice in Chapter 18 of the Medicare 

Prescription Drug Benefit Manual. 

10. Expediting Certain Coverage 

Determinations (§ 423.570) 

In the October 22, 2009 proposed rule, 

we proposed to make a technical change 

to § 423.570 by removing the cross 

reference to § 423.568(a) and inserting a 

cross-reference to § 423.568(b). This 

change is necessary to be consistent 

with the proposed revisions to 

§ 423.568. We did not receive any 

comments with regard to our proposed 

revision. Therefore, this final rule 

adopts this revision without change. 

11. Timeframes and Notice 

Requirements for Expedited Coverage 

Determinations (§ 423.572) 

The October 22, 2009 proposed rule 

includes a proposed revision to 

§ 423.572(b) that would require plan 

sponsors to send written notice of fully 

favorable expedited coverage decisions 

to enrollees, and allow plan sponsors 

the option of providing the initial notice 

orally so long as a written follow-up 

notice is sent to the enrollee within 

three calendar days of the oral 

notification. We also proposed to add 

paragraph (c)(2), which would require 

notice of a fully favorable expedited 

coverage determinations to provide the 

conditions of the approval in a readable 

and understandable manner. As noted 

in the proposed rule, the rationale for 

adding these requirements is consistent 

with our rationale for adding form and 

content requirements for favorable 

standard coverage determination 

decisions, and in so doing, ensures 

enrollees are able to maintain continuity 

in their prescription drug treatment. 

Finally, we proposed to revise 

§ 423.572(c)(2)(i) by requiring plan 

sponsors to issue adverse expedited 

coverage determination decisions using 

CMS approved language in readable and 

understandable form. As noted in the 

preamble to the proposed rule, this 

proposed change would reconcile a 

discrepancy in the regulations by 

requiring plan sponsors to use the 

standardized denial notice (Form CMS– 

10146) for both standard and expedited 

adverse coverage determinations. 

Currently, the regulations require the 

use of the standardized denial notice 

only for standard adverse coverage 

determinations. The only comment we 

received on this provision was 

supportive of the change. Accordingly, 

we are adopting the proposed revision 

to § 423.572(c)(2)(i) as set forth in the 

proposed rule without change. 

Comment: We received a number of 

comments supporting the proposal to 

allow Part D plan sponsors to make the 

initial notice of favorable expedited 

coverage determination decisions orally, 

so long as a written confirmation of the 

decision is mailed to the enrollee within 

three calendar days of the oral notice. 

However, one commenter suggested 

revising the three calendar day 

requirement to three business days, and 

another commenter recommended 

allowing plan sponsors to send the first 

notice in writing, but not requiring plan 

sponsors to send additional written 

notices when any related refills are 

approved. 

Response: For the reasons noted in 

our response to a similar comment 

about the timeframe for providing 

written follow-up of notice of a fully 

favorable expedited redetermination 

decision, we do not agree that it is 

necessary to revise ‘‘calendar days’’ to 

‘‘business days.’’ Also, as previously 

noted, we believe a written notice 

should follow every favorable decision, 

including favorable decisions to 

approve refills. This policy will help to 

ensure continuity of care for Medicare 

beneficiaries who are obtaining refills of 

prescription drugs under Part D. We 

note that additional favorable decisions 

for refills are not necessary if the 

coverage determination or appeal 

decision specifically authorizes refills 

for the remainder of the plan year. 

Comment: We received numerous 

comments supporting the proposal to 

require plan sponsors to include the 

conditions of approval in favorable 

decision notices. However, one 

commenter opposed the proposal and 

suggested allowing plan sponsors to 

provide the approval conditions on 

request. A different commenter asked 

CMS to exempt Special Needs Plans 

(SNPs) from the written-notice 

requirement for favorable decisions 

because SNPs hire nurse case managers 

to make sure an enrollee’s medication 

supply is not interrupted. Thus, 

enrollees receiving medications from 

SNPs do not need to know the 

conditions of an approval. 

Response: As noted in our responses 

to similar comments, requiring plan 

sponsors to provide the conditions of 

approval in writing is an important 

enrollee protection that helps ensure 

uninterrupted drug coverage for 

Medicare beneficiaries who receive 

prescription drugs under the Part D 

program. We believe implementing the 

commenters’ suggestions would 

diminish this important protection 

because without this requirement, 

enrollees would likely not receive 

timely notice of the coverage limits for 

approvals. Without this information, 

enrollees may experience interruptions 

in coverage. Thus, the best way to 

ensure that enrollees receive timely 

notice and understand the conditions 

that apply to their approvals is to 

require plan sponsors to consistently 

provide this information, in writing, to 

all enrollees. 

Comment: We received several 

comments asking us to develop a model 

letter for fully favorable decisions 

issued under § 423.572. 

Response: As noted in our response to 

an earlier comment, we will explore 

developing either a model or 

standardized notice for use in issuing 

favorable notices and will publish any 

such notice in Chapter 18 of the 

Medicare Prescription Drug Benefit 

Manual. 

12. Clarify Novation Agreements Under 

Part D (§ 423.551) 

In the October 22, 2009 proposed rule, 

we proposed revisions to§ 423.551 and 

proposed adding a new paragraph 

§ 423.551(g) to restrict the situations in 

which we will approve the novation of 

a PDP sponsor’s contract. A change in 

ownership of an existing sponsor’s PDP 

contract(s) can promote the efficient and 

effective administration of the Part D 

program. However, over the past few 

years several PDP sponsors have 

requested CMS approval of transactions 

that involve the sale of a piece of the 


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sponsor’s contract with CMS or less 

than all of the PDP contracts held by 

that PDP sponsor. Therefore we have 

proposed these revisions in order to 

restrict a novation to those transfers 

involving the selling of the sponsor’s 

entire line of PDP business, which 

would include all PDP sponsor 

contracts held by the legal entity. We 

believe that allowing the spin-off of just 

one contract (when the PDP sponsor has 

more than one PDP contract) or pieces 

of a single contract can have a negative 

impact on beneficiary election rights. 

We recommended becoming more 

prescriptive in this area because our 

experience gained over the first 4 years 

of the program indicates this is 

necessary. As we noted in the preamble 

to the proposed rule, our policy goals 

are not served when a sponsor uses the 

novation process to purchase a piece of 

another sponsor’s contract with CMS for 

less than the full line of PDP business. 

We do not agree that picking and 

choosing which markets a sponsor 

wishes to serve at any given time and 

to profit from its exit from a given PDP 

region is most efficient when a simple 

nonrenewal for that region is an option 

available to the sponsor. Moreover, this 

process should not be used as an 

instrument for moving LIS beneficiaries 

when a particular sponsor has missed 

the benchmark. 

We believe that the change we 

proposed creates consistency between 

the Part C program and the Part D 

program, because the Part C regulations 

only permit novations that include the 

entire MA line of business (that is, all 

MA contracts held by a single legal 

entity). 

We adopt these provisions as 

proposed. As noted below, we amend 

§ 423.551 to clarify that these provisions 

do not apply to changes of ownership 

between subsidiaries of the same parent 

organization. 

Comment: Several commenters 

expressed concern that the proposed 

policy could cause greater disruption for 

beneficiaries by limiting sponsors’ 

ability to divest and acquire certain Part 

D contracts in situations where those 

transactions would have few effects on 

beneficiaries. The commenters believe 

that the proposed change may result in 

Part D sponsors withdrawing plan 

benefit packages and bid submissions, 

prevent acquisitions and mergers, or 

cause mid-year terminations, if the 

novation option no longer is available in 

many situations. The commenters also 

believed that this change could impact 

CMS efforts to consolidate PBPs and 

service areas under one contract 

number. 

Response: We believe that there are 

adequate PDP choices for beneficiaries, 

and that restricting novations as 

proposed is in the best interest of the 

Part D program. We do not believe that 

the proposed change would negatively 

impact a sponsor’s ability to consolidate 

PBPs even if the plans are located in 

different geographical areas. To the 

extent that this comment concerns the 

application of this policy to novations 

among subsidiaries of the same parent 

organization, CMS agrees that those 

types of transactions should be 

permitted and would not require the 

transfer of an entire line of Medicare 

business. Novations between the 

subsidiaries of the same parent 

organization do not involve the buying 

and selling of beneficiaries; rather, they 

are usually undertaken to accommodate 

an organization’s change to its internal 

corporate structure. Therefore, we have 

modified our proposed regulatory 

language to clarify that the new policy 

does not apply to changes of ownership 

between subsidiaries of the same parent 

organization. 

Comment: One commenter stated that 

no change is needed in the current 

regulation to accomplish CMS’ policy 

goal. The commenter, citing 

§ 423.552(a)(3)(ii), believed that CMS 

already has authority to determine 

whether a proposed novation is in the 

best interest of the Medicare program 

and that CMS did not need to change 

the regulation to keep this authority. 

The commenter expressed concern, 

however, that the proposed change 

would limit CMS’s flexibility to approve 

a novation of some but not all of an 

entity’s Part D contract(s), even if CMS 

determined that it was in the best 

interest of the program to approve the 

novation. The commenter added, that if 

CMS does not retain the authority to 

approve a novation representing less 

than an organization’s entire line of PDP 

business, the acquiring company would 

have to terminate the contract, causing 

substantial member disruption. 

Response: We believe that a change to 

the regulation is necessary to provide 

clarity to sponsors regarding the 

circumstances under which a PDP 

novation would be approved by CMS. 

Additionally, we believe that 

beneficiary disruption in situations 

where a sponsor nonrenews a contract 

because it is not eligible to be novated, 

is minimized by comprehensive 

nonrenewal beneficiary rights and 

required notifications, and that 

beneficiary election rights trump any 

member disruption that occurs due to a 

nonrenewal. 

Comment: One commenter stated that 

it agreed with CMS that the novation 

process should not be used, either in 

Part C or Part D, to pick and choose 

profitable markets, but it did not 

interpret the current Part C regulation 

related to the novation process to only 

allow novations that include the entire 

MA line of business (that is, all MA 

contracts held by a single legal entity). 

The commenter stated that there are 

unique circumstances where a change of 

ownership may be specific to Special 

Needs Plans (SNPs) that may be better 

served under new ownership that has a 

specialized model. The commenter 

suggested that the proposed provision 

be modified (and our Part C regulations 

modified as well) to allow for 

exceptions, especially with regard to 

SNPs. 

Response: We have consistently 

interpreted the Part C regulation to limit 

novations in situations involving the 

sale of less than an entity’s entire MA 

line of business. Also, SNP plans do not 

present unique circumstances that 

would require an exception to our 

proposed policy change. If a SNP plan 

can no longer serve its enrollees, there 

is existing regulatory authority pursuant 

to which the failing SNP can non-renew 

or terminate its Medicare contract. CMS 

can then exercise its regulatory 

authority related to plan enrollment to 

ensure that affected beneficiaries either 

elect or are assigned to an appropriate 

new plan. 

Comment: Several commenters 

supported this change to the regulation, 

and agreed with the underlying 

reasoning used by CMS to make this 

change and become more prescriptive in 

this area. 

Response: We appreciate these 

comments. 

Comment: A few commenters stated 

that CMS should allow novations of one 

contract, where a selling sponsor holds 

multiple contracts, because otherwise 

PDP sponsors will have to resort to 

holding PDP contracts under different 

legal entity names in order to avoid 

having to novate all contracts as 

required under the proposed 

requirement, or terminating a contract, 

which would result in beneficiary 

disruption. 

Response: A sponsor is already 

afforded ample opportunity to leave a 

particular Medicare market through the 

contract non-renewal process. That 

process does not require that a sponsor 

non-renew all of its contracts, so there 

is no need for organizations to hold 

contracts through multiple legal entities. 

The beneficiary disruption in this 

instance would be no more than that 

already contemplated by the Congress 

and CMS when it adopted and 

implemented a program which featured 


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the right of beneficiaries to elect their 

own health and drug plan coverage. 

Therefore, we believe that limiting 

novation to the entire line of PDP 

business is the best interest of the Part 

D program. 

Comment: One commenter asked 

CMS to clarify that the proposed change 

would not prevent a sponsor from 

novating its Part D contract in 

connection with sale of an MA–PD Plan 

while retaining the entity’s stand-alone 

Part D Plan contract or vice versa. 

Response: We agree that in the 

scenario described by the commenter, 

the organization would be permitted to 

retain a stand-alone PDP sponsor 

contract after it had transferred 

ownership of all of its Medicare 

Advantage contracts, including those 

through which it had been offering Part 

D benefits. We believe that the 

regulation makes this point clear on its 

face as the language specifically 

mentions only PDP contracts. 

Comment: One commenter 

encouraged CMS to reconsider its 

proposed position that a Part D contract 

can only be novated when the ‘‘entire 

line of business’’ is involved. The 

commenter stated that there are 

important differences between Part C 

and Part D contracting including the 

notion that Part D contracts are national 

in scope and Part C contracts generally 

conform to State boundaries. The 

commenter stated that the suggested 

alignment between Part C and Part D 

contract novation policy as discussed in 

the preamble is not true when the 

practical impact of that policy is 

considered. 

Response: The commenter has not 

made clear, and we are unable to 

determine on its own, how the stated 

difference between Part C and D service 

areas affects the novation policy we 

adopt in this regulation. Therefore, we 

retain our belief that a change to the 

regulation to limit PDP novations to the 

entire line of business is in the best 

interest of the Part D program. 

13. Cost Contract Program Revisions: 

Appeals and Marketing Requirements 

(§ 417.428, § 417.494, § 417.500, and 

§ 417.640) 

Under the authority in section 

1876(i)(3)(D) of the Act to impose ‘‘other 

terms and conditions’’ under contracts 

authorized by the statute that the 

Secretary finds ‘‘necessary and 

appropriate,’’ and in implementation of 

the requirements in section 1876 of the 

Act set forth below, we proposed in our 

October 22, 2009 proposed rule to apply 

the following MA program requirements 

to cost contracts authorized under 

section 1876 of the Act: 

• The MA program requirements on 

appeals processes for contract 

determinations and intermediate 

sanctions under the authority in section 

1876(i)(1) of the Act to terminate or nonrenew contracts, and the authority in 

section 1876(i)(6) of the Act to impose 

intermediate sanctions and CMPs (To 

the extent that the CMPs in section 

1876(i)(6)(B) and (C) of the Act differ 

from those under Part C, the penalty 

amounts under section 1876 of the Act 

would continue to control); and 

• The MA program’s marketing 

requirements under the authority in 

section 1876(c)(3)(C) of the Act to 

regulate marketing of plans authorized 

under section 1876 of the Act and 

ensure that marketing material is not 

misleading. 

The specific revisions we proposed 

are summarized below. 

a. Cost Contract Determinations 

(§ 417.492 and 417.494), Civil Money 

Penalties (§ 417.500), and Intermediate 

Sanctions (§ 417.500) 

We proposed requiring cost contracts 

to follow the contract determination 

appeal procedures under Subpart N of 

Part 422. We proposed codifying these 

requirements in § 417.492(b)(2), 

concerning notice of appeal rights, and 

§ 417.494, concerning notice of 

termination. 

We proposed revising § 417.500 to 

require cost contracts authorized under 

section 1876 of the Act to follow the MA 

programs requirements for appeals of 

CMPs at Subpart T of Part 422. The 

appeals process for CMPs specified at 

Subpart T allows for a hearing by an 

Administrative Law Judge (ALJ) and a 

review of the ALJ’s decision by the 

Departmental Appeals Board. We 

proposed, in new paragraph (c), to 

specify that the amount of CMPs a cost 

contract may be assessed is governed by 

section 1876(i)(6)(B) of the Act, not by 

the provisions in part 422 of the MA 

program regulations. 

Our proposed revisions to the cost 

contracts regulations authorized under 

section 1876 of the Act would ensure 

that these contracts follow the same 

requirements for intermediate sanctions 

appeals specified in § 422.750 through 

§ 422.764 of the MA program 

regulations (subpart O). These sections 

concern— 

• Types of intermediate sanctions and 

CMPs (§ 422.750); 

• Bases for intermediate sanctions 

and CMPs (§ 422.752); 

• Procedures for imposing 

intermediate sanctions and CMPs 

(§ 422.656) 

• Collection of CMPs (§ 422.758); 

• Settlement of penalties (§ 422.762); 

and 

• Other applicable provisions 

(§ 422.764). 

With respect to determinations of the 

amount of CMPs, the provisions in 

section 1876(i)(6)(B) and (C) of the Act 

would govern such amounts. 

We are adopting our proposed 

changes to § 417.472, § 417.492, 

§ 417.494, § 417.500, § 417.640, 

§ 417.640, § 417.642 through § 417.694, 

and § 417.840 without further 

modification in this final rule. 

Comment: Two organizations 

expressed concerns about extending the 

MA requirements for appeals of contract 

determinations to cost contract plans. 

Both commenters point to differences in 

cost contract plans and MA plans as 

their basis for seeking revisions to our 

proposals. 

One commenter suggested that CMS’ 

approach of cross referencing the MA 

appeals provisions in the cost plan 

requirements is unworkable for three 

reasons: (1) There are provisions of Part 

422, Subpart N, that would not apply to 

Medicare cost plans, for example, 

organizations may not submit an 

application to obtain a new section 1876 

contract; (2) there are termination/nonrenewal provisions under part 417 that 

are not addressed under Part 422, for 

example, the obligation to non-renew a 

portion or all of the service area under 

the so called two-plan competition test 

at § 417.402(c); and (3) simply 

indicating that part 422 references 

should be read as Part 417 references 

does not provide the reader with 

guidance regarding the applicable 

provisions. This commenter asserts that, 

without specific cross references, the 

reader is left to guess which sections of 

part 417 would substitute for the 

sections of part 422 cited in part 422 

subpart N and that, in some cases, there 

are no directly analogous provisions 

under part 417. Thus, it is unclear in 

this commenter’s view whether CMS 

intended to create a new requirement 

for cost plans in a specific provision, or 

whether the provision does not apply. 

The commenter recommends that CMS 

not simply cross reference subpart N, 

part 422, in part 417 but revise the 

language in part 417 to incorporate 

structure that is similar to the part 422 

rules for terminations, but includes 

relevant part 417 cross references and is 

modified to appropriately apply to 

Medicare cost plans. 

The second commenter also believed 

that CMS’ proposed approach would not 

provide sufficient clarity to cost 

contracts regarding the requirements 

that apply to them. For example, there 

are provisions of part 422, subpart N 


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that would not apply to cost contracts, 

and there are termination/non-renewal 

provisions under part 417 that are not 

addressed under part 422. Accordingly, 

the commenter recommended that CMS 

revise the language in part 417 to 

incorporate a structure that is similar to 

the part 422 rules and is modified to 

appropriately apply to Medicare cost 

plans. 

Response: We agree with the 

commenters that there are differences 

between cost plan and MA plan 

procedures in this area but believe that 

the differences are minimal with respect 

to the application of the MA provisions 

concerning appeals of contract 

determinations. We stated clearly in the 

preamble of the proposed rule that the 

part 422 regulations concerning appeals 

of non-renewals, terminations, and 

imposition of intermediate sanctions 

and CMPs would apply to cost 

contracts. Therefore, we believe there 

should be no ambiguity in this regard. 

In other words, if there is no ‘‘analogous 

provision’’ under part 417, as one of the 

commenters wrote, cost plans would 

follow the part 422 requirements. 

Concerning the possibility of confusion 

resulting from different CMPs for cost 

plans and MA plans, we did 

acknowledge in the proposed rule, in 

both the preamble and regulations text 

at § 417.500(c), that CMPs for cost plans 

would be assessed according to the 

statutory requirements at section 

1876(i)(6)(B) of the Act. We do not agree 

with the commenter that additional 

regulations for part 417 are necessary to 

capture this distinction. 

With respect to the other 

discrepancies that the commenter 

asserts make incorporation of the part 

422 regulations ‘‘unworkable,’’ we do 

not believe that there should be any 

confusion about appeal of contract 

determinations as a result of cost plan 

competition requirements. The 

application of such requirements is 

statutory, and non-renewal of a cost 

plan based on the statutory requirement 

is not appealable. We note that the 

current regulations for Part 417 do not 

indicate that such a decision may be 

appealed. Concerning the commenter’s 

other example of an allegedly 

unworkable discrepancy, the fact that 

there may be no new cost plans and 

thus no new applications, we note that 

the part 422 contract determinations 

include not only decisions on new 

applications, but determinations 

concerning non-renewals and 

terminations, and thus have relevance to 

cost contracts. The part 417 regulations 

are clear that there may be no new cost 

plans, as is CMS guidance, and we do 

not believe that the part 422 contract 

determination provisions would lead 

anyone to believe otherwise. 

Finally, we believe it is most efficient 

to cross-reference the part 422 

regulations as specified in the proposed 

rule and are, therefore, adopting the 

language in that rule. 

b. Extending MA Marketing 

Requirements to Cost Program Plans 

(§ 417.428) 

As noted above, based on the 

authority in section 1876(c)(i)(C) to 

regulate marketing and the authority in 

section 1876(i)(3)(D) to specify new 

section 1876 contract terms, we 

proposed to amend § 417.428, which 

governs 1876 cost contract program 

marketing requirements, to require cost 

contract plans to follow the MA 

marketing requirements in § 422.2260 et 

seq. (Subpart V). 

We proposed that cost contracts 

authorized under section 1876 of the 

Act follow the same standards, with 

respect to definitions concerning 

marketing materials, as MAOs under 

§ 422.2260, including how marketing 

materials are defined. We also proposed 

that the part 417 marketing regulations 

be revised to provide that, consistent 

with the requirements regarding review 

and distribution of marketing materials 

at § 422.2262, cost contractors 

authorized under section 1876 of the 

Act submit all such marketing materials 

to CMS at least 45 days before the date 

planned for distribution (10 days if 

plans use CMS model language, without 

any modifications), and that file and use 

materials, as designated by CMS under 

the MA marketing regulations, may be 

released 5 days following their 

submission to CMS. 

We proposed to apply the same 

standards with regard to CMS review of 

marketing materials to cost contract 

plans as currently applied to MAOs at 

§ 422.2264. Cost contractors authorized 

under section 1876 of the Act would be 

required to comply with MA regulations 

that specify the information that cost 

contract plans must include in 

marketing materials, and specify that 

the cost contract plan must notify the 

general public concerning the plan’s 

enrollment period. Under section 

1876(i)(3)(D) of the Act, we also 

proposed that, in markets with a 

significant non-English speaking 

population, cost contract plans be 

required to provide materials in the 

language of these individuals. 

We proposed to specify that if we 

have not disapproved the distribution of 

marketing materials or forms submitted 

by a cost contract plan in an area, we 

are deemed not to have disapproved the 

distribution in all other areas covered by 

the cost contract plan and cost contract 

except with regard to any portion of the 

material or form that is specific to the 

particular area, as provided under 

§ 422.2266. 

We proposed to extend to cost 

contract plans the following provisions 

at § 422.2268— 

• Plans may not offer gifts to potential 

enrollees, unless the gifts are of nominal 

value (as defined in the CMS Medicare 

Marketing Guidelines), are offered to all 

potential employees without regard to 

whether or not the beneficiary enrolls, 

and are not in the form of cash or other 

monetary rebates; 

• Plans may not market any health 

care-related product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment; 

• Plans may not market additional 

health-related lines of plan business not 

identified prior to an in-home 

appointment without a separate 

appointment that may not be scheduled 

until 48 hours after the initial 

appointment; 

• Plans may not use a plan name that 

does not include the plan type. The plan 

type should be included at the end of 

the plan name; 

We proposed to extend to cost 

contract plans authorized under section 

1876 of the Act the following 

requirements for MAOs under 

§ 422.2272: 

• Demonstrate to CMS’ satisfaction 

that marketing resources are allocated to 

marketing to the disabled Medicare 

population as well as beneficiaries age 

65 and over. 

• Establish and maintain a system for 

confirming that enrolled beneficiaries 

have, in fact, enrolled in the plan, and 

understand the rules applicable under 

the plan. 

• Employ as marketing 

representatives only individuals who 

are licensed by the State to conduct 

marketing activities (as defined in the 

CMS Medicare Marketing Guidelines) in 

that State, and whom the cost program 

has informed that State it has appointed, 

consistent with the appointment process 

provided for under State law. 

We proposed applying the MA limits 

on independent agent and broker 

compensation at § 422.2274 to 1876 cost 

contract plans. As with MA plans, 

compensation would be based on a 6- 

year compensation cycle. Agents and 

brokers would receive initial 

compensation (first year of the cycle) 

with compensation over each of the 

successive 5 years to be no more and no 

less than 50 percent of the initial 

aggregate compensation paid for the 


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enrollment. If an enrollee moves to plan 

type distinct from the one in which he 

or she is currently enrolled, the agent/ 

broker would receive an initial 

commission and the cycle would begin 

anew. Distinct plan types include MA, 

MA–PD, PDP, and cost contract plans 

authorized under section 1876 of the 

Act. 

We are adopting our proposed 

changes to § 417.428 without further 

modification in this final rule. 

Comment: All commenters support 

applying the MA marketing 

requirements to cost contract plans. A 

few of these commenters note, however, 

that CMS is not applying one of the 

marketing sections (§ 422.2276) which 

exempts from the prior review and 

approval requirements marketing 

materials designed for members of an 

employer group. While one of the 

commenters on the employer group 

requirement notes that cost contracts are 

not eligible to offer 800-series plans for 

their medical benefits, the commenter 

notes that cost contracts have always 

been permitted to negotiate with 

employers to offer additional benefits to 

their employer group members. The 

commenter believes there is no statutory 

or policy reason for treating cost 

contracts differently than MA plans 

with respect to marketing materials 

furnished for employer groups and asks 

that all MA marketing provisions, 

including § 422.2276, apply to cost 

plans. Another commenter believed that 

while it makes sense, in general, to 

apply the MA marketing requirements 

to cost contract plans, there are several 

differences between MA and cost 

contract plans, and that these should be 

reflected in updated Medicare 

Marketing Guidelines. 

Response: In order to permit employer 

group health plans to tailor plans best 

suited to their enrollees and to 

communicate such information to 

enrollees, we have permitted waivers of 

the requirement that MA-eligible 

individuals in an MA plan service area 

be eligible to enroll in the plan in order 

to permit an MA plan to be composed 

solely of members of an employer group 

plan (an ‘‘800 series plan’’). Because 

non-employer group members are not 

eligible to enroll in such plans, and the 

employer generally provides 

information to group members, we have 

waived certain requirements, such as 

the prior review and approval 

requirement for marketing standards for 

800 series plans based on the statutory 

authority to permit such waivers at 

1857(i)(1) of the Social Security Act. 

There is no such general waiver 

authority with respect to other MA 

plans or cost plans that would permit 

such plans to limit enrollment to a 

particular group, or to waive statutory 

marketing requirements, and CMS thus 

would not have the authority to exempt 

cost plans from such marketing 

requirements. We are, therefore, 

adopting the language from the 

proposed rule. Concerning the 

suggestion that CMS update the 

Medicare Marketing Guidelines to 

reflect any difference between cost 

plans and MA plans, we are unsure to 

which specific provisions, if any, the 

commenter is referring but in revising 

the guidelines, will point out any 

necessary distinctions between MA and 

cost plan procedures and policies. 

Comment: One commenter 

recommends that CMS amend the cost 

plan enrollment regulations to allow 

beneficiaries the option of electronic 

enrollment into cost plans in the same 

manner as MA organizations. 

Response: This comment is outside 

the scope of this rulemaking, and 

therefore, is not addressed in this final 

rule. 

14. Out of Scope Comments 

Comment: A number of commenters 

asked CMS to revise § 423.562(a)(3) to 

eliminate the option of posting Form 

CMS–10147 Medicare Prescription Drug 

Coverage and Your Rights, also known 

as the Pharmacy Notice, in network 

pharmacies. The notice instructs 

enrollees to contact their plan sponsors 

to request coverage determinations or 

exceptions when they disagree with the 

information provided at the pharmacy 

counter. The commenters recommended 

requiring plan sponsors to arrange with 

network pharmacies to give enrollees 

copies of the Pharmacy Notice 

whenever prescription drugs are not 

covered or are covered but subject to 

utilization requirements that cannot be 

resolved at the point-of-sale, or if an 

enrollee pays out-of-pocket for 

prescription drugs for either of these 

reasons. 

Response: The commenters’ 

suggestion is outside the scope of the 

proposed rule. However, we agree that 

receiving a written copy of the 

Pharmacy Notice in any of the situations 

described by the commenters is more 

beneficial for an enrollee than being 

referred to a copy of the notice posted 

in the pharmacy. We will consider this 

suggestion for future rulemaking. 

Comment: A number of commenters 

asked CMS to allow an enrollee to send 

an appeal request to the Part D 

Independent Review Entity (IRE) when 

a coverage determination or 

redetermination decision is not received 

timely. The commenters also asked CMS 

to closely monitor plan compliance to 

determine if coverage determination and 

redetermination requests are timely 

forwarded when appropriate, and 

impose sanctions on plan sponsors that 

are not meeting these requirements. 

Response: The commenters’ 

suggestion is outside the scope of the 

proposed rule. However, we want to 

note our disagreement with the 

commenter’s proposal to allow enrollees 

to request appeals when plan sponsors 

fail to make timely decisions. We 

currently require plan sponsors to 

automatically forward redetermination 

requests that are not timely decided to 

the Part D Independent Review Entity 

for review once the decision-making 

timeframe has expired, and we have 

processes in place to monitor and plan 

performance in this area and impose 

sanctions when necessary. Furthermore, 

the Part D IRE currently tracks the 

volume of cases that are automatically 

forwarded from plan sponsors. The 

current auto-forwarding rate of 30 

percent is not insignificant, so it appears 

that plans are appropriately autoforwarding cases when they miss the 

decision-making timeframes. 

Comment: Numerous commenters 

asked CMS to allow public access to the 

prescription drug compendia used to 

determine if a drug may be approved 

under the Part D exceptions process. 

Response: The commenters’ 

suggestion is outside the scope of the 

proposed rule. We note that any private 

or public entity may obtain access to the 

prescription drug compendia by 

contracting with the publishers. 

Comment: A commenter, in response 

to the revisions proposed to § 423.590, 

requested clarification that the Part D 

Independent Review Entity is 

responsible for completing expedited 

reconsideration reviews. 

Response: We did not propose to 

revise any of the regulatory provisions 

pertaining to the Part D reconsideration 

process, which is conducted by the Part 

D Independent Review Entity for both 

expedited and standard appeals. 

However, we did propose to revise the 

Part D expedited redetermination 

process conducted by the Part D plan 

sponsor. In the related preamble 

discussion, we referenced the expedited 

reconsideration process conducted by 

MA organizations under § 422.590 to 

illustrate a discrepancy between that 

process and the expedited 

redetermination process conducted by 

Part D plan sponsors under § 423.590. 

We believe the reference to the MA 

expedited reconsideration process may 

have confused the commenter, and 

given the impression that we were 

proposing changes to the Part D 


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reconsideration process when we were 

not. 

H. Changes To Implement Corrections 

and Other Technical Changes 

In this section, we address six 

technical changes to the regulations 

proposed in our October 22, 2009 

proposed rule outlined in the Table 

below. 

TABLE 8—CHANGES TO IMPLEMENT CORRECTIONS AND OTHER TECHNICAL CHANGES

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Applications of Subpart M to Health Care 

Prepayment Plans.

Subpart M .................. § 417.840 ................... N/A ............................. N/A. 

Generic Notice Requirements ........................ Subpart M .................. § 422.622 ...................

§ 422.626 ...................

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

Revision to Definition of Gross Covered Prescription Drug Costs.N/A ............................. N/A ............................. Subpart G .................. § 423.308. 

Application Evaluation Procedures ................ Subpart K ................... § 422.502(c) through 

(d).

Subpart K ................... § 423.503(c) through 

(d)). 

Intermediate Sanctions .................................. Subpart O .................. § 422.750(a) ............... Subpart O .................. § 423.750(a). 

Basis for Imposing Intermediate Sanctions 

and Civil Money Penalties.

Subpart O .................. § 422.752 ................... Subpart O .................. § 423.752. 

1. Application of Subpart M to Health 

Care Prepayment Plans (§ 417.840) 

In the October 22, 2009 proposed rule, 

we proposed a technical correction to 

the regulations governing Health Care 

Prepayment Plans (HCPP) intended to 

ensure that HCPP enrollees have access 

to fast-track appeals for comprehensive 

outpatient rehabilitation facility (CORF) 

services furnished by an HCPP. As we 

explained in the preamble to the 

October 22, 2009 proposed rule and in 

the January 28, 2005 MA final rule, we 

required cost plans (HMOs), including 

HCPPs, that are established under 

section 1876 of the Act (Part E) and 

regulated under part 417, to follow the 

MA appeals requirements in subpart M 

of part 422. In applying the MA appeals 

procedures to HCPPs by regulation, we 

adapted and implemented the section 

1869 appeal rights that apply to Original 

Medicare beneficiaries to the 

circumstances of beneficiaries enrolled 

in an HCPP. Because HCPPs only 

provide Part B services, in our January 

28, 2005 final rule (70 FR 4194), we 

explicitly limited the application of 

subpart M, for the HCPPs, to those 

provisions affecting Part B services 

delivered to HCPP enrollees, and 

intended to encompass all Part B 

services. However, in doing so, we 

inadvertently failed to include the fasttrack appeal rights regarding Part B 

services provided by a CORF. In a 

proposed revision to § 417.840, we 

proposed to correct this oversight, and 

ensure that HCPP enrollees have access 

to fast-track appeals for CORF services 

furnished by an HCPP. This revision 

would also ensure that HCPP enrollees 

received the fast track appeal rights 

provided for under section 1869 of the 

Act with respect to such services (which 

parallel those available to section 1876 

cost enrollees and Part C enrollees). 

We received only one comment on 

this clarification, and the commenter 

supported our proposed technical 

revision. Accordingly, we are revising 

§ 417.840 as set forth in the proposed 

rule without change. 

2. Generic Notice Delivery 

Requirements (§ 422.622 and § 422.626) 

In the October 22, 2009 proposed rule 

(74 FR 54700), we proposed to make 

technical revisions to § 422.622 and 

§ 422.626 to ensure that the MA 

regulations accurately state when plans 

and providers are responsible for 

delivering certain notices to enrollees. 

Section 422.622 currently states that 

when a QIO determines that an enrollee 

may remain in an inpatient setting, the 

MA organization must again provide the 

enrollee with a copy of the Important 

Message from Medicare (IM) when the 

enrollee no longer requires inpatient 

hospital care. However, our intent was 

to make delivery of the IM the hospital’s 

responsibility, and the form instructions 

for the IM state this. Similarly, § 422.626 

of subpart M inadvertently states that 

delivery of the Notice of Medicare NonCoverage (NOMNC) is the MA 

organization’s responsibility. Again, 

consistent with the form instructions for 

the NOMNC, our intent was to make 

delivery of the notice the provider’s 

responsibility. To address these 

technical errors, we proposed replacing 

‘‘MA organization’’ with ‘‘hospital’’ in 

§ 422.622, and ‘‘provider’’ in § 422.626. 

The only comment we received 

regarding these provisions was 

supportive of the proposed technical 

revisions. Thus, we are making these 

revisions as set forth in the proposed 

rule without change. 

3. Revision to Definition of Gross 

Covered Prescription Drug Costs 

(§ 423.308) 

In the October 22, 2009 proposed rule, 

we proposed to revise the definition of 

‘‘gross covered prescription drug costs’’ 

in § 423.308 to correctly reference both 

‘‘negotiated prices’’ paid to network 

pharmacies and ‘‘usual and customary 

prices’’ paid to out-of-network 

pharmacies. Specifically, we proposed 

to replace the term ‘‘negotiated price’’ 

with the term ‘‘actual cost,’’ which is 

defined at § 423.100 as ‘‘the negotiated 

price for a covered Part D drug when the 

drug is purchased at a network 

pharmacy, and the usual and customary 

price when a beneficiary purchases the 

drug at an out of network pharmacy 

consistent with § 423.124(a).’’ With this 

correction, the definition of ‘‘gross 

covered prescription drug costs’’ would 

include ‘‘the share of actual costs (as 

defined by § 423.100 of this part) 

actually paid by the Part D plan that is 

received as reimbursement by the 

pharmacy or other dispensing entity.’’ 

As we noted in the preamble to the 

October 22, 2009 proposed rule,, the 

January 12, 2009 final rule (74 FR 1494) 

included revisions to the definition of 

‘‘gross covered prescription drug costs’’ 

in the Part D regulations at § 423.308. In 

amending § 423.308 in that final rule, 

we made a technical error in the 

definition of ‘‘gross covered prescription 

drug costs’’ (74 FR 1545) by referencing 

‘‘negotiated price’’ as the prices made 

available to Part D beneficiaries at 

network pharmacies, and not also 

referencing ‘‘usual and customary 

prices,’’ the prices for drugs purchased 

at out-of-network pharmacies. When we 

revised the definition of ‘‘gross covered 

prescription drug costs’’ in that final 


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rule, our intent was to clarify that Part 

D sponsors must use the amount 

received by the dispensing pharmacy or 

other dispensing provider as the basis 

for determining the drug costs that must 

be reported to us. The use of the term 

‘‘negotiated prices’’ as defined at 

§ 423.100 (74 FR 1544) in the definition 

of ‘‘gross covered prescription drug 

costs’’ clarifies this requirement with 

regards to covered Part D drugs 

purchased at network pharmacies. 

However, by not also referencing ‘‘usual 

and customary prices’’ for covered Part 

D drugs purchased at out-of-network 

pharmacies, we inadvertently omitted 

from the definition of ‘‘gross covered 

prescription drug costs’’ the share of 

drug costs actually paid by Part D 

sponsors to out-of-network pharmacies. 

Since section 1860D–15(b)(3) of the Act 

defines ‘‘gross covered prescription drug 

costs’’ as ‘‘the costs incurred under the 

[Part D] plan, not including 

administrative costs, but including costs 

directly related to the dispensing of 

covered part D drugs * * *,’’ these costs 

must include costs incurred for covered 

Part D drugs at out-of-network 

pharmacies, as well as costs incurred at 

network pharmacies. Therefore, we 

needed to revise the definition of ‘‘gross 

covered prescription drug costs’’ to 

correctly reference both ‘‘negotiated 

prices’’ paid to network pharmacies and 

‘‘usual and customary prices’’ paid to 

out-of-network pharmacies. We received 

two comments, both of which supported 

the proposed revision to the definition 

of ‘‘gross covered prescription drug 

costs.’’ The commenters agreed with our 

proposed correction to add a reference 

to ‘‘usual and customary prices’’ paid to 

out-of-network pharmacies in the 

definition of ‘‘gross covered prescription 

drug costs.’’ Therefore, we are adopting 

this revision to the definition of ‘‘gross 

covered prescription drug costs’’ in 

§ 423.308 as proposed. 

4. Application Evaluation Procedures 

(§ 422.502(c) and (d) and § 423.503(c) 

and (d)) 

In the October 22, 2009 proposed rule, 

we proposed two amendments to 

regulations governing the application 

evaluation procedures at § 422.502(c) 

and (d), and § 423.503(c) and (d). In 

addition, at § 422.502(c)(3)(iii) and 

§ 423.503(c)(3)(iii) we proposed to make 

a technical correction and delete the 

language ‘‘right to reconsideration’’ and 

replace it with ‘‘right to request a 

hearing’’. 

As we noted in the preamble to the 

proposed rule, currently, 

§ 422.502(c)(3)(iii) and 

§ 423.503(c)(3)(iii) state that if we deny 

the application, CMS gives written 

notice to the contract applicant 

indicating the applicant’s right to 

request reconsideration. In our 

December 5, 2007 final rule, we 

modified the appeal rights for initial 

applications and eliminated the 

reconsideration process. However, in 

the final regulations we did not update 

§ 422.502(c)(3)(iii) and 

§ 423.503(c)(3)(iii) to state that the 

applicant has a right to request a hearing 

and as a result the existing regulations 

incorrectly provide for a right to 

reconsideration. 

In the October 22, 2009 proposed rule, 

we also proposed to delete § 422.502(d) 

and § 423.503(d). Sections 422.502(d) 

and 423.503(d) currently provide that 

we have the ability to oversee the 

sponsoring organization’s continued 

compliance with our requirements and 

that if the sponsoring organization no 

longer meets those requirements, we 

will terminate the contract in 

accordance with § 422.510 and 

§ 423.509. We noted that this regulation 

is not an appropriate regulation for a 

section dedicated to the evaluation and 

determination procedures for approving 

or denying a contract application. 

We received no comments on these 

provisions. Accordingly, we are 

adopting these provisions as proposed. 

5. Intermediate Sanctions (§ 422.750(a) 

and § 423.750(a)) 

In the October 2009 proposed rule (74 

FR 203), we made three technical 

changes to each intermediate sanction 

regulation at § 422.750 (a) and 

§ 423.750(a) to more accurately reflect 

the statute. First, we changed 

§ 422.750(a)(1) and § 423.750(a)(1), 

which stated that we may impose a 

suspension of enrollment of Medicare 

beneficiaries. This regulation did not 

adequately reflect the statutory language 

which specifies that the enrollment 

suspension applies to the ‘‘sponsoring 

organization’s enrollment of Medicare 

beneficiaries. 

We also changed the language of 

§ 422.750(a)(2) and § 423.750(a)(2), 

which stated that we may impose a 

suspension of payment to the 

sponsoring organization for Medicare 

beneficiaries who are enrolled in the 

MA plan. This language does not 

conform to the statutory language, 

which states that suspension of payment 

may be imposed for Medicare 

beneficiaries enrolled after the date we 

notify the organization of the imposition 

of an intermediate sanction. 

We also proposed to change 

§ 422.750(a)(3) and § 423.750(a)(3), 

which stated we may suspend all 

marketing activities to Medicare 

beneficiaries by a sponsoring 

organization for specified MA or Part D 

‘‘plans.’’ We deleted the words ‘‘for 

specified’’ MA or Part D ‘‘plans’’ because 

those did not conform to the statutory 

language that applies intermediate 

sanctions at the organization level. 

We received no comments on these 

provisions. Accordingly, we are 

adopting these provisions as proposed. 

6. Basis for Imposing Intermediate 

Sanctions and Civil Money Penalties 

(§ 422.752 and § 423.752) 

In the October 22, 2009 proposed rule, 

we proposed conforming changes to our 

regulation at § 422.752(a)(1), (3), and (4) 

and § 423.752(a)(1), (3), and (4) to more 

accurately reflect statutory language and 

to ensure accuracy, consistency, and 

uniformity. Specifically, we proposed to 

amend § 422.752(a)(1) and 

§ 423.752(a)(1) to conform with 

statutory language and state that we may 

impose an intermediate sanction if the 

sponsoring organization fails 

substantially to provide medically 

necessary items and services that are 

required (under law or under the 

contract) to be provided to an individual 

covered under the contract, if the failure 

has adversely affected (or has 

substantial likelihood of adversely 

affecting) the individual. 

We also proposed to amend 

§ 422.752(a)(3) and § 423.752(a)(3) to 

conform with statutory language and 

stated that we may impose an 

intermediate sanction if the sponsoring 

organization ‘‘acts’’ to expel or refuses to 

re-enroll a beneficiary in violation of the 

provisions of this part. 

Additionally, we proposed to amend 

§ 422.752(a)(4) and § 423.752(a)(4) to 

conform with the statutory language and 

state that we may impose an 

intermediate sanction if the sponsoring 

organization engages in any practice 

that would reasonably be expected to 

have the effect of denying or 

discouraging enrollment (except as 

permitted by this part) by eligible 

individuals with the organization whose 

medical condition or history indicates a 

need for substantial future medical 

services. 

As we noted in the proposed rule, 

sections 1857(g) and 1860D–12 of the 

Act provide a list of the bases for 

intermediate sanctions and civil money 

penalties. Existing regulations at 

§ 422.752(a) and § 423.752(a) provide a 

similar list of bases for intermediate 

sanctions and civil money penalties. 

However, the language provided in 

§ 422.752(a)(1), (3), and (4) and 

§ 423.752(a)(1), (3), and (4) does not 

adequately conform to the statutory 

language in section 1857(g)(1)(A), (C), 

and (D) of the Act, respectively. 


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First, § 422.752(a)(1) states that we 

may impose an intermediate sanction if 

the sponsoring organization fails 

substantially to provide, to a sponsoring 

organization enrollee, medically 

necessary services that the organization 

is required to provide (under law or 

under the contract) to a sponsoring 

organization enrollee, and that failure 

adversely affects (or is substantially 

likely to adversely affect) the enrollee. 

This language is slightly different than 

the language provided in the statute at 

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

Second, § 422.752(a)(3) and 

§ 423.752(a)(3) states that we may 

impose an intermediate sanction if the 

sponsoring organization expels or 

refuses to reenroll a beneficiary in 

violation of the provisions of this part. 

This language does not include the 

word ‘‘acts’’ to expel which is mentioned 

in the statute at section 1857(g)(1)(C) of 

the Act. 

Third, § 422.752(a)(4) and 

§ 423.752(a)(4) states that we may 

impose an intermediate sanction if the 

sponsoring organization engages in any 

practice that could reasonably be 

expected to have the effect of denying 

or discouraging enrollment of 

individuals whose medical condition or 

history indicates a need for substantial 

future medical services. This language 

does not match the exact language 

contained in section 1857(g)(1)(D) of the 

Act. 

Finally, we made conforming changes 

to § 422.752(c) and § 423.752(c). 

Currently § 422.752(c)(1) and 

§ 423.752(c)(1) state that we may impose 

civil money penalties for any of the 

determinations at § 422.510(a) and 

§ 423.509(a), except § 422.510(a)(4) and 

§ 423.509(a)(4). Also, § 422.752(c)(2)(ii) 

and § 423.752(c)(2)(ii) state that OIG 

may impose civil money penalties for a 

determination made pursuant to 

§ 422.510(a)(4) and § 423.509(a)(4). 

Since we are proposing elsewhere in 

these proposed regulations to 

redesignate § 422.510(a)(4) and 

§ 423.509(a)(4) to § 422.510(a)(2)(iii) and 

§ 423.509(a)(2)(iii), we need to conform 

§ 422.752 and § 423.752 to these 

changes. Therefore, for regulations 

§ 422.752(c)(1), § 422.752(c)(2)(ii), 

§ 423.752(c)(1), and § 423.752(c)(2)(ii) 

we are deleting the reference to 

§ 422.510(a)(4) and § 422.509(a)(4) and 

replace with a reference to 

§ 422.510(a)(2)(iii) and 

§ 423.509(a)(2)(iii). 

We received no comments on these 

provisions. Accordingly, we are 

adopting these provisions as proposed. 

III. Provisions of the Final Rule 

Except as otherwise noted below, this 

final rule adopts the provisions of the 

proposed rule. The provisions of this 

final rule that differ from the proposed 

rule are as follows: 

• Changes to Strengthen Our Ability 

to Distinguish for Approval Stronger 

Applicants for Part C and D Program 

Participation and to Remove 

Consistently Poor Performers. 

• Notice of Intent to Apply. We 

modified § 422.503(b)(2) and 

§ 423.502(b)(2) to clearly indicate that 

the decision not to submit an 

application after submission of a notice 

of intent will not result in any 

compliance consequences. 

• Compliance Programs under Parts C 

and D— 

++ We made changes made to 

§ 422.502(b)(4)(vi)(B) and 

§ 423.504(b)(4)(vi)(B) to provide that the 

compliance officer must be an employee 

of the sponsoring organization, parent 

organization or corporate affiliate and 

clarify that they may not be an 

employee of a first tier, downstream or 

related entity of the sponsoring 

organization and must be accountable to 

the governing board of the sponsoring 

organization. 

++ At § 423.504(b)(4)(vi)(C)(3), we 

adopt a new regulation for the Part D 

program to specify that first tier, 

downstream, and related entities have 

met the fraud, waste, and abuse 

certification requirements through 

enrollment into the Medicare program 

and accreditation as a Durable Medical 

Equipment, Prosthetics, Orthotics, and 

Supplies (DMEPOS) supplier are 

deemed to have met the training and 

educational requirements for fraud, 

waste, and abuse. 

• Termination of Contracts under 

Parts C and D. We did not finalize the 

modifications to § 422.510(a)(2)(i), 

§ 423.509(a)(2)(i) (failure to comply with 

regulatory requirements), 

§ 422.510(a)(2)(ii) and § 423.509(a)(2)(ii) 

(failure to comply with performance 

standards). 

• Maximum Allowable Out-of-Pocket 

Cost Amount for Medicare Parts A and 

B Services. At § 422.100(f)(4) with one 

modification regarding its applicability 

to all MA plans. 

• Transition Process Under Part D 

(§ 423.120(b)(3)). At § 423.120(b)(3), we 

are modifying proposed paragraph (iii) 

to clarify that transition notices must be 

sent to beneficiaries within 3 business 

days of adjudication of a temporary fill. 

• Beneficiary Communications 

Materials Under Parts C and D 

++ Revised paragraph 

§ 422.2260(5)(vii) to retain materials 

about membership activities (for 

example, materials on rules involving 

non-payment of premiums, 

confirmation of enrollment or 

disenrollment, or annual notification 

materials) in the definition of marketing 

materials. 

++ Added a new paragraph 

§ 422.2260(6) to specifically exclude 

from the definition of marketing ad hoc 

customized or situational enrollee 

communications from the definition of 

marketing materials. 

• Use of Standardized Technology 

under Part D. At § 423.120, we clarify 

that the effective date for the 

requirement for a unique RxBIN or 

RxBIN/RxPCN combination and a 

unique Part D Rx identifier for each 

individual Part D member will be 

January 1, 2012. 

• Notice of Alternative Medicare 

Plans Available to Replace 

Nonrenewing Plans Under Parts C and 

D. 

• Revised § 422.506 and § 423.507 to 

require that both Part C and Part D 

organizations inform beneficiaries of 

both MA and PDP available options. 

• Made minor technical changes to 

§ 422.254(a)(4), § 423.265(b)(2), 

§ 422.256(b)(4)(i) and § 423(b)(3)(i). 

• RADV Appeals Processes. 

++ In § 422.2 we are— 

— Removing the definition of 

documentation dispute process; and 

— Adding the definition of initial 

validation contractor (IVC). 

++ In § 422.311 we are revising the 

audit dispute and appeals processes. 

• Changes to Improve Data Collection 

for Oversight and Quality Assessment 

++ At § 480.140(g), we clarify that 

QIOs must disclose quality review study 

information collected by the QIOs as 

part of the RHQDAPU program, as 

defined in section 1886(b)(3)(B) of the 

Act, to CMS. 

++ We also modify § 422.153 to 

indicate that we will acquire quality 

review study information from QIOs as 

defined in part 475. 

• CAHPS Survey Administration 

Under Parts C and D. At § 417.492 and 

§ 422.152, we clarify that all cost 

contracts under section 1876 of the Act 

with 600 or more enrollees in July of the 

prior year, must contract with approved 

Medicare Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS) survey vendors to conduct the 

Medicare CAHPS satisfaction survey of 

Medicare plan enrollees in accordance 

with CMS specifications and submit the 

survey data to CMS. 

• Protected Classes of Concern under 

Part D. We are not finalizing our 

proposed revisions to § 423.120(b)(2)(v). 

• Pro-rating the Plan Deductible for 

Part C MSA Enrollments Occurring 


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During an Initial Coverage Election 

Period. We are modifying § 422.103(d) 

in this final rule to allow beneficiaries 

who enroll in a MSA plan mid-year to 

also pay a pro-rated deductible. 

Medication Therapy Management 

Programs Under Part D—At 

§ 423.153(d)(2)(iii), we adopt the 

establishment of a specific threshold of 

$3,000 for MTM eligibility, instead of 

relying on the ICL as the proposed target 

for MTM eligibility. 

• Standard Timeframe and Notice 

Requirements for Coverage 

Determinations Under Part D. We add 

paragraph (a)(3) to § 423.568, which will 

require plan sponsors to establish and 

maintain a method of documenting all 

oral requests and maintaining the 

documentation in the case file. 

• Novations. We amended § 423.551 

to provide clarity to sponsors regarding 

the circumstances under which a PDP 

novation would be approved by CMS, 

noting that they do not apply to changes 

of ownership between subsidiaries of 

the same parent organization. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The following sections of this 

document contain paperwork burden 

but not all of them are subject to the 

information collection requirements 

(ICRs) under the PRA for reasons noted. 

A. ICRs Regarding Basic Contract 

Requirements (§ 417.472) 

Proposed § 417.472(i) states that HMO 

or CMP must comply with the 

requirements at § 422.152(b)(5). 

Proposed § 417.472 states that all 

coordinated care contracts (including 

local and regional PPOs and contracts 

with exclusively SNP benefit packages, 

cost contracts under section 1876 of the 

Act, private fee-for-service contracts, 

and MSA contracts with 600 or more 

enrollees in July of the prior year) must 

contract with approved Medicare 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

vendors to conduct the Medicare 

CAHPS satisfaction survey of MA plan 

enrollees in accordance with CMS 

specifications and submit the survey 

data to CMS. The burden associated 

with the requirement in § 417.472(i) and 

(j) is detailed in our discussion of 

§ 422.152. 

B. ICRs Regarding Apportionment and 

Allocation of Administrative and 

General Costs (§ 417.564) 

We are not imposing any new 

reporting requirements. We are simply 

clarifying what costs an HCPP may 

report in its cost report as 

administrative costs for reimbursement 

from the government. We do not believe 

that our proposal will result in 

additional burden on cost plans; 

therefore, we have not incorporated a 

burden increase in the PRA section. 

C. ICRs Regarding Medicare Secondary 

Payer (MSP) Procedure (§ 422.108 and 

§ 423.462) 

Section 422.108(b)(3) proposes that 

MA organizations must coordinate 

benefits to Medicare enrollees with the 

benefits of the primary payers, 

including reporting, on an ongoing 

basis, information obtained in 

accordance with requirements in 

paragraphs (b)(1) and (b)(2) of this 

section in accordance with CMS 

instructions. Similarly, § 423.462 

proposed that Part D plan sponsors must 

report creditable new or changed 

primary payer information to the CMS 

COB Contractor in accordance with the 

processes and timeframes specified by 

CMS. In the proposed rule, we 

estimated the burden associated with 

this requirement to be the time and 

effort necessary to report the specified 

information to CMS on an ongoing 

basis. We estimated that 624 MA 

organizations and 456 Part D plan 

sponsors would need to comply with 

these requirements, a total of 1,080 

entities. We also estimated that, on 

average, each entity would produce one 

report thereby yielding a total of 1,080 

reports annually for involved entities. 

We estimated that it would take each 

entity an average of 2,885 hours to 

report the required information to CMS. 

The estimated annual burden associated 

with these requirements was 3,115,800 

hours, and the cost associated with 

meeting these requirements was $77.9 

million. 

We have now determined that the 

information collection burden imposed 

by § 422.108 and § 423.462 is generally 

part of the information being captured 

in CMS–10265—Mandatory Insurer 

Reporting information collection request 

(ICR). The OMB control number (OCN) 

is 0938–1074. Therefore, no new ICR is 

required. 

The collection approved under OCN 

0938–1074 takes care of virtually all of 

an MAO’s MSP reporting 

responsibilities; the MAO is now 

reporting on their own primary, 

commercial insurance coverage. The 

small number of cases where an MAO 

will need to report either a new primary 

carrier or the termination of such 

coverage, that is not captured by OCN 

0938–1074 is covered by existing 

authority under OCN 0938–0753. Under 

our previous Part C coordination of 

benefits policy, we required MAOs to 

survey members annually and to report 

results to CMS. 

The reporting burden under our 

previous Part C coordination of benefits 

policy was to report both survey nonresponders (approximately 10 percent of 

enrollees) and those who reported that 

they had other third party health 

insurance coverage (less than 2 percent). 

MAOs were not required to report to us 

on members that responded to the 

survey and said that they did not have 

other third party health insurance 

coverage—over 85 percent. Under the 

new system MAOs will only have to 

report to CMS those for whom MSP 

status changes from what is showing on 

the current COB file. We estimate this 

will be less than 1 percent. The burden 

of reporting is less now than it was 

before the change, but the actual 

reporting process is new. The new 

reporting process is slightly more 

burdensome than the old process and 

we believe the overall burden will be 

similar to what it was before this 

change. 

D. ICRs Regarding Disclosure 

Requirements (§ 422.111) 

Proposed § 422.111 states that we may 

require an MA organization to disclose 

to its enrollees or potential enrollees, 

the MA organization’s performance and 

contract compliance deficiencies in a 

manner specified by CMS. 

Our intent is to invoke this disclosure 

authority when we become aware that 

an MA organization has serious 

compliance and performance 

deficiencies such as those that may lead 

to an intermediate sanction or require 

immediate correction and where we 

believe beneficiaries should be 

specifically notified. The primary 

purpose of this requirement is to 


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promote transparency and informed 

choice especially in those situations 

where we believe beneficiaries need or 

should have access to this information. 

The burden associated with this 

requirement would be the time and 

effort necessary for the MA organization 

to make the aforementioned disclosures. 

We have not developed a burden 

estimate for this requirement because 

we do not believe that we will exceed 

the PRA threshold of 10 organizations 

per any 12 month period. We have 

based this assumption on past 

experience. For example, while this 

requirement does not just apply to those 

organizations who have been 

sanctioned, in 2009, CMS imposed 

intermediate sanctions on a total of 4 

sponsoring organizations (which is the 

highest number of intermediate 

sanctions imposed in any year or 12 

month period from 2006 through 2009) 

and, it is important to note, that not all 

of the organizations sanctioned in 2009 

were required to make such a 

disclosure. Additional organizations 

(not under sanction) experience 

compliance deficiencies, however we 

intend to utilize this disclosure 

requirement in instances where we 

become aware of serious deficiencies 

which may lead to the imposition of 

intermediate sanctions and/or require 

immediate correction. For any of these 

instances, we will then evaluate and 

determine whether it is appropriate that 

beneficiaries be specifically notified of 

the underlying deficiencies to achieve 

our stated goals of promoting 

transparency and/or informed choice. 

Therefore, we do not believe that we 

will impose the disclosure requirement 

on 10 or more sponsoring organizations 

within any 12-month period which 

would not require the development of a 

burden estimate. 

E. ICRs Regarding Quality Improvement 

Program (§ 422.152) 

Section 422.152(b)(3)(ii) states that 

MA coordinated care plans must collect, 

analyze and report quality performance 

data indentified by CMS that are of the 

same type as those specified under 

paragraph (b)(3)(i) of this section. 

Section 422.152(e)(2)(ii) states that MA 

organizations offering an MA regional 

plan or local PPO plan must collect, 

analyze and report quality performance 

data identified by CMS that are of the 

same type as those described under 

§ 422.152(e)(2)(i). The burden associated 

with these requirements is the time and 

effort necessary for an MA coordinated 

care plan to collect, analyze and report 

quality performance data to CMS. In the 

proposed rule, we estimated that it 

would require 1,000 hours per MA 

coordinated care plan to comply with 

these requirements. There are 624 MA 

coordinated care plans. The estimated 

annual burden associated with these 

requirements was 624,000 hours. The 

estimated annual cost associated with 

these requirements was $36.9 million. 

The new quality measures will be 

identified during CY 2011 at which time 

it will go through the PRA review and 

approval process. CMS has begun 

drafting the PRA package for the new 

quality measures. However, the PRA 

package cannot be completed until the 

measures have been developed. 

Section 422.152(b)(5) requires that all 

coordinated care contracts (including 

local and regional PPOs and contracts 

with exclusively SNP benefit packages, 

cost contracts under section 1876 of the 

Act in Section 417.472, private fee-forservice contracts, and PDPs under 

Section 423.156 with 600 or more 

enrollees in July of the prior year) must 

contract with approved Medicare 

CAHPS survey vendors to conduct the 

Medicare CAHPS satisfaction survey of 

MA plan enrollees in accordance with 

CMS specifications, and submit the 

survey data to CMS. The burden 

associated with this requirement is the 

time and effort necessary to conduct the 

CAHPS survey and submit the 

corresponding data to CMS. The 

associated burden is currently approved 

under OMB control number 0938–0732. 

For the CAHPS requirements, the 

requirement will go into effect in 2011 

when the contracts select approved 

vendors to collect and submit CAHPS 

data on their behalf. The data collection 

begins in February 2011. We have 

revised the currently approved ICR to 

include the requirements contained in 

this section. The burden associated with 

these requirements is the time and effort 

necessary for an MA organization, 

Section 1876 Cost Plan, or PDP sponsor 

to collect, analyze and report quality 

performance data to CMS. We estimate 

that it will require 54 hours per MA 

organization or per PDP, to comply with 

these requirements. The 54 hours 

includes the time to select a CAHPS 

survey vendor and the survey 

administration time of the CAHPS 

survey vendor for which the MA or PDP 

contract pays. There are 624 contracts 

(both MA and PDPs). The estimated 

annual burden associated with these 

requirements is 54 × 624 = 33,696 hours 

for the affected contracts. 

F. ICRs Regarding Risk Adjustment Data 

Validation (RADV) Appeals (§ 422.311) 

We received comments from an MA 

organization disputing CMS’s burden 

estimate associated with RADV audit 

appeals. This organization contends that 

CMS has underestimated the amount of 

time, effort, and cost associated with 

complying with CMS’s RADV appeals 

processes, as proposed. 

While we acknowledge that there can 

be differences regarding the exact 

burden estimate CMS developed for 

RADV appeals, we continue to believe 

that the overall impact analysis we 

provided regarding RADV appealsrelated procedures is reasonable. To 

date MA organizations have not been 

afforded appeal rights under RADV 

audits and CMS has no historical data 

to verify what we believe is an 

inherently reasonable level of effort and 

associated burden-estimate. Also, since 

invoking an MA organization’s appeal 

rights is entirely voluntary on the part 

of MA organizations, we likewise have 

no altogether accurate way to estimate 

the level of activity that MA 

organizations will undertake in 

appealing eligible RADV-related audit 

provisions. Indeed, we think it is 

entirely possible that various MA 

organizations could take altogether 

different approaches in requesting an 

RADV appeal. For example—some 

organizations might employ internal 

resources to process an appeal request 

(for example, employ in-house medical 

record and legal staff) while other 

organizations could hire external 

medical record consultants and/or law 

firms to process their appeals requests. 

Given this uncertainty, CMS must rely 

upon what we believe are reasonable 

level of effort and burden-estimates, as 

described in our proposed rules and 

finalized here. 

In section § 422.311 of the proposed 

rules, CMS proposed a multi-step Risk 

Adjustment Data Validation (RADV) 

dispute and appeals process. One 

important change to the RADV dispute 

and appeal process that we have 

implemented pursuant to public 

comment is removal of the 

documentation dispute process 

described at § 422.311(c)(2)(ii) and 

development of a process that would 

allow MA organizations to appeal 

medical record review determinations 

that occur at the IVC level of medical 

record review. We describe this new 

process that we are implementing at 

§ 422.311(c) (2). In effect, the new 

medical record review appeal 

procedures provides MA organizations 

with two opportunities to appeal—first, 

to appeal RADV medical record review 

determinations and second, to appeal 

the RADV payment error calculations. 

It’s our belief that the level of effort 

necessary to process a request for 

documentation dispute will be roughly 

the same level of effort necessary to 

request Medical record review appeal 


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since both processes involve sending 

CMS medical record documentation to 

support identified RADV errors 

identified pursuant to CMS’s initial 

level of medical record review. 

However, the scope of the eligibility 

criteria for what CMS will allow MAOs 

to appeal under medical record review 

appeal could be broader when 

compared with what CMS would have 

allowed under the now removed 

documentation dispute process. We 

therefore have calculated a new burden 

estimate for medical record review 

appeal. 

Whereas under documentation 

dispute, RADV contract-level audit 

statistics indicated that approximately 

55 percent of RADV audit errors would 

have been of the type that could be 

eligible for documentation dispute, we 

estimate that fully 100 percent of RADV 

audit errors will be eligible for medical 

record review appeal. The historical 

contract-level RADV audit error rate to 

date is approximately 15 percent. 

Utilizing the statistics regarding the 

number of organizations that we expect 

to undergo RADV audit (70) annually, 

we estimate that 100 percent of these 

organizations will invoke their medical 

record review appeal rights and appeal 

their medical record review errors. On 

average, CMS audits approximately 200 

beneficiaries per contract; and each 

beneficiary selected for testing has 

approximately 2.5 Hierarchical 

Condition Categories (or HCCs, which 

are the base-level unit of analysis under 

RADV audits) equating to roughly 500 

HCCs tested per annual RADV contractlevel audit. Applying the 15 percent 

contract-level RADV audit error rate to 

the 500 tested HCCs renders an estimate 

of 75 HCCs (500 × .15) eligible for 

medical record review appeal per audit. 

This equates to approximately 5,250 

HCCs (70 audits × 75 HCCs/audit) that 

could be appealed annually under 

medical record review appeal. Each 

HCC that is appealed will require 

production of one medical record to 

overturn the RADV testing error. We 

continue to estimate that it will take 

approximately 1 hour to prepare the 

necessary documentation to dispute one 

HCC via medical record review appeal. 

This equates to 5,250 burden hours at 

approximately $59.20/hour (based on 

U.S. Dept. of Labor statistics for hourly 

wages for management analysts)—or, an 

annual dollar burden on the MA 

industry of $310,800. 

CMS also estimates that beyond 

product of medical records, MAOs 

pursuing medical record review appeal 

would incur legal costs in the 

preparation of the formal request for 

appeal. Again, we assume all MAOs will 

appeal their medical record review 

determinations found to be in error (70 

MAOs). We estimate 40 hours by an 

attorney costing $60 per hour (Bureau of 

Labor Statistics, 1/28/2010), and 20 

hours by a health care administrator 

costing $30 per hour (Bureau of Labor 

Statistics, 1/28/2010); for a total cost of 

$3,000 in labor costs per MAO per 

appeal. This equates to an additional 

aggregate annual dollar burden of 

$210,000 ($3000 × 70 audits).Total 

estimated aggregate annual dollar 

burden to the MA industry annually 

equals $520,800 ($310,800 for medical 

record preparation + $210,000 for legal 

preparation of appeal case). The total 

aggregated burden is 9,450 hours. 

G. ICRs Regarding Application 

Requirements (§ 422.501 and § 423.502) 

Section 422.501(b) and § 423.502(b) 

require that an organization submitting 

an application under this section for a 

particular contract year must first 

submit a completed Notice of Intent to 

Apply by the date established by CMS. 

We will not accept applications from 

organizations that do not submit a 

timely Notice of Intent to Apply. The 

purpose of these requirements is to 

facilitate CMS systems access earlier so 

that the contract number may be given 

out and applications may be submitted 

electronically. While the burden 

associated with the requirements 

contained in § 422.501(b) and 

§ 423.502(b), the Notice of Intent to 

Apply, are subject to the PRA, the 

burden associated with these 

requirements is already approved under 

the OMB control numbers for the Part C 

and Part D applications, 0938–0935 and 

0938–0936, respectively. 

Section 422.501(c) and § 423.502(c) 

propose to revise the current regulation, 

making clear the application standards 

for becoming an MA organization or 

Part D plan sponsor. Specifically, 

§ 422.501(c) and § 423.502(c) require 

that applicants complete all parts of a 

certified application. The burden 

associated with the aforementioned 

requirements is the time and effort 

necessary for an application to complete 

all parts of a certified Part C or Part D 

application. While the burden 

associated with the requirements 

contained in § 422.501(c) and 

§ 423.502(c) are subject to the PRA, the 

burden associated with these 

requirements is already approved under 

OMB control numbers for the Part C and 

Part D applications, 0938–0935 and 

0938–0936, respectively. 

H. ICRs Regarding General Provisions 

(§ 422.503 and § 423.504) 

Section 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi) propose to expand on 

the existing requirements by providing 

clarification and additional guidance 

with respect to the requirements for 

developing, implementing and 

maintaining effective compliance 

programs. The burden associated with 

this requirement is the time and effort 

put forth by the sponsoring organization 

to prepare a compliance plan that meets 

the requirements of this section. While 

these requirements are subject to the 

PRA, it is currently approved under 

OCN 0938–1000. 

I. ICRs Regarding Contract Provisions 

(§ 422.504 and 423.505) 

Section 422.504 and § 423.505 

explicitly state our existing authority to 

find sponsors out of compliance with 

either MA requirements, Part D 

requirements, or both when the 

sponsor’s performance represents an 

outlier relative to the performance of 

other sponsors. Specifically, 

§ 422.504(e)(2) and § 423.505(e)(2) state 

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 to our contract 

with the MA organization. These 

sections contain recordkeeping 

requirements. The burden associated 

with § 422.504(e)(2) and § 423.505(e)(2) 

is the time and effort necessary for MA 

organizations or Part D sponsors to 

maintain the information on file and 

make it available to CMS upon request. 

While these requirements are subject to 

the PRA, we believe the associated 

burden is exempt under 5 CFR 

1320.3(b)(2). 

J. ICRs Regarding Nonrenewal of 

Contract (§ 422.506 and § 423.507) 

Section 422.506 and § 423.507 contain 

notification requirements for MA 

organizations and Part D plan sponsors. 

Section 422.506(a)(2) and 

§ 423.507(a)(2) require that when an 

organization does not intend to renew 

its contract, it must notify each 

Medicare enrollee by mail at least 90 

calendar days before the date on which 

the nonrenewal is effective. An 

organization will also have to provide 

information about alternative 

enrollment options by complying with 

at least one of the requirements 

specified in § 422.506(a)(2)(ii) or 

§ 423.507(a)(2)(ii). In addition, 

§ 422.506(b)(2) and § 423.507(b)(2) state 


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that an organization must notify each 

Medicare enrollee by mail at least 90 

calendar days before the date on which 

the nonrenewal is effective, or at the 

conclusion of the appeals process. We 

believe that fewer than 10 contracts will 

be terminated on an annual basis, and 

therefore, these requirements are 

exempt from the PRA process. 

K. ICRs Regarding Request for Hearing 

(§ 422.662 and § 423.651) 

With respect to Medicare contract 

determinations and appeals, § 422.662 

and § 423.651 provide the methods and 

time period for when an MA 

organization or Part D plan sponsor may 

request a hearing after a contract 

determination or intermediate sanction 

has been imposed. The request for 

hearing must be submitted in writing 

and must be filed within 15 calendar 

days after the receipt of the notice of the 

contract determination or intermediate 

sanction. This is an existing regulation 

and in this rule we are only modifying 

the language ‘‘after receipt of the hearing 

decision’’ to conform to other 

regulations. Furthermore, we believe the 

associated burden is exempt from PRA 

under 5 CFR 1320.4. Information 

collected during the conduct of an 

administrative action or audit is not 

subject to the PRA. 

L. ICRs Regarding Time and Place of 

Hearing (§ 422.670 and § 423.655) 

Section 422.670 and § 423.655 state 

that CMS, an MA organization or a Part 

D plan sponsor may request an 

extension by filing a written request no 

later than 10 calendar days prior to the 

scheduled hearing. The burden 

associated with these requirements is 

the time and effort necessary for an MA 

organization or a Part D plan sponsor to 

submit a written extension request to 

the presiding hearing officer. 

Furthermore, we believe the associated 

burden is exempt from the PRA under 

5 CFR 1320.4. Information collected 

during the conduct of an administrative 

action is not subject to the PRA. 

M. ICRs Regarding Review by the 

Administrator (§ 422.692 and § 423.666) 

Section 422.692 and § 423.666 state 

that CMS, an MA organization or a PDP 

plan sponsor that has received a hearing 

decision may request a review by the 

Administrator within 15 calendar days 

after receipt of the hearing decision. The 

burden associated with these 

requirements is the time and effort 

necessary to submit a request for the 

Administrator to review a hearing 

decision. This is an existing regulation 

and in this rule we are only modifying 

the language ‘‘after receipt of the hearing 

decision’’ to conform to other 

regulations. Furthermore, we believe the 

associated burden is exempt from PRA 

under 5 CFR 1320.4. Information 

collected during the conduct of an 

administrative action or audit is not 

subject to the PRA. 

N. ICRs Regarding Procedures for 

Imposing Intermediate Sanctions and 

Civil Monetary Penalties (§ 422.756 and 

§ 423.756) 

Section 422.756 and § 423.756 state 

before CMS imposes intermediate 

sanctions, MA organizations and Part D 

plan sponsors may request a hearing 

before a CMS hearing officer. A written 

request must be received by the 

designated CMS office within 15 

calendar days after the receipt of the 

notice of sanction. The burden 

associated with these requirements is 

the time and effort necessary to draft 

and submit a hearing request to the 

designated CMS office. This is an 

existing regulation and we are only 

modifying the language ‘‘after receipt of 

the hearing decision’’ to conform to 

other regulations. Furthermore, we 

believe the associated burden is exempt 

from PRA under 5 CFR 1320.4. 

Information collected during the 

conduct of an administrative action or 

audit is not subject to the PRA. 

O. ICRs Regarding Disclosure 

Requirements (§ 423.128) 

Proposed § 423.128 states that we may 

require a Part D Plan Sponsor to 

disclose to its enrollees or potential 

enrollees, the Part D Plan Sponsor’s 

performance and contract compliance 

deficiencies in a manner specified by 

CMS. 

Our intent is to invoke this disclosure 

authority when we become aware that a 

Part D sponsor has serious compliance 

and performance deficiencies such as 

those that may lead to an intermediate 

sanction or require immediate 

correction and where we believe 

beneficiaries should be specifically 

notified. The primary purpose of this 

requirement is to promote transparency 

and informed choice especially in those 

situations where we believe 

beneficiaries need or should have access 

to this information. The burden 

associated with this requirement would 

be the time and effort necessary for the 

Part D sponsor to make the 

aforementioned disclosures. We have 

not developed a burden estimate for this 

requirement because we do not believe 

that we will exceed the PRA threshold 

of 10 organizations per any 12 month 

period. We have based this assumption 

on past experience. For example, while 

this requirement does not just apply to 

those organizations who have been 

sanctioned, in 2009, CMS imposed 

intermediate sanctions on a total of 4 

sponsoring organizations (which is the 

highest number of intermediate 

sanctions imposed in any year or 12 

month period from 2006 through 2009) 

and, it is important to note, that not all 

of the organizations sanctioned in 2009 

were required to make such a 

disclosure. Additional organizations 

(not under sanction) experience 

compliance deficiencies, however we 

intend to utilize this disclosure 

requirement in instances where we 

become aware of serious deficiencies 

which may lead to the imposition of 

intermediate sanctions and require 

immediate correction. For any of these 

instances, we will then evaluate and 

determine whether it is appropriate that 

beneficiaries be specifically notified of 

the underlying deficiencies to achieve 

our stated goals of promoting 

transparency and informed choice. 

Therefore, we do not believe that we 

will impose the disclosure requirement 

on 10 or more sponsoring organizations 

within any 12-month period which 

would not require the development of a 

burden estimate. 

P. ICRs Regarding Validation of Part C 

and Part D Reporting Requirements 

(§ 422.516 and § 423.514) 

In this final rule, we are amending 

§ 422.516 and § 423.514 to state that 

each Part C and Part D sponsor will be 

subject to an independent yearly audit 

of Part C and Part D measures (collected 

pursuant to our reporting requirements) 

to determine their reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. The burden 

associated with this provision is the 

time and effort of the MA organizations 

and Part D sponsors in procuring an 

auditor and in supporting the auditor as 

well as the time and effort of the auditor 

in conducting the yearly audit. 

In the proposed rule, we estimated the 

total burden hours related to the time 

and effort for all auditing organizations 

to perform the annual audit for both Part 

C and Part D data validation to be 

215,840. In addition, we estimated the 

total yearly burden for procuring and 

supporting the auditor would be 85,200 

hours (120 hours per sponsor × 710 

sponsors). Therefore, the total estimated 

burden was 301,040 hours. At that time, 

we assumed that the auditing 

organizations would audit all thirteen 

measures that comprised the Part C 

reporting requirements and all 21 

sections that comprised the Part D 

reporting requirements. For Part C, two 

of the original thirteen reporting 


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requirements were suspended—agent 

compensation structure and agent 

training and testing. Additionally, two 

of the remaining eleven Part C measures 

will not undergo the data validation— 

PFFS Plan enrollment Verification Calls 

and PFF Provider Payment Dispute 

Resolution Process. We estimate that 

Part C reductions alone will reduce the 

annual hourly burden for all auditing 

organizations to perform the annual 

audit by 66,412 hours (215,840 × 4/13). 

This reduction leads to an estimate of 

149,428 hours to perform the annual 

audit for Part C measures. The CY2010 

Part D Reporting Requirements PRA 

package approved by OMB in October 

2009 included burden estimates for data 

validation and auditing activities. The 

PRA package included the burden for 

plans to audit 17 of the 21 Part D 

reporting sections. This number has 

now been decreased because only 8 

reporting sections will be audited. The 

elimination of 9 reporting sections from 

the requirements for data validation and 

auditing for Part D will result in the 

following reduction in labor hours: 0.5 

hours × 9 sections × 715 plans = 3,218 

hours. 

The combined Part C and Part D 

reductions in data validation 

requirements from those in the 

proposed rule will result in 69,630 

fewer labor hours. The total estimated 

labor hours is therefore 301,040 ¥ 

69630 = 231,410. 

Q. ICRs Regarding Drug Utilization 

Management, Quality Assurance, and 

Medication Therapy Management 

Programs (MTMPs) (§ 423.153) 

The revisions to § 423.153 state that 

Part D plans must offer a minimum level 

of medication therapy management 

services for each beneficiary enrolled in 

the MTMP that includes, but is not 

limited to, annual comprehensive 

medication reviews with written 

summaries. The comprehensive medical 

review must include an interactive, 

person-to-person consultation 

performed by a pharmacist or other 

qualified provider unless the beneficiary 

is in a long-term care setting. 

Additionally, there must by quarterly 

targeted medication reviews with 

follow-up interventions when 

necessary. 

The burden associated with these 

requirements is the time and effort 

necessary for Part D sponsors (both MA– 

PDs and PDPs) to conduct the medical 

reviews with written summaries. We 

estimate that each medical review will 

take an average of 30 minutes to 

conduct. Similarly, we estimate that 

there will be 1,875,000 reviews 

conducted by 456 Part D sponsors on an 

annual basis. The total annual burden 

associated with this requirement is 

937,500 hours. 

R. ICRs Regarding Timeframes and 

Notice Requirements for Standard 

Coverage Determinations (§ 423.568) 

The Part D plan sponsor must, under 

paragraph (a)(3), establish and maintain 

a method of documenting all oral 

requests for standard coverage 

determinations and retain the 

documentation in the case file. 

The burden associated with this 

requirement is the time and effort 

necessary for Part D plan sponsors to 

maintain the required documentation 

outlined in this section. We estimate 

that, on an annual basis, 90 percent of 

all coverage determination requests will 

be standard requests, and three percent 

of those requests will not involve 

reimbursement issues. Of the estimated 

1,013,881 requests received annually, 

we estimate that approximately 90 

percent (912,493) will be made orally. 

We estimate that it will take a Part D 

plan sponsor 3 minutes to document 

and retain the required documentation 

in the case file. Thus, it will take each 

of the 456 Part D plan sponsors 100 

hours to maintain the required 

documentation on an annual basis, for 

a total annual burden of 45,625 hours. 

If a Part D plan sponsor makes a 

completely favorable standard decision 

under paragraph (d) of this section, it 

must give the enrollee written notice of 

the determination. Pursuant to 

paragraph (d) of this section, the initial 

notice of a favorable decision may be 

provided orally, so long as a written 

follow-up notice is sent within 3 

calendar days of the oral notification. 

The burden associated with the 

requirement in paragraph (d) is the time 

and effort necessary for a Part D plan 

sponsor to notify an enrollee (and the 

prescribing physician or other 

prescriber involved, as appropriate) in 

writing of a completely favorable 

standard decision for benefits. We 

estimate that each year, the 456 Part D 

plan sponsors will issue a total of 

approximately 760,411 written favorable 

standard notifications for benefits. We 

further estimate that it will take a Part 

D plan sponsor 30 minutes to distribute 

a single notice. The estimated annual 

burden associated with the requirement 

in § 423.568(d) is 380,206 hours. For 

§ 423.568, we will update 0938–0964 to 

include the burden estimates associated 

with this requirement. 

S. ICRs Regarding Timeframes and 

Notice Requirements for Expedited 

Coverage Determinations (§ 423.572) 

If a Part D plan sponsor makes a 

completely favorable expedited decision 

under paragraph (b) of this section, it 

must give the enrollee written notice of 

the determination. The initial notice 

may be provided orally, so long as a 

written follow-up notice is sent within 

3 calendar days of the oral notification. 

The burden associated with the 

requirements listed in § 423.572(b) is 

the time and effort necessary for a Part 

D plan sponsor to notify an enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate) in 

writing of completely favorable 

expedited decision. We estimate that the 

456 Part D plan sponsors will issue a 

combined 87,103 written favorable 

expedited notifications per year. We 

further estimate that it will take a Part 

D plan sponsor 30 minutes to distribute 

a single notice. The estimated annual 

burden associated with the requirement 

in § 423.572(b) is 43,552 hours. 

T. ICRs Regarding Access To Covered 

Part D Drugs (§ 423.120) 

Section 423.120(b)(3)(iv) requires 

sponsors to provide enrollees with 

appropriate notice regarding their 

transition process within three business 

days after providing a temporary supply 

of non-formulary Part D drugs 

(including Part D drugs that are on a 

sponsor’s formulary but require prior 

authorization or step therapy under a 

sponsor’s utilization management rules). 

The burden associated with this 

requirement is the time and effort 

necessary for a Part D plan sponsor to 

provide a notice to beneficiaries 

regarding the transition process. We 

estimate this will result in 1.35 million 

notices that would take an average of 15 

minutes to prepare. We then estimate 

the total burden to be 337,500 hours. 

Section 423.120(c)(4) requires Part D 

sponsors to contractually mandate that 

their network pharmacies submit claims 

electronically to the Part D sponsor or 

its intermediary on behalf of the 

beneficiary whenever feasible unless the 

enrollee expressly requests that a 

particular claim not be submitted to the 

Part D sponsor or its intermediary. 

Section 423.120(c)(4) requires the 

approximately 28 pharmacy claims 

processors currently responsible for the 

electronic adjudication of pharmacy 

benefits to change their RxBIN or RxBIN 

and RxPCN combination if such 

identifiers are not already unique to its 

Medicare line of business, and the Part 

D cardholder identification number if it 

is not already unique to each Medicare 


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Part D enrollee. We estimate the annual 

hourly burden to be 1,380 hours per 

processor to make the coding changes 

necessary to implement this 

requirement. We estimate the yearly 

burden to be 38,640 hours for CY 2010. 

This is a one time only burden for 

programming. The collection burden for 

these provisions will be reflected in a 

revised submission of the ICR approved 

under OMB control number 0938–0964. 

U. ICRs Regarding Timeframes and 

Responsibility for Making 

Redeterminations (§ 423.590) 

Section 423.590(d)(2) states that if a 

Part D plan sponsor first notifies an 

enrollee of an adverse or favorable 

expedited determination orally, it must 

mail written confirmation to the 

enrollee within 3 calendar days of the 

oral notification. The burden associated 

with this requirement is the time and 

effort necessary for a Part D plan 

sponsor to follow up an initial oral 

notification to an enrollee with a written 

notification. In the proposed rule, we 

estimated a burden. We subsequently 

discovered that appeals notices, 

including those for Part D, are exempt 

from PRA under 5 CFR 1320.4. We will 

update 0938–0964 to include the 

§ 423.590 exclusion language. 

Comment: A commenter questioned 

our evidence of costs or time that 

support CMS’ burden estimates and 

questioned the basis of the estimates. 

Response: We believe that we 

provided evidence for both the cost and 

time estimates in the COI and regulatory 

impact analysis sections of the October 

2009 proposed rule. The commenter did 

not provide any cost estimates that 

would call into question the validity of 

these estimates. 

V. Annual Information Collection 

Burden 

Table X shows our estimates of the 

annual reporting and recordkeeping 

burden based on the discussion detailed 

in sections III.A. through III.V. of this 

final rule. 


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TABLE 9—ESTIMATED

ANNUAL

REPORTING AND

RECORDKEEPING

BURDENS

Regulation section(s) OMB Control No. Respondents Responses Burden per response (hours) Total annual burden (hours) Hourly labor cost of reporting ($) Total labor cost of reporting ($ millions) Total capital/ maintenance costs ($ millions) Total cost ($ millions) 

§ 422.108 and § 423.462 ............................................................ 0938–1074 1,080 1,080 2,885 3,115,800 25.00 77.9 0.0 77.9 § 422.152(b)(3)(ii) and § 422.152(e)(2)(ii) .................................. 0938–New *624 624 1,000 624,000 59.13 36.9 0.0 36.9 § 422.152(b)(5) and § 423.156 ................................................... 0938–0732 624 624 54 33,969 91.26 3.1 0.0 3.1 § 422.311(c)(2) ........................................................................... 0938–New 9,450 9,450 1 9,450 52.91 .5 0.0 .5 § 422.516(g) and § 423.514(g) ................................................... 0938–New *710 710 327 .1 231,410 138.71 32.1 .1 32.2 § 423.120(b)(iv) ........................................................................... 0938–0964 710 1,350,000 0 .25 337,500 21.93 7.4 0.0 7.4 § 423.120(c)(3) ........................................................................... 0938–0964 28 28 1,380 38,640 25.88 1.0 4.8 5.8 § 423.153 .................................................................................... 0938–0964 *456 1,875,000 0 .5 937,500 120.00 112.5 0.0 112.5 § 423.568(a)(3) ........................................................................... 0938–0964 456 912,493 0 .05 45,625 39.45 1.8 0.0 1.8 § 423.568(b) ................................................................................ 0938–0964 456 760,411 0 .5 380,206 41.03 15.6 0.0 15.6 § 423.572(b) ................................................................................ 0938–0964 456 87,103 0 .5 43,550 41.33 1.8 0.0 1.8 

Total .................................................................................... .................. 12,348 4,997,523 .......................... 5,797,650 ........................ 290.6 4.9 295.5 

Note: Provisions regarding § 422.152(b)(5) and § 423.156 and § 422.516(g) and § 423.514(g) will not go into effect until contract year 2011. They are included here because they will be in effect for the period of 

2010–2015. Therefore, the totals in this table will not agree with the totals for CY 2010 in the RIA Table of costs (Table 10) in the section V.C of this final rule. 


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V. Regulatory Impact Analysis (RIA) 

A. Need for Regulatory Action 

This final rule makes revisions to the 

regulations governing the Medicare 

Advantage (MA) program (Part C) and 

prescription drug benefit program (Part 

D) based on our continued experience in 

the administration of the Part C and D 

programs. The revisions strengthen 

various program participation and exit 

requirements; strengthen beneficiary 

protections; ensure that plan offerings to 

beneficiaries include meaningful 

differences; improve plan payment rules 

and processes; improve data collection 

for oversight and quality assessment, 

implement new policy such as a Part D 

formulary policy, and clarify program 

policy. 

B. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), 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 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). 

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. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $7.0 million to $34.5 million in any 

1 year. Individuals and States are not 

included in the definition of a small 

entity. MA organizations and Part D 

sponsors, the only entities that will be 

affected by the provisions of this rule, 

are not generally considered small 

business entities. They must follow 

minimum enrollment requirements 

(5,000 in urban areas and 1,500 in nonurban areas) and because of the revenue 

from such enrollments, these entities are 

generally above the revenue threshold 

required for analysis under the RFA. 

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. We do not believe 

that this threshold would be reached by 

the requirements in this final rule 

because this 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 a regulatory 

impact analysis, if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 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 we believe and the 

Secretary has determined that this rule 

will not have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year by State, local or tribal 

governments, in the aggregate, or by the 

private sector of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently $135 

million. This final rule is expected to 

reach this spending threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule and subsequent final rule 

that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

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. 

We estimate this rule is ‘‘economically 

significant’’ as measured by the $100 

million threshold, and hence a major 

rule under the Congressional Review 

Act. Accordingly, we have prepared a 

Regulatory Impact Analysis. 

Because there are costs to plans and 

sponsors associated with several 

provisions of this rule, we indicate 

general areas affected and specify the 

associated costs. For specific burden 

associated with the requirements and 

the bases for our estimates, see section 

IV. of this final rule. 

C. Increase in Costs to MA 

Organizations and Part D Sponsors 

The provisions of this final rule 

would require MA organizations and 

Part D sponsors an estimated cost of 

approximately $260.3 million for CY 

2010. 

We believe the following 

requirements will result in costs to MA 

organizations and Part D sponsors 

between 2010 and 2015: Medicare 

Secondary Payer Procedures (§ 422.108), 

CAHPS Survey Costs for MAs and PDPs 

(§ 422.152(b)(5) and § 423.156), Quality 

Improvement program 

(§ 422.152(b)(3)(ii), § 422.152(e)(2)(ii)), 

and § 423.156,Validation of Reporting 

Requirements (§ 422.516 and § 423.514), 

Access to Covered Part D Drugs 

(§ 423.120(b)(iv)), Pharmacy Use of 

Standard Technology under Part D 

(§ 423.120(c)(3)), Drug Utilization 

Management, Quality Assurance, and 

Medication Therapy Management 

(§ 423.153), Documenting Oral Requests 

for Standard Coverage Determinations 

(§ 423.568(a)(3)), Timeframe and Notice 

Requirements for Standard Coverage 

Determinations (§ 423.568), and 

Timeframes and Notice Requirements 

for Expedited Coverage Determinations 

(§ 423.572(b)). It is true that all of the 

costs, besides those associated with 

MIPPA 176, are labor or capital, 

primarily labor. We expect that these 

costs will all be reflected in higher bid 

prices that will be federally-funded. 

Therefore, all the requirements, except 

MIPPA 176, will result in costs to MA 

organizations and Part D sponsors 

between CY 2010 and CY 2015. 

We believe that the regulatory 

provisions implementing the MIPPA 

176 provision will result in savings to 

the Medicare Program. 


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TABLE 10—ESTIMATED COSTS AND SAVINGS BY PROVISION FOR CYS 2010–2015 

[$ in millions] 

Provision(s) Regulation section(s) 

Calendar year Total 

(2010–2015) 2010 2011 2012 2013 2014 2015 

Medicare Secondary Payer Procedures.§ 422.108 and § 423.462 77.9 77.9 77.9 77.9 77.9 77.9 467.4 

Quality Improvement ............................ § 422.152(b)(3)(ii) and 

§ 422.152(e)(2)(ii).

36.9 36.9 36.9 36.9 36.9 36.9 221.4 

CAHPS Survey Costs for MAs and 

PDPs.

§ 422.152(b)(5) and 

§ 423.156.

0 3.1 3.1 3.1 3.1 3.1 15.5 

RADV ................................................... § 422.311 ........................ 0.5 0.5 0.5 0.5 0.5 0.5 3.0 

Data Validation ..................................... § 422.516 and § 423.514 0.1 32.1 32.1 32.1 32.1 32.1 160.6 

Transition Notification .......................... § 423.120(b)(iv) ............... 7.4 7.4 7.4 7.4 7.4 7.4 44.4 

Pharmacy Use of Standard Technology.§ 423.120(c)(3) ............... 5.8 0 0 0 0 0 5.8 

Drug Utilization Management .............. § 423.153 ........................ 112.5 112.5 112.5 112.5 112.5 112.5 675.0 

Documenting Oral Requests for Standard Coverage Determinations.§ 423.568(a)(3) ............... 1.8 1.8 1.8 1.8 1.8 1.8 10.8 

Standard Coverage Determinations 

Notification.

§ 423.568(b) .................... 15.6 15.6 15.6 15.6 15.6 15.6 93.6 

Expedited Coverage Determinations 

Notification.

§ 423.572 ........................ 1.8 1.8 1.8 1.8 1.8 1.8 10.8 

MIPPA 176 ........................................... ......................................... 0 ¥160 ¥340 ¥460 ¥520 ¥570 ¥2,050 

Total .............................................. ......................................... 260.30 129.60 ¥50.40 ¥170.40 ¥230.40 ¥280.40 ¥341.70 

D. Expected Benefits 

Beginning in CY 2013, we expect net 

savings due to the combined impact of 

these new final provisions. We expect 

that the net impact across the 6-year 

period from CY 2010 through CY 2015 

will be a cost of $308.3 million. 

Many of the new requirements 

involve clarifications of existing 

regulations and policies. As such, they 

should help plans to improve their 

administrative operational functions 

which will streamline the Medicare 

Advantage and Medicare Prescription 

Drug programs and strengthen 

beneficiary protections within these 

programs. Specifically, we believe that 

the requirements in this final rule will 

improve coordination of care, increase 

quality of data reporting, increase ability 

to comply with existing regulations and 

policies, enhance appeal and grievance 

procedures, and curtail illegal marketing 

practices. Additional benefits include 

clarification of timeframes and 

notification requirements. Some of the 

new requirements may lead to changes 

in health plan service areas. 

We anticipate that several of the 

requirements in this final rule will be 

beneficial to PBMs in administering the 

Part D benefit for Part D sponsors. 

Proposed codification of the transition 

process requirements and establishment 

of the protected classes will assist PBMs 

in applying the Part D requirements 

consistently across Part D plans and 

managing the Part D sponsor’s benefit 

packages more efficiently. Establishing 

cut-off limits for COB and requiring Part 

D sponsors to report other payer 

information in a timely fashion to CMS’ 

COB contractors will improve the 

administrative burden of the payment 

reconciliation process. The technical 

correction to the definition of ‘‘gross 

covered prescription drug costs’’ will 

also help PBMs calculate a beneficiary’s 

gross covered prescription drug costs. 

The original Medicare savings in 

2007, resulting from the Medicare 

Secondary Payer (MSP) Procedures were 

estimated at $6.5 billion. This included 

$2.9 billion recovered or avoided for 

working-aged individuals, $1.9 billion 

for working-disabled individuals, $877 

million for workers’ compensation, $278 

million for ESRD beneficiaries, and 

another $485 million recovered or 

avoided for liability and other insurers. 

In 2007, there were approximately 8.5 

million MA enrollees and 44 million 

total Medicare enrollees (an MA 

penetration rate of approximately 19 

percent). The $6.5 billion in MSP 

savings can be attributed to the 35.5 

million original Medicare enrollees and 

thus equates to approximately $183 per 

original Medicare enrollee. In 2009, MA 

penetration was higher consisting of 11 

million MA enrollees out of 

approximately 45 million total Medicare 

enrollees. This translates to an 

estimated 24 percent MA penetration. 

We assume a similar MSP take up rate 

for MA enrollees as that obtained in the 

original 2007 Medicare savings and 

therefore project a total MSP savings of 

approximately $2 billion by 2010. 

The estimated impact of MSP on 624 

MA organizations and 456 PDPs based 

on 3.1158 million burden hours at 

approximately $25 per hour (based on 

U.S. Department of Labor (DOL) 

statistics for the hourly wages of claims 

analysts of $22.20 per hour and for 

management analysts of $59.20/hour), is 

approximately $77.9 million. All labor 

rate calculations in the RIA are derived 

from the May 2008 wage statistics 

supplied by the Department of Labor 

(DOL), Bureau of Labor Statistics and 

include fringe benefits and overhead 

costs. We expect an MA organization to 

use approximately 1.5 FTEs to 

implement Part C MSP procedures 

related to avoiding costs, reporting data, 

and collecting from liable third parties 

related to MSP. We estimate the work 

mix to be completed to be 90 percent by 

the claims analyst and 10 percent by the 

management analyst. 

We note that MAOs expenses for 

processing claims related to MSP 

recoveries are considered part of their 

administrative overhead costs. MA 

organizations that faithfully pursue and 

recover from liable third parties will 

have lower medical expenses. Lower 

medical expenses make such plans more 

attractive to enrollees. The lower the 

medical expenses in an MA plan, the 

higher the potential rebate. The rebate is 

calculated as the difference between the 

cost of Medicare benefits and the 

benchmark for that plan. The 

benchmark is a fixed amount. Therefore, 

as the cost of Medicare benefits 

decreases with the benchmark 

remaining constant, the rebate amount 

increases. That is, as more MSP dollars 

are collected or avoided, medical 

expenses go down and rebates go up, 

allowing the sponsoring MA 

organization to offer potential enrollees 

additional non-Medicare benefits 

funded by rebate dollars. Such nonMedicare benefits include reductions in 

cost sharing. Since cost sharing is 


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generally expressed as a percentage of 

medical costs, it will be proportionally 

lower as overall medical costs go down, 

providing MA organizations offering 

such plans with an additional 

competitive edge. 

In sections 422.152(b)(3)(ii) and 

422.152(e)(2)(ii), we require MA 

organizations to collect, analyze, and 

report quality performance data 

identified by CMS that are of the same 

type of data that MA organizations are 

currently required to collect and report 

to CMS. The mean estimated burden per 

MA contract as indicated in section IV. 

E of this final rule is 1,000 hours. The 

estimated mean cost per hour for these 

MA contracts is $59.20. The mean cost 

per MA contract is $59,200. Since the 

number of MA contracts is estimated to 

be 624, the overall estimated cost across 

all contracts is $36.9 million (624 × 

$59,200). 

In § 422.311 we describe the Risk 

Adjustment Data Validation (RADV) 

dispute and appeals process that 

audited MAOs can voluntarily choose to 

participate in. In our proposed rule, we 

estimated that upwards of 100 MAOs 

would be selected for contract-level 

RADV audits annually. We now believe 

that a more accurate estimate of the 

number of MAOs that will be selected 

for contract-level RADV audits is 

between 60 and 80 MAOs. Here, we will 

assume that CMS selects 70 MAOs for 

contract-level RADV audit. On average, 

CMS audits approximately 200 

beneficiaries per contract; and each 

beneficiary selected for testing has 

approximately 2.5 Hierarchical 

Condition Categories (or HCCs, which 

are the base-level unit of analysis under 

RADV audits) equating to roughly 500 

HCCs tested per audit. To date, the 

average contract-level RADV error rate 

has been approximately 15 percent. 

Thus, we assume a total burden to 

audited MAOs of approximately 5,250 

HCCs ((500 × .15) 70) that will require 

validation medical records (each HCC is 

typically associated with one medical 

record.) 

We continue to estimate that it will 

take approximately 1 hour to prepare 

the necessary documentation to dispute 

one HCC via medical record review 

appeal. At a per plan-level estimate, this 

equates to $4,440 per medical record 

review appeal. Annualized across all 

audited MAOs, this in turn equates to 

5,250 burden hours at approximately 

$59.20/hour (based on U.S. Dept. of 

Labor statistics for hourly wages for 

management analysts)—or, an annual 

dollar burden on the MA industry of 

$310,800. 

We also estimate that beyond 

production of medical records, MAOs 

pursuing medical record review appeal 

would incur legal costs in the 

preparation of the formal request for 

appeal. Again, we assume that all MAO 

will appeal their medical record error 

determinations (70 organizations.) We 

estimate 40 hours by an attorney costing 

$60 per hour (Bureau of Labor Statistics, 

1/28/2010), and 20 hours by a health 

care administrator costing $30 per hour 

(Bureau of Labor Statistics, January 28, 

2010); for a total cost of $3,000 in labor 

costs per MAO per appeal. When 

annualized across all contract-specific 

RADV audits, this in turn equates to an 

additional aggregate annual dollar 

burden of $210,000 ($3000 × 70 audits). 

Total estimated aggregate annual dollar 

burden to the MA industry annually 

equals $520,800 ($310,00 for medical 

record preparation + $210,000 for legal 

preparation of appeal case). 

The validation of reporting 

requirements (§ 422.516 and § 423.514) 

focuses on how the sponsor collects, 

stores, and reports the new Part C and 

Part D data requirements. Standards and 

procedures will also focus on how 

sponsors compile data, and verify 

calculations, computer code, and 

algorithms. The estimated mean hourly 

burden per affected Part C and Part D 

sponsor to procure an auditing 

organization and to support the auditing 

organization in its data collection efforts 

including staff interviews is 120 hours, 

as indicated in section IV.O. of this final 

rule. We believe the auditor, who is 

hired by the plan, will typically have a 

team consisting of a management 

analyst, two senior auditors, a senior 

claims analyst, a senior statistician, an 

IT systems analyst, a computer 

programmer, and a word processor. We 

used May 2008 wage statistics supplied 

by the DOL, Bureau of Labor Statistics 

to develop estimates of direct wages. We 

also added fringe benefits, overhead 

costs, and general and administrative 

expenses using percentages that are 

consistent with CMS contracts. Based 

on our experience and discussions with 

program experts, we developed an 

estimate of the blended hourly burden. 

The estimated mean cost per hour for 

these sponsors is $43.14 (wages, fringe 

benefits, and overhead). The estimated 

mean number of hours per sponsor is 

120. Thus, the mean cost per sponsor to 

procure and support the auditor is 

$5,177 (1200 × $43.14). Furthermore, 

with the 710 estimated number of 

sponsors, the overall cost across all 

sponsors to complete the work involved 

in procuring and supporting the 

auditing contractors is $3.7 million (710 

× $5,177). The number of hours is 

85,200. 

The total estimated burden hours 

related to the time and effort for all 

auditing organizations to perform the 

annual audit for both Part C and Part D 

data validation is estimated to be 

146,210 hours. The mean cost per hour 

is estimated to be $194.21. Therefore, 

the estimated annual cost for auditing 

contracts involving all 710 sponsors is 

$28.4 million. The estimated total 

annual cost for auditing contracts and 

for the procurement and audit support 

time and effort of the sponsors is $32.1 

million ($28.4 million + $3.7 million). 

The total estimated burden hours, 

including the hours for sponsors to 

procure contractors, is 231,410. Lastly, 

there is a one-time cost to develop the 

software that will allow data entry into 

HPMS. This is a Federal cost estimated 

at $100,000 or $0.1 million for CY 2010. 

Beginning in 2011 MA organizations 

under § 422.152(b)(5), section 1876 Cost 

plans under § 417.472, and Part D 

sponsors under § 423.156 will begin 

paying for the data collection costs of 

the CAHPS annual survey. Data 

collection is to be performed by a 

contractor hired by the MAO, section 

1876 Cost plan or Part D sponsor. The 

mean estimated burden per contract, as 

indicated in section IV. of this final rule, 

is 54 hours. The 54 hours includes the 

time to select a vendor and the survey 

administration time of the survey 

vendor that the contract pays. The 

estimated cost per contract is $5,023. 

Beginning in 2011, the overall estimated 

annual cost across the 624 contracts is 

$3.1 million. 

Section 423.120(b)(iv) requires 

sponsors to provide enrollees with 

appropriate notice regarding their 

transition process within a reasonable 

amount of time after providing a 

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules). In section IV.S. of 

this final rule, we estimated that 1.35 

million notices would be required with 

an average preparation time of 15 

minutes. As a result, the estimated total 

burden is calculated at 337,500 hours. 

At an estimated $20.15 in hourly labor 

cost of reporting, the total cost is $6.8 

million (337,500 × $20.15). In addition, 

we estimated an additional cost of 

printing, supplies, and postage of $0.475 

per notice. This yields a cost of 

$641,250 for the 1.35 million notices. 

Therefore, the total cost for sponsors to 

provide enrollees with appropriate 

notice regarding their transition process 

within a reasonable amount of time after 

providing a temporary supply of 


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nonformulary Part D drugs is estimated 

at $7.4 million. 

As indicated in section IV.R of this 

final rule, developing 760,411 written 

notices outlining favorable standard 

coverage determinations (§ 423.568(d)) 

is estimated to result in an annual 

burden of 380,206 hours. At an 

estimated cost of $40.00 per hour, the 

total annual cost of this change is $15.2 

million. In addition, the aggregate cost 

of printing, supplies and postage 

associated for all the notices is 

$361,195. Therefore, the overall total 

cost for providing written notices of a 

favorable standard coverage 

determination (§ 423.568(d)) is 

estimated to be $15.56 million. 

Section § 423.120(c)(3) requires the 

approximately 28 pharmacy claims 

processors currently responsible for the 

electronic adjudication of pharmacy 

benefits to change their RxBIN or RxBIN 

and RxPCN combination if such 

identifiers are not already unique to its 

Medicare line of business, and the Part 

D cardholder identification number if it 

is not already unique to each Medicare 

Part D enrollee. We estimate the annual 

hourly burden to be 1,380 hours per 

processor to make the coding changes 

necessary to implement this 

requirement. The yearly burden is 

therefore estimated to be 38,640 hours 

for CY 2010 (1,380 × 28). This is a onetime burden for programming. At an 

average labor cost of $150.00 per hour, 

we estimate the overall cost in CY2010 

to be $5.8 million. 

The revisions to § 423.153 state that 

Part D plans must offer a minimum level 

of medication therapy management 

services for each beneficiary enrolled in 

the MTMP that includes but is not 

limited to annual comprehensive 

medication reviews with written 

summaries. The burden associated with 

this requirement was estimated at 

937,500 hours, as reflected in section 

IV.P of this final rule. At an estimated 

average hourly labor cost of $120.00, the 

total cost is $112.5 million for 2010 

(937,500 × $120.00). 

Establishing and maintaining a 

method of documenting all oral requests 

for standard coverage determinations 

and retaining the documentation in the 

case file (§ 423.568(a)(3)), are estimated 

to result in an annual burden of 45,625 

hours. At an estimated cost of $40.00 

per hour, the estimated total annual cost 

of this change is $1.8 million. 

As indicated in section IV.S of this 

final rule, developing 87,103 written 

notices for favorable expedited coverage 

determination (§ 423.572(b)) is 

estimated to result in an annual burden 

of 43,552 hours. At an estimated cost of 

$40.00 per hour, the total annual cost of 

this change is $1.74 million. In addition, 

the aggregate cost of printing, supplies 

and postage associated for all the 

notices is $41,374. Therefore, the overall 

total cost for providing written notices 

of an expedited coverage determination 

(§ 423.572(b)) is estimated to be $1.78 

million. 

Since issuance of the October 22, 

2009 proposed rule, PPACA was 

enacted. Accordingly, new section 

1860D–4(b)(3)(G) of the Act replaces 

section 176 of MIPPA. Section 1860D– 

4(b)(3)(G) of the Act requires a PDP 

sponsor to include ‘‘all’’ covered part D 

drugs—in the categories and classes 

identified by the Secretary as classes 

and categories of ‘‘clinical concern.’’ It 

requires the Secretary to establish 

criteria to determine, as appropriate, 

categories and classes of drugs of 

‘‘clinical concern.’’ It provides for an 

exceptions authority similar to the one 

included in section 176 of MIPPA. 

Section 3307 of PPACA further requires 

that until the Secretary establishes 

criteria to determine classes of ‘‘clinical 

concern,’’ the following categories and 

classes of drugs shall be identified and 

protected as classes of ‘‘clinical 

concern’’: anticonvulsants, 

antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and 

immunosuppressants for the treatment 

of transplant rejection. Consistent with 

this approach, we are removing from the 

regulatory text the criteria specified by 

section 176 of MIPPA for identifying 

classes and categories of drugs of 

‘‘clinical concern,’’ as well as the 

definitions used to interpret the MIPPA 

criteria. We are retaining the exceptions 

process in the regulatory text, as new 

section 1860D–4(b)(3)(G) of the Act 

retains the exceptions process 

established under section 176 of MIPPA. 

The estimated cost of implementing 

section 176 of MIPPA for FY 2010 

budget baseline projections was $4.9 

billion for FY 2010 through 2019. The 

removal of the section 176 MIPPA 

criteria eliminates the cost included in 

the baseline generating savings of $4.9 

billion for FYs 2010 through 2019. 

E. Anticipated Effects—Effects of 

Maximum Out-of-Pocket Cost (MOOP) 

Limit and Cost Sharing Thresholds 

We are finalizing our proposal to 

establish and require local MA plans to 

have a maximum out-of-pocket (MOOP) 

limit on members’ out-of-pocket cost 

sharing, the amount of which will be 

established annually by CMS. In 

addition, we are finalizing our proposal 

to require cost sharing thresholds for 

Parts A and B services, the amounts of 

which will be determined annually by 

CMS. These changes provide significant 

protection for MA enrollees from out of 

pocket costs and will lend greater 

predictability and transparency to 

benefit packages, so that beneficiaries 

will better understand and anticipate 

their out-of-pocket expenditures. 

However, we do not believe these 

changes will, by themselves, have a 

significant impact on plan participation 

or significantly increase plan premiums. 

We believe the impact on enrollee 

premiums will be limited for several 

reasons. First, we have made a 

voluntary MOOP available for the past 

years (2008, 2009, and 2010). For CY 

2010, the voluntary MOOP for all Parts 

and B services was set at $3,400. About 

40 percent of current MA plans have 

adopted the voluntary MOOP while 

remaining competitive (and enrolling 

approximately one-third of all MA 

enrollees), and they do not appear to 

have incurred significant costs in 

administering a MOOP limit. 

Second, as we described elsewhere in 

this preamble, it is our intention to set 

both the MOOP and Parts A and B cost 

sharing thresholds at levels that, while 

affording reasonable financial protection 

for those beneficiaries with high health 

care needs, do not result in significant 

new operating costs for MA plans or 

increased out-of-pocket costs for 

beneficiaries to the extent that MA plans 

pass along any increased costs to their 

enrollees in the form of premium 

increases. We will develop the MOOP 

and Parts A and B cost sharing 

thresholds using data provided by our 

Office of the Actuary (OACT) to ensure 

this result. In addition, given a 

competitive marketplace and Medicare 

beneficiaries’ sensitivity to premium 

amounts, we believe that MA plans may 

choose instead to modify their benefit 

packages to reduce costs elsewhere. 

Furthermore, we estimate that 

beneficiaries in plans that currently 

offer the CY 2010 voluntary MOOP limit 

of $3,400 (about 40 percent of MA 

plans) will experience no cost increases 

as a result of these provisions. In fact, 

to the extent they instead choose the 

higher, mandatory MOOP limit, we 

would expect a net decrease in costs. 

We estimate that the maximum impact 

of these requirements on beneficiary 

premiums for those plans that currently 

have no MOOP limit of any kind (31 

percent of all CY 2010 MA plans) would 

average $5. The average impact on 

premiums would be lower for plans that 

currently have a nonqualified MOOP— 

one with an amount higher than the 

voluntary MOOP limit of $3400 

established for CY 2010 and/or that does 

not include all Parts A and B services. 

Approximately 29 percent of all CY 

2010 plans had such a MOOP. However, 


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given competitive market pressures, we 

believe MA plans may instead choose to 

modify their benefit packages rather 

than increase premiums. 

Finally, we believe that the many 

advantages for beneficiaries as a result 

of the new MOOP and cost-sharing 

threshold requirements will outweigh 

any small premium increases that may 

result. All MA plan enrollees will be 

protected against high out of pocket 

costs, and will be better able to compare 

plans by focusing on differences in 

premium and plan quality. Furthermore, 

enrollee cost-sharing will be more 

predictable and transparent. As we have 

explained in the preamble of the final 

rule, our goal is to set cost-sharing limits 

at a level that should not result in 

significant new costs for MA plans or 

beneficiaries. 

F. Alternatives Considered 

1. Strengthening CMS’ Ability To Take 

Timely, Effective Contract 

Determinations or Intermediate 

Sanctions (Part C and D) 

We are finalizing our modifications to 

the regulations which more clearly and 

accurately reflect our existing statutory 

authority to terminate a contract. The 

existing enumerated list of 

determinations that are the basis to 

terminate a contract are not all 

inclusive. Initially it was our belief that 

continuing to add to the existing list 

may fail to stress to sponsoring 

organizations that failure to comply 

with all of our regulations and contract 

and performance requirements may be 

used to support a termination decision. 

After receiving numerous comments 

concerning this provision we have 

decided, however, not to remove the 

enumerated list and instead to add 

language to provide additional examples 

of determinations that could support a 

decision to terminate a contract. Also, 

we have revised the proposed regulatory 

language to clarify that the failure to 

comply with the regulatory 

requirements contained in parts 422 and 

423 or failure to meet our performance 

requirements, may constitute a basis for 

CMS to determine that the MA 

Organization or Part D sponsor meets 

the requirements for contract 

termination in accordance with the 

statutory standard. 

2. Changing the Standards of Review, 

Clarifying the Standard of Proof and 

Burden of Proof for Appeals, and 

Modifying the Conduct of Hearing for 

Contract Decisions (Including Denials of 

Initial Applications to Contract, Service 

Area Expansions for Existing Contracts, 

Contract Non-Renewals and 

Terminations, and Intermediate 

Sanctions) 

We are finalizing our change to the 

standards of review and clarification of 

the standard of proof when an appeal of 

a contract determination or intermediate 

sanction is requested and an evidentiary 

hearing is conducted. The existing 

standards of review require the Hearing 

Officer to determine whether the 

sponsoring organization can 

demonstrate ‘‘substantial compliance’’ 

with Part C and/or Part D requirements 

on the ‘‘earliest of’’ the following three 

dates: the date the organization received 

written notice of contract determination 

or intermediate sanction, the date of the 

most recent onsite audit, or the date of 

the alleged breach of current contract or 

past substantial noncompliance. In 

practice, these standards of review 

(‘‘substantial compliance’’ and ‘‘earliest 

of test’’) have led to confusion among 

parties to the hearing and have been 

difficult for the hearing officer to apply. 

Additionally, though the existing 

regulations explicitly state that the 

sponsoring organization bears the 

burden of proof, it does not provide the 

standard of proof that is to be applied 

by the Hearing Officer. Therefore, we 

have deleted the ‘‘substantial 

compliance’’ and ‘‘earliest of’’ test and 

revise the regulations to explicitly state 

the standard of proof and provide clear 

standards of review for each type of 

contract determination or intermediate 

sanction. 

First, we have explicitly stated that 

the hearing officer must apply the 

‘‘preponderance of the evidence’’ 

standard of proof when weighing the 

evidence at all hearings for contract 

determinations or intermediate 

sanctions. Second, we have clarified the 

standards of review, which vary 

according to the type of contract 

determination or intermediate sanction. 

In particular, the change makes the 

distinction between how the evidentiary 

standard of review is to be applied to 

appeals of CMS determinations 

involving Part C or D contract 

qualification applications, those 

involving the termination or nonrenewal of a Part C or D sponsor 

contract, and those involving the 

imposition of intermediate sanctions. 

Finally, we have clarified that because 

the sponsoring organization bears the 

burden of proof, under any briefing 

schedule determined by the hearing 

officer, it must first present evidence 

and argument to the hearing officer 

before we present our evidence and 

argument. We considered leaving the 

existing regulations unchanged, but 

ultimately rejected that option. 

3. Clarify That CMS May Require a ‘‘Test 

Period’’ During an Enrollment/ 

Marketing Sanction 

We are finalizing our proposal that in 

instances where an enrollment and/or 

marketing suspension has been 

imposed, we may determine that it is 

appropriate to subject the MA 

organization or Part D sponsor to a ‘‘test 

period’’ whereby the organization or 

sponsor will, for a limited time, engage 

in marketing activities and/or accept 

enrollments in order to assist us in 

making a determination as to whether 

the bases for the sanctions have been 

corrected and are not likely to recur. 

We considered leaving the existing 

regulations unchanged. However, we 

believe the requirements in this final 

rule will strengthen our ability to 

adequately assess compliance with our 

requirements. Also, it will help us avoid 

situations where we may lift a sanction 

based on inadequate testing of an 

organization’s systems/processes, only 

to find that the deficiencies have not 

been corrected, thereby requiring us to 

reinstate the sanction. 

4. Right for CMS To Require an 

Independent Audit of Sponsoring 

Organizations Under Intermediate 

Sanction 

We are finalizing language in the 

October 2009 proposed rule which 

states that CMS may require sponsoring 

organizations that are under 

intermediate sanctions to hire an 

independent auditor to evaluate 

whether the bases for a sanction have 

been corrected and are not likely to 

recur in order to assist CMS in its 

determination whether to lift the 

sanction. The purpose of this provision 

is to provide us with additional 

assurances, through a neutral third party 

evaluation, whether the sponsoring 

organization is in compliance with CMS 

requirements and the bases for the 

sanction have been corrected and are 

not likely to recur. 

Another option we considered was to 

not require sanctioned sponsoring 

organizations to hire an independent 

auditor but rather to allow sponsoring 

organizations the discretion to hire an 

independent auditor. We believe that 

this alternative proposal is not 

necessary to promulgate in regulation as 

sanctioned sponsoring organizations 


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already have the discretion to hire an 

independent auditor. 

We also considered leaving the 

regulations unchanged. However, given 

our experience with the nature and 

extent of some compliance deficiencies 

(for example, those caused by 

information technology issues or lack of 

adequate internal controls) and the need 

to obtain the level of skill and 

experience necessary to conduct an 

exhaustive evaluation of the correction 

of these deficiencies, we believe this 

additional assurance and access to 

expertise (such as a qualified 

independent auditor) is appropriate and 

will benefit both plan sponsors and 

CMS. 

5. The Ability for CMS To Require 

Sponsors To Disclose to Current and 

Potential Enrollees Compliance and 

Performance Deficiencies 

We are finalizing our proposal that we 

may require certain sponsoring 

organizations to disclose their current 

compliance and/or performance 

deficiencies to existing and potential 

enrollees. Our intent is to invoke this 

disclosure authority when we become 

aware that an MA organization has 

serious compliance and/or performance 

deficiencies such as those that may lead 

to an intermediate sanction or require 

immediate correction and where we 

believe beneficiaries should be 

specifically notified. The primary 

purpose of this requirement is to 

promote transparency and informed 

choice especially in those situations 

where we believe beneficiaries need or 

should have access to this information. 

An additional purpose is to provide 

appropriate incentives for sponsoring 

organizations to make improvements to 

their operations and also provide 

relevant information to beneficiaries 

and the public concerning plan choices. 

We considered not adding this 

disclosure authority to the existing 

regulations. However, we believe this 

change is necessary to provide us with 

another tool to strengthen our 

compliance and oversight authority and 

provide appropriate transparency 

concerning compliance and/or 

performance deficiencies to 

beneficiaries and the public. 

6. Reducing Duplicative and Low 

Enrollment Plans (Parts C and D) 

We are implementing regulations to 

reduce duplicative benefit packages 

based upon our authority to add such 

additional terms to our contracts with 

Medicare Advantage organizations or 

Part D plan sponsors as we ‘‘may find 

necessary and appropriate’’ as specified 

in section 1857(e)(1) of the Act (see also 

section 1860D–12(b)(3)(D) of the Act 

(incorporating section 1857(e)(1) of the 

Act by reference for Part D.)) In 

addition, we are using our authority 

under section 1860D–11(d)(2)(B) of the 

Act as further support to propose 

regulations imposing ‘‘reasonable 

minimum standards’’ on Part D 

sponsors. 

One alternative would be to make no 

changes to our current regulations 

regarding bid submission and review 

and to continue our current efforts to 

eliminate duplicative or low enrollment 

plan options. However, since our 

current regulations do not explicitly 

address the issue of eliminating 

duplicative or low enrollment plans, we 

believe that codifying our authority to 

do so will provide us with more 

leverage over plans during the bid 

submission, review, negotiation, and 

approval processes. 

Another alternative would be to 

provide more detail in regulation text 

regarding the specific criteria we would 

use to eliminate duplicative or low 

enrollment plan options. We believe by 

addressing the issue generally in 

regulations text, we maintain our 

flexibility to adjust our review processes 

and criteria consistent with current 

market trends. 

7. Validation of Part C and Part D 

Reporting Requirements and CAHPS 

Survey Administration 

Several of the required changes 

involve costs to MAOs and Part D 

sponsors. One such regulatory change 

was the audit requirement of Part C and 

Part D measures. We considered not 

requiring an audit. However, because 

we believe that an audit is necessary to 

ensure that the Part C and Part D 

measures are consistent with our 

specifications, are reliable, valid, and 

comparable, and are credible to 

stakeholders, this alternative was 

rejected. A second such regulatory 

change was requiring MAOs and Part C 

sponsors to assume a portion of the cost 

of the annual CAHPs survey as a result 

of hiring contractors to conduct the data 

collection. We considered not requiring 

MAOs and Part C sponsors to hire 

contractors to perform the CAHPs data 

collection. However, we rejected this 

alternative because we believe that the 

benefits obtained through this 

regulatory change outweigh the costs 

incurred by the MAOs and Part C 

sponsors. We believe these changes 

actually benefit the plans by informing 

them of the issues that, from the 

beneficiaries’ perspectives, needs 

attention. 

G. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 11, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this final rule. The 

accounting statement is based on 

estimates in Table 10 (our best estimate 

of the costs and savings as a result of the 

changes) discounted at the 7 percent 

and 3 percent for the time period of CY 

2010 through CY 2015. 


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TABLE 11—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2010 TO CY 2015 

[$ in millions] 

Category 

TRANSFERS (MIPPA 176) 

Year dollar 

Units discount rate 

Period covered 

7% 3% 

Annualized Monetized Transfers ................................................................... 2009 ¥$318.64 ¥$331.65 CYs 2010–2015 

From Whom To Whom? ................................................................................ Federal Government to MAO and Part D Sponsors 

TABLE 11—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2010 TO CY 2015 

[$ in millions] 

COSTS (All other provisions) 

Year dollar 

Units discount rate 

Period covered 

7% 3% 

Annualized Costs to MAOs and Part D Sponsors ........................................ 2009 $283.86 $284.35 CYs 2010–2015 

Compared to the proposed rule, the 

annualized costs to MAOs and Part D 

sponsors have decreased from $319.51 

million and $319.46 million, at the 7 

and 3 percent annualized discount rates, 

to $283.86 million and $2284.35 million 

at the 7 and 3 percent discount rates for 

the final rule. 

H. Conclusion 

We estimate that the cost of 

implementing these provisions will be 

$260.3 million in CY 2010. This is $61.4 

million less than the estimated cost in 

the proposed rule ($321.7 million). 

Sponsors will experience additional 

costs which they are likely to pass on 

to CMS through direct subsidy 

payments and to beneficiaries through 

increases in premiums as reflected in 

their bids. Beginning in CY 2012, we 

expect that these provisions will 

generate a net savings to the Medicare 

program on an annual basis. For the 

entire estimated time period, CYs 2010 

through 2015, we estimate the overall 

impact to be a savings of $341.70 

million (undiscounted). 

In accordance with the provisions of 

Executive Order 12866, this final rule 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs—health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs—health, Medicare, 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 480 

Health care, Health professions, 

Health records, Peer Review 

Organizations (PRO), Penalties, Privacy, 

and Reporting and recordkeeping 

requirements. 

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATIONS, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 1. The authority citation for part 417 

continues to read as follows: 

Authority: Sec. 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. 

Subpart K—Enrollment, Entitlement, 

and Disenrollment Under Medicare 

Contract 

■ 2. Section 417.428 is revised to read 

as follows: 

§ 417.428 Marketing activities. 

(a) With the exception of § 422.2276 

of this chapter, the procedures and 

requirements relating to marketing 

requirements set forth in subpart V of 

part 422 of this chapter also apply to 

Medicare contracts with HMOs and 

CMPs under section 1876 of the Act. 

(b) In applying those provisions, 

references to part 422 of this chapter 

must be read as references to this part, 

and references to MA organizations as 

references to HMOs and CMPs. 

Subpart L—Medicare Contract 

Requirements 

■ 3. Section 417.472 is amended by 

adding paragraphs (i) and (j) to read as 

follows: 

§ 417.472 Basic contract requirements. 

* * * * * 

(i) The HMO or CMP must comply 

with the requirements at § 422.152(b)(5). 

(j) All coordinated care contracts 

(including local and regional PPOs, 

contracts with exclusively SNP benefit 

packages, private fee-for-service 

contracts, and MSA contracts), and all 

cost contracts under section 1876 of the 

Act, with 600 or more enrollees in July 

of the prior year, must contract with 

approved Medicare Consumer 

Assessment of Healthcare Providers and 

Systems (CAHPS) survey vendors to 

conduct the Medicare CAHPS 

satisfaction survey of Medicare plan 

enrollees in accordance with CMS 


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specifications and submit the survey 

data to CMS. 

■ 4. Section 417.492 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 417.492 Nonrenewal of contract. 

* * * * * 

(b) * * * 

(2) Notice of appeal rights. CMS gives 

the HMO or CMP written notice of its 

right to appeal the nonrenewal decision, 

in accordance with part 422 subpart N 

of this chapter, if CMS’s decision was 

based on any of the reasons specified in 

§ 417.494(b). 

■ 5. Section 417.494 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 417.494 Modification or termination of 

contract. 

* * * * * 

(b) * * * 

(2) If CMS decides to terminate a 

contract, it sends a written notice 

informing the HMO or CMP of its right 

to appeal the termination in accordance 

with part 422 subpart N of this chapter. 

* * * * * 

■ 6. Section 417.500 is revised to read 

as follows: 

§ 417.500 Intermediate sanctions for and 

civil monetary penalties against HMOs and 

CMPs. 

(a) Except as provided in paragraph 

(c) of this section, the rights, 

procedures, and requirements related to 

intermediate sanctions and civil money 

penalties set forth in part 422 subparts 

O and T of this chapter also apply to 

Medicare contracts with HMOs or CMPs 

under sections 1876 of the Act. 

(b) In applying paragraph (a) of this 

section, references to part 422 of this 

chapter must be read as references to 

this part and references to MA 

organizations must be read as references 

to HMOs or CMPs. 

(c) In applying paragraph (a) of this 

section, the amounts of civil money 

penalties that can be imposed are 

governed by section 1876(i)(6)(B) and 

(C) of the Act, not by the provisions in 

part 422 of this chapter. 

Subpart O—Medicare Payment: Cost 

Basis 

■ 7. Section 417.564 is amended by 

adding new paragraphs (b)(2)(iii) and (c) 

to read as follows: 

§ 417.564 Apportionment and allocation of 

administrative and general costs. 

* * * * * 

(b) * * * 

(2) * * * 

(iii) For the costs incurred under 

paragraphs (b)(1)(i) through (iv) of this 

section that include personnel costs, the 

organization must be able to identify the 

person hours expended for each 

administrative task and the rate of pay 

for those persons performing the tasks. 

Administrative tasks performed and rate 

of pay for the persons performing those 

tasks must match in terms of the skill 

level needed to accomplish those tasks. 

This information must be made 

available to CMS upon request. 

(c) Costs excluded from 

administrative costs. In accordance with 

section 1861(v) of the Act, the following 

costs must be excluded from 

administrative costs: 

(1) Donations. 

(2) Fines and penalties. 

(3) Political and lobbying activities. 

(4) Charity or courtesy allowances. 

(5) Spousal education. 

(6) Entertainment. 

(7) Return on equity. 

Subpart R—Medicare Contract Appeals 

■ 8. Section § 417.640 is revised to read 

as follows: 

§ 417.640 Applicability. 

(a) The rights, procedures, and 

requirements relating to contract 

determinations and appeals set forth in 

part 422 subpart N of this chapter also 

apply to Medicare contracts with HMOs 

or CMPs under section 1876 of the Act. 

(b) In applying paragraph (a) of this 

section, references to part 422 of this 

chapter must be read as references to 

this part and references to MA 

organizations must be read as references 

to HMOs or CMPs. 

§ 417.642 through § 417.694 [Removed] 

■ 9. Remove § 417.642 through 

§ 417.694. 

Subpart U–Health Care Prepayment 

Plans 

■ 10. Section 417.840 is revised to read 

as follows: 

§ 417.840 Administrative review 

procedures. 

The HCPP must apply § 422.568 

through § 422.626 of this chapter to— 

(a) Organization determinations and 

fast-track appeals that affect its 

Medicare enrollees; and 

(b) Reconsiderations, hearings, 

Medicare Appeals Council review, and 

judicial review of the organization 

determinations and fast-track appeals 

specified in paragraph (a) of this 

section. 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 11. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

Subpart A—General Provisions 

■ 12. Section 422.2 is amended by— 

■ A. Adding the definitions of 

‘‘Attestation process,’’ ‘‘Hierarchical 

condition categories,’’ and ‘‘Initial 

Validation Contractor.’’ 

■ B. Revising the definition of ‘‘Point of 

service.’’ 

■ C. Adding the definitions of ‘‘RADV 

payment error calculation appeal 

process’’ and ‘‘Risk adjustment data 

validation (RADV) audit. 

■ D. Revising the introductory text of 

the definition of ‘‘Service area’’. 

■ E. Adding the definition of ‘‘The one 

best medical record’’. 

The additions and revisions read as 

follows: 

§ 422.2 Definitions. 

* * * * * 

Attestation process means a CMSdeveloped RADV audit-related dispute 

process that enables MA organizations 

undergoing RADV audit to submit CMSgenerated and physician practitioner 

signed attestations for medical records 

with missing or illegible signatures or 

credentials. Physicians/practitioners 

who documented health care services in 

the specific medical record under RADV 

review will be allowed to attest that 

they provided and documented the 

health care services evidenced in the 

specific medical record. 

* * * * * 

Hierarchical condition categories 

(HCC) means disease groupings 

consisting of disease codes (currently 

ICD–9–CM codes) that predict average 

healthcare spending. HCCs represent the 

disease component of the enrollee risk 

score that are applied to MA payments. 

* * * * * 

Initial Validation Contractor (IVC) 

means the first level of medical record 

review under the RADV audit process. 

* * * * * 

Point of service (POS) means a benefit 

option that an MA HMO plan can offer 

to its Medicare enrollees as a mandatory 

supplemental, or optional supplemental 

benefit. Under the POS benefit option, 

the HMO plan allows members the 

option of receiving specified services 

outside of the HMO plan’s provider 

network. In return for this flexibility, 

members typically have higher costsharing requirements for services 


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received and, when offered as a 

mandatory or optional supplemental 

benefit, may also be charged a premium 

for the POS benefit option. 

* * * * * 

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. 

Risk adjustment data validation 

(RADV) audit means a CMSadministered payment audit of a 

Medicare Advantage (MA) organization 

that ensures the integrity and accuracy 

of risk adjustment payment data. 

* * * * * 

Service area means a geographic area 

that for local MA plans is a county or 

multiple counties, and for MA regional 

plans is a region approved by CMS 

within which an MA-eligible individual 

may enroll in a particular MA plan 

offered by an MA organization. 

Facilities in which individuals are 

incarcerated are not included in the 

service area of an MA plan. Each MA 

plan must be available to all MA-eligible 

individuals within the plan’s service 

area. In deciding whether to approve an 

MA plan’s proposed service area, CMS 

considers the following criteria: 

* * * * * 

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. 

■ 13. Amend § 422.4 by— 

■ A. Revising paragraphs (a)(1)(v)and 

(a)(2)(i)(A). 

■ B. Redesignating paragraph (a)(2)(i)(B) 

as paragraph (a)(2)(i)(C). 

■ C. Adding new paragraphs (a)(2)(i)(B) 

and (a)(3)(iv). 

The revisions and additions read as 

follows: 

§ 422.4 Types of MA plans. 

(a) * * * 

(1) * * * 

(v) A PPO plan is a plan that— 

(A) Has a network of providers that 

have agreed to a contractually specified 

reimbursement for covered benefits with 

the organization offering the plan; 

(B) Provides for reimbursement for all 

covered benefits regardless of whether 

the benefits are provided within the 

network of providers; 

(C) Only for purposes of quality 

assurance requirements in § 422.152(e), 

is offered by an organization that is not 

licensed or organized under State law as 

an HMO; and 

(D) Does not permit prior notification 

for out-of-network services—that is, a 

reduction in the plan’s standard costsharing levels when the out-of-network 

provider from whom an enrollee is 

receiving plan-covered services 

voluntarily notifies the plan prior to 

furnishing those services, or the enrollee 

voluntarily notifies the PPO plan prior 

to receiving plan-covered services from 

an out-of-network provider. 

(2) * * * 

(i) * * * 

(A) Pays at least for the services 

described in § 422.101, after the enrollee 

has incurred countable expenses (as 

specified in the plan) equal in amount 

to the annual deductible specified in 

§ 422.103(d); 

(B) Does not permit prior 

notification—that is, a reduction in the 

plan’s standard cost-sharing levels when 

the provider from whom an enrollee is 

receiving plan-covered services 

voluntarily notifies the plan prior to 

furnishing those services, or the enrollee 

voluntarily notifies the MSA plan prior 

to receiving plan-covered services from 

a provider; and 

* * * * * 

(3) * * * 

(iv) Does not permit prior 

notification—that is, a reduction in the 

plan’s standard cost-sharing levels when 

the provider from whom an enrollee is 

receiving plan-covered services 

voluntarily notifies the plan prior to 

furnishing those services, or the enrollee 

voluntarily notifies the PFFS plan prior 

to receiving plan-covered services from 

a provider. 

* * * * * 

Subpart B—Eligibility, Election, and 

Enrollment 

■ 14. Section 422.74 is amended by 

revising paragraphs (d)(1)(i)(B) and 

(d)(4)(iii) to read as follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(1) * * * 

(i) * * * 

(B) Providing the individual with a 

grace period, that is, an opportunity to 

pay past due premiums in full. The 

length of the grace period must— 

(1) Be at least 2 months; and 

(2) Begin on the first day of the month 

for which the premium is unpaid or the 

first day of the month following the date 

on which premium payment is 

requested, whichever is later. 

* * * * * 

(4) * * * 

(iii) Exception. If the MA plan offers 

a visitor/traveler benefit when the 

individual is out of the service area but 

within the United States (as defined in 

§ 400.200 of this chapter) for a period of 

consecutive days longer than 6 months 

but less than 12 months, the MA 

organization may elect to offer to the 

individual the option of remaining 

enrolled in the MA plan if— 

(A) The individual is disenrolled on 

the first day of the 13th month after the 

individual left the service area (or 

residence, if paragraph (d)(4)(i)(B) of 

this section applies); 

(B) The individual understands and 

accepts any restrictions imposed by the 

MA plan on obtaining these services 

while absent from the MA plan’s service 

area for the extended period, consistent 

with paragraph (d)(4)(i)(C) of the 

section; 

(C) The MA organization makes this 

visitor/traveler option available to all 

Medicare enrollees who are absent for 

an extended period from the MA plan’s 

service area. MA organizations may 

limit this visitor/traveler option to 

enrollees who travel to certain areas, as 

defined by the MA organization, and 

who receive services from qualified 

providers who directly provide, arrange 

for, or pay for health care; and 

(D) The MA organization furnishes all 

Medicare Parts A and B services and all 

mandatory and optional supplemental 

benefits at the same cost sharing levels 

as apply within the plan’s service area; 

and 

(E) The MA organization furnishes the 

services in paragraph (d)(4)(iii)(D) of 

this section consistent with Medicare 

access and availability requirements at 

§ 422.112 of this part. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

■ 15. Section 422.100 is amended by— 

■ A. Revising the introductory text for 

paragraph (f). 

■ B. In paragraphs (f)(1) and (f)(2) 

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

place. 

■ C. Adding new paragraphs (f)(4) 

through (f)(6). 

The revisions and additions read as 

follows: 

§ 422.100 General requirements. 

* * * * * 

(f) CMS review and approval of MA 

benefits and associated cost sharing. 


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CMS reviews and approves MA benefits 

and associated cost sharing using 

written policy guidelines and 

requirements in this part and other CMS 

instructions to ensure all of the 

following: 

* * * * * 

(4) Except as provided in paragraph 

(f)(5), MA local plans (as defined in 

§ 422.2) must have an out-of pocket 

maximum for Medicare Parts A and B 

services that is no greater than the 

annual limit set by CMS. 

(5) With respect to a local PPO plan, 

the limit specified under paragraph 

(f)(4) applies only to use of network 

providers. Such local PPO plans must 

include a total catastrophic limit on 

beneficiary out-of-pocket expenditures 

for both in-network and out-of-network 

Parts A and B services that is— 

(i) Consistent with the requirements 

applicable to MA regional plans at 

§ 422.101(d)(3) of this part; and 

(ii) Not greater than the annual limit 

set by CMS. 

(6) Cost sharing for Medicare Part A 

and B services specified by CMS does 

not exceed levels annually determined 

by CMS to be discriminatory for such 

services. 

* * * * * 

■ 16. Section 422.103 is amended by 

adding a new paragraph (d)(3) to read as 

follows: 

§ 422.103 Benefits under an MA MSA plan. 

* * * * * 

(d) * * * 

(3) Is pro-rated for enrollments 

occurring during a beneficiary’s initial 

coverage election period as described at 

§ 422.62(a)(1) of this part or during any 

other enrollments occurring after 

January 1. 

* * * * * 

■ 17. Section 422.105 is amended by 

revising paragraphs (b), (c), and (f) to 

read as follows: 

§ 422.105 Special rules for self-referral and 

point of service option. 

* * * * * 

(b) Point of service option. As a 

general rule, a POS benefit is an option 

that an MA organization may offer in an 

HMO plan to provide enrollees with 

additional choice in obtaining specified 

health care services. The organization 

may offer a POS option— 

(1) Before January 1, 2006, under a 

coordinated care plan as an additional 

benefit as described in section 

1854(f)(1)(A) of the Act; 

(2) Under an HMO plan as a 

mandatory supplemental benefit as 

described in § 422.102(a); or 

(3) Under an HMO plan as an optional 

supplemental benefit as described in 

§ 422.102(b). 

(c) Ensuring availability and 

continuity of care. An MA HMO plan 

that includes a POS benefit must 

continue to provide all benefits and 

ensure access as required under this 

subpart. 

* * * * * 

(f) POS-related data. An MA 

organization that offers a POS benefit 

through an HMO plan must report 

enrollee utilization data at the plan level 

by both plan contracting providers (innetwork) and by non-contracting 

providers (out-of-network) including 

enrollee use of the POS benefit, in the 

form and manner prescribed by CMS. 

■ 18. Section 422.108 is amended by 

revising paragraph (b)(3) to read as 

follows: 

§ 422.108 Medicare secondary payer (MSP) 

procedures. 

* * * * * 

(b) * * * 

(3) Coordinate its benefits to Medicare 

enrollees with the benefits of the 

primary payers, including reporting, on 

an ongoing basis, information obtained 

related to requirements in paragraphs 

(b)(1) and (b)(2) of this section in 

accordance with CMS instructions. 

* * * * * 

■ 19. Section 422.111 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 422.111 Disclosure requirements. 

* * * * * 

(g) CMS may require an MA 

organization to disclose to its enrollees 

or potential enrollees, the MA 

organization’s performance and contract 

compliance deficiencies in a manner 

specified by CMS. 

■ 20. Section 422.112 is amended by 

adding a new paragraph (a)(10) to read 

as follows: 

§ 422.112 Access to services. 

(a) * * * 

(10) Prevailing patterns of community 

health care delivery. Coordinated care 

and PFFS MA plans that meet Medicare 

access and availability requirements 

through direct contracting network 

providers must do so consistent with 

the prevailing community pattern of 

health care delivery in the areas where 

the network is being offered. Factors 

making up community patterns of 

health care delivery that CMS will use 

as a benchmark in evaluating a 

proposed MA plan health care delivery 

network include, but are not limited to 

the following: 

(i) The number and geographical 

distribution of eligible health care 

providers available to potentially 

contract with an MAO to furnish plan 

covered services within the proposed 

service area of the MA plans. 

(ii) The prevailing market conditions 

in the service area of the MA plan. 

Specifically, the number and 

distribution of health care providers 

contracting with other health care plans 

(both commercial and Medicare) 

operating in the service area of the plan. 

(iii) Whether the service area is 

comprised of rural or urban areas or 

some combination of the two. 

(iv) Whether the MA plan’s proposed 

provider network meet Medicare time 

and distance standards for member 

access to health care providers 

including specialties. 

(v) Other factors that CMS determines 

are relevant in setting a standard for an 

acceptable health care delivery network 

in a particular service area. 

* * * * * 

Subpart D—Quality Improvement 

■ 21. Section 422.152 is amended by— 

■ A. Revising paragraphs (a)(1) and 

(a)(2). 

■ B. Redesignating paragraph (b)(3)(ii) 

as paragraph (b)(3)(iii). 

■ C. Adding new paragraph (b)(3)(ii). 

■ D. Adding new paragraph (b)(5). 

■ F. Redesignating paragraphs (e)(2)(ii) 

and (e)(2)(iii) as paragraphs (e)(2)(iii) 

and (e)(2)(iv), respectively. 

■ H. Adding a new paragraph (e)(2)(ii). 

The revisions and additions read as 

follows: 

§ 422.152 Quality improvement program. 

(a) * * * 

(1) Have a chronic care improvement 

program that meets the requirements of 

paragraph (c) of this section concerning 

elements of a chronic care program and 

addresses populations identified by 

CMS based on a review of current 

quality performance; 

(2) Conduct quality improvement 

projects that can be expected to have a 

favorable effect on health outcomes and 

enrollee satisfaction, meet the 

requirements of paragraph (d) of this 

section, and address areas identified by 

CMS; and 

* * * * * 

(b) * * * 

(3) * * * 

(ii) Collect, analyze, and report 

quality performance data identified by 

CMS that are of the same type as those 

under paragraph (b)(3)(i) of this section. 

* * * * * 

(5) All coordinated care contracts 

(including local and regional PPOs, 


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contracts with exclusively SNP benefit 

packages, private fee-for-service 

contracts, and MSA contracts), and all 

cost contracts under section 1876 of the 

Act, with 600 or more enrollees in July 

of the prior year, must contract with 

approved Medicare Consumer 

Assessment of Healthcare Providers and 

Systems (CAHPS) survey vendors to 

conduct the Medicare CAHPS 

satisfaction survey of Medicare plan 

enrollees in accordance with CMS 

specifications and submit the survey 

data to CMS. 

* * * * * 

(e) * * * 

(2) * * * 

(ii) Collect, analyze, and report 

quality performance data identified by 

CMS that are of the same type as those 

described under paragraph (e)(2)(i) of 

this section. 

* * * * * 

■ 22. Section 422.153 is added to reads 

as follows: 

§ 422.153 Use of quality improvement 

organization review information. 

CMS will acquire from quality 

improvement organizations (QIOs) as 

defined in part 475 of this chapter only 

data collected under section 

1886(b)(3)(B)(viii) of the Act and subject 

to the requirements in § 480.140(g). 

CMS will acquire this information, as 

needed, and may use it for the following 

limited functions: 

(a) Enable beneficiaries to compare 

health coverage options and select 

among them. 

(b) Evaluate plan performance. 

(c) Ensure compliance with plan 

requirements under this part. 

(d) Develop payment models. 

(e) Other purposes related to MA 

plans as specified by CMS. 

■ 23. Section 422.156 is amended by 

revising paragraphs (b)(7) and (f) to read 

as follows: 

§ 422.156 Compliance deemed on the 

basis of accreditation. 

* * * * * 

(b) * * * 

(7) The requirements listed in 

§ 423.165 (b)(1) through (3) of this 

chapter for MA organizations that offer 

prescription drug benefit programs. 

* * * * * 

(f) Authority. Nothing in this subpart 

limits CMS’ authority under subparts K 

and O of this part, including but not 

limited to, the ability to impose 

intermediate sanctions, civil money 

penalties, and terminate a contract with 

an MA organization. 

Subpart F—Submission of Bids, 

Premiums, and Related Information 

and Plan Approval 

■ 24. Section 422.254 is amended by 

adding new paragraphs (a)(4) and (b)(5) 

to read as follows: 

§ 422.254 Submission of bids. 

(a) * * * 

(4) Substantial differences between 

bids. An MA organization’s bid 

submissions must reflect differences in 

benefit packages or plan costs that CMS 

determines to represent substantial 

differences relative to a sponsor’s other 

bid submissions. 

(b) * * * 

(5) Actuarial valuation. The bid must 

be prepared in accordance with CMS 

actuarial guidelines based on generally 

accepted actuarial principles. 

(i) A qualified actuary must certify the 

plan’s actuarial valuation (which may 

be prepared by others under his or her 

direction or review). 

(ii) To be deemed a qualified actuary, 

the actuary must be a member of the 

American Academy of Actuaries. 

(iii) Applicants may use qualified 

outside actuaries to prepare their bids. 

* * * * * 

■ 25. Section 422.256 is amended by 

adding a new paragraph (b)(4) to read as 

follows: 

§ 422.256 Review, negotiation, and 

approval of bids. 

* * * * * 

(b) * * * 

(4) Substantial differences between 

bids—(i) General. CMS approves a bid 

only if it finds that the benefit package 

and plan costs represented by that bid 

are substantially different from the MA 

organization’s other bid submissions. In 

order to be considered ‘‘substantially 

different,’’ as provided under 

§ 422.254(a)(4) of this subpart, each bid 

must be significantly different from 

other plans of its plan type with respect 

to premiums, benefits, or cost-sharing 

structure. 

(ii) Transition period for MA 

organizations with new acquisitions. 

After a 2-year transition period, CMS 

approves a bid offered by an MA 

organization (or by a parent organization 

to that MA organization) that recently 

purchased (or otherwise acquired or 

merged with) another MA organization 

only if it finds that the benefit package 

or plan costs represented by that bid are 

substantially different, as provided 

under paragraph (b)(4)(i) of this section, 

from any benefit package and plan costs 

represented by another bid submitted by 

the same MA organization (or parent 

organization to that MA organization). 

* * * * * 

Subpart G—Payments to Medicare 

Advantage Organizations 

■ 26. Section 422.306 is amended by 

revising paragraph (a) to read as follows: 

§ 422.306 Annual MA capitation rates. 

* * * * * 

(a) Minimum percentage increase rate. 

The annual capitation rate for each MA 

local area is equal to the minimum 

percentage increase rate, which is the 

annual capitation rate for the area for 

the preceding year increased by the 

national per capita MA growth 

percentage (defined at § 422.308(a)) for 

the year, but not taking into account any 

adjustment under § 422.308(b) for a year 

before 2004. 

* * * * * 

■ 27. A new section 422.311 is added to 

read as follows: 

§ 422.311 RADV audit dispute and appeal 

processes. 

(a) Risk adjustment data validation 

(RADV) audits. In accordance with 

§ 422.2 and § 422.310(e), CMS annually 

conducts RADV audits to ensure risk 

adjusted payment integrity and 

accuracy. 

(b) RADV audit results. (1) MA 

organizations that undergo RADV audits 

will be issued an audit report post 

medical record review that describes the 

results of the RADV audit as follows: 

(i) Detailed enrollee-level information 

relating to confirmed enrollee HCC 

discrepancies. 

(ii) The contract-level RADV payment 

error estimate in dollars. 

(iii) The contract-level payment 

adjustment amount to be made in 

dollars. 

(iv) An approximate timeframe for the 

payment adjustment. 

(v) A description of the MA 

organization’s RADV audit appeal 

rights. 

(2) Compliance date. The compliance 

date for meeting RADV medical record 

submission requirements for the 

validation of risk adjustment data is the 

due date when MA organizations 

selected for RADV audit must submit 

medical records to CMS or its 

contractors. 

(3) Medical record review appeal. MA 

organizations that do not agree with the 

medical record review determinations 

for audited HCCs may appeal the 

medical record review determinations of 

the initial validation contractor to CMS 

in accordance with paragraph (c)(2) of 

this section. 


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(c) RADV audit dispute and appeal 

processes—(1) Attestation process—(i) 

Submission requirements for 

attestations. MA organizations— 

(A) May submit CMS-generated 

attestations from physician/ 

practitioner(s) in order to dispute 

signature-related or credential-related 

RADV errors in accordance with the 

attestations provisions of this section. 

(B) Are not obligated to submit 

attestations to CMS. 

(ii) RADV audit-related errors eligible 

for attestation process. CMS will only 

accept an attestation to support a 

physician or outpatient medical record 

with a missing signature or missing 

credential or both. 

(iii) RADV audit-related errors and 

documentation ineligible for attestation 

process. 

(A) Attestations from providers for 

anything other than signature-related 

and credential-related errors will not be 

permitted. 

(B) Inpatient provider-type medical 

records are not eligible for attestation. 

(iv) Manner and timing of a request 

for attestation. (A) CMS will provide 

MA organizations selected for RADV 

audits with attestations and 

accompanying instructions at the time 

the organization receives its audit 

instructions. 

(B) If an organization decides to 

submit attestations completed by 

physicians or other practitioners, the 

MA organization must submit the 

attestations to CMS at the same time 

that the MA organization is required to 

submit related medical records for 

RADV audit. 

(v) Attestation content. An attestation 

must accompany and correspond to the 

medical record submitted for RADV 

audit and must meet the following 

requirements: 

(A) Contain only CMS-generated 

attestations. 

(B) The CMS attestation form may not 

be altered unless otherwise instructed 

and agreed-upon in writing by CMS. 

(C) Attestations must be completed 

and be signed and dated by the eligible 

risk adjustment physician/practitioner 

whose medical record accompanies the 

attestation. 

(D) Attestations must be based upon 

medical records that document face-toface encounters between beneficiaries 

and RADV-eligible physicians/ 

practitioners. 

(vi) Attestation review and 

determination procedures. CMS—(A) 

Reviews each submitted attestation to 

determine if it meets CMS requirements 

and is acceptable for use during the 

medical record review; and 

(B) Provides written notice of its 

determination(s) regarding submitted 

attestations to the MA organization at 

the time CMS issues its RADV audit 

report. 

(vii) Effect of CMS’s attestation 

determination. (A) CMS’ attestation 

determination is final. 

(B) An MA organization may choose 

to appeal its medical record review 

determinations for audited HCCs 

following initial validation contractor 

review using a CMS-administered 

medical record review determination 

appeal process. 

(2) RADV-related medical record 

review errors and documentation 

eligible for medical record review 

determination appeal process: (i) 

General rules. (A) In order to be eligible 

for medical record review determination 

appeal, MA organizations must adhere 

to established RADV audit procedures 

and RADV appeals requirements. 

Failure to follow CMS rules regarding 

the RADV medical record review audit 

procedures and RADV appeals 

requirements may render the MA 

organization’s request for appeal 

invalid. 

(B) The medical record review 

determination appeal process applies 

only to error determinations from 

review of the one best medical record 

submitted by the MA organization and 

audited by the RADV initial validation 

contractor (IVC). 

(C) MA organizations that choose to 

appeal the IVC’s medical record review 

determination(s) may only submit the 

IVC-audited one best medical record 

and IVC-reviewed attestation, 

previously submitted in accordance 

with paragraph (c)(1) of this section, to 

CMS for re-review. 

(D) MA organizations’ request for 

medical record review determination 

appeal may not include additional 

documentary evidence beyond the IVCaudited one best medical record and 

IVC-reviewed attestation. 

(ii) RADV-related audit errors and 

documentation ineligible for medical 

record review appeal process. (A) MA 

organizations may not appeal errors that 

resulted because MA organizations 

failed to adhere to established RADV 

audit procedures and RADV appeals 

requirements. This includes failure by 

the MA organization to meet the 

medical record submission deadline 

established by CMS. 

(B) Any other documentation 

submitted to CMS beyond the one best 

medical record and attestation 

submitted to and audited by the IVC 

will not be reviewed by CMS under the 

medical record review determination 

appeal process. 

(C) The MA organization’s written 

request for medical record review 

determination appeal must specify the 

audited HCC(s) that CMS identified as 

being in error and eligible for medical 

record review determination appeal, 

and that the MA organization wishes to 

appeal. 

(iii) Manner and timing of a request 

for medical record review determination 

appeal. (A) At the time CMS issues its 

IVC RADV audit report to audited MA 

organizations, CMS notifies these MA 

organizations of any RADV HCC errors 

that are eligible for medical record 

review determination appeal. 

(B) MA organizations have 30 

calendar days from date of issuance of 

the RADV audit report to file a written 

request with CMS for medical record 

review determination appeal. 

(C) A request for medical record 

review determination appeal must 

specify the determinations with which 

the MA organization disagrees and the 

reasons for the request for appeal. 

(iv) Medical record review 

determination appeal review and 

notification procedures. (A) Designation 

of a hearing officer. CMS designates a 

hearing officer to conduct the medical 

record review determination appeal. 

The hearing officer need not be an ALJ. 

(B) Disqualification of hearing officer. 

(1) 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. 

(2) A party to the hearing who objects 

to the designated hearing officer must 

notify that officer in writing at the 

earliest opportunity. 

(3) The hearing officer must consider 

the objections, and may, at his or her 

discretion, either proceed with the 

hearing or withdraw. 

(i) If the hearing officer withdraws, 

CMS designates another hearing officer 

to conduct the hearing. 

(ii) 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. 

(v) Hearing officer’s review. The 

hearing officer reviews the IVC-audited 

one best medical record and the IVCreviewed attestation submitted by the 

MA organization to determine whether 

it supports overturning medical record 

review determination errors listed in the 

MA organization’s IVC-level RADV 

audit report. 

(vi) Hearing procedures. (A) CMS 

provides written notice of the time and 


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place of the hearing at least 30 calendar 

days before the scheduled date. 

(B) The hearing is conducted by a 

CMS hearing officer who neither 

receives testimony nor accepts any new 

evidence that was not presented to the 

IVC. The CMS hearing officer is limited 

to the review of the record that was 

before the IVC. 

(vii) Hearing officer’s decision. As 

soon as practical after the hearing, the 

hearing officer issues a decision which 

provides written notice of the hearing 

officer’s review of the appeal of medical 

record review determination(s) to the 

MA organization and to CMS. 

(viii) Computations based on hearing 

decision. In accordance with the hearing 

officer’s decision, CMS recalculates the 

MA organization’s RADV payment error 

and issues a new RADV audit report to 

the appellant MA organization. 

(ix) Effect of hearing decision. The 

hearing officer’s decision is final and 

binding, unless the MA organization 

requests review of the hearings officer 

appeal determination by the CMS 

Administrator. 

(x) Review by the CMS Administrator. 

(A) A MA organization that has received 

a hearing officer decision may request 

review by the CMS Administrator 

within 30 calendar days of receipt of the 

hearing officer’s determination. A 

request for CMS Administrator review 

must be made in writing and filed with 

CMS. 

(B) 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 decision. 

(C) If the CMS Administrator elects to 

review the hearing decision, the CMS 

Administrator— 

(1) Acknowledges the decision to 

review the hearing decision in writing; 

and 

(2) Reviews the decision and 

determine based upon all of the 

following whether the determination 

should be upheld, reversed, or 

modified: 

(i) The hearing record. 

(ii) Written arguments submitted by 

the MA organization or CMS. 

(xi) Notification of Administrator 

determination. (A) The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days of acknowledging his or her 

decision to review the hearing decision. 

(B) The decision of the hearing officer 

is final if the Administrator— 

(1) Declines to review the hearing 

decision; or 

(2) Does not make a determination 

regarding review within 30 calendar 

days. 

(3) RADV payment error calculation 

appeal process. (i) MA organizations 

may appeal CMS’ RADV payment error 

calculation. 

(ii) RADV payment error-related 

issues ineligible for appeal. MA 

organizations may not— 

(A) Appeal RADV medical record 

review-related errors as part of the 

RADV payment error calculation appeal 

process. In accordance with paragraph 

(c)(2) of this section, MA organizations 

that wish to appeal medical record 

review determinations may do so 

following issuance of the IVC RADV 

audit report of findings. 

(B) Introduce new HCCs to CMS for 

payment consideration in the context of 

their RADV payment error calculation 

appeal. 

(C) Appeal RADV errors that result 

from an MA organization’s failure to 

submit a medical record. 

(D) Appeal CMS’ RADV payment 

error calculation methodology. 

(iii) Manner and timing of a request 

for appeal. (A) MA organizations may 

not appeal their RADV error calculation 

until any appeals of RADV medical 

record review determinations filed by 

the MA organization have been 

completed and the decisions are final. 

(B) At the time CMS issues either its 

IVC or post-medical record review 

appeal RADV audit report, CMS notifies 

affected MA organizations in writing of 

their appeal rights around the RADV 

payment error calculation. 

(C) MA organizations have 30 

calendar days from the date of this 

notice to submit a written request for 

reconsideration of its RADV payment 

error calculation. 

(iv) Burden of proof. The MA 

organization bears the burden of proof 

in demonstrating that CMS failed to 

follow its stated RADV payment error 

calculation methodology. 

(v) Content of request. The written 

request for reconsideration must specify 

the issues with which the MA 

organization disagrees and the reasons 

for the disagreements. 

(A) The written request for 

reconsideration may include additional 

documentary evidence the MA 

organization wishes CMS to consider. 

(B) CMS does not accept 

reconsiderations for issues with the 

methodology applied in any part of the 

RADV audit. 

(vi) Conduct of written 

reconsideration. (A) In conducting the 

written reconsideration, CMS reviews 

all of the following information: 

(1) The RADV payment error 

calculation. 

(2) The evidence and findings upon 

which they were based. 

(3) Any other written evidence 

submitted by the MA organization. 

(B) CMS ensures that a third party— 

either within CMS or a CMS 

contractor—not otherwise involved in 

the initial RADV payment error 

calculation reviews the written request 

for reconsideration. 

(C) The third party recalculates the 

payment error in accordance with CMS 

RADV payment calculation procedures 

described in CMS’ RADV payment error 

calculation standard operating 

procedures. 

(D) The third party described in 

paragraph (c)(3)(vi)(B) of this section 

provides his or her determination to a 

CMS reconsideration official not 

otherwise involved in the RADV 

payment error calculation to review the 

reconsideration determination. 

(vi) Decision of the CMS 

reconsideration official. The CMS 

reconsideration official informs the MA 

organization and CMS in writing of the 

decision of the CMS reconsideration 

official. 

(vii) Effect of the CMS reconsideration 

official. The written reconsideration 

decision is final and binding unless a 

request for a hearing is filed by CMS or 

the appellant MA organization in 

accordance with paragraph (c) (4) of this 

section. 

(4) Right to a hearing. CMS or a MA 

organization dissatisfied with the 

written decision of the CMS 

reconsideration official is entitled to a 

hearing as provided in this section. 

(i) Manner and timing for request. A 

request for a hearing must be made in 

writing and filed with CMS within 30 

calendar days of the date CMS and the 

MA organization receives the CMS 

reconsideration officer’s written 

reconsideration decision. 

(ii) Content of request. The written 

request for hearing must include a copy 

of the written decision of the CMS 

reconsideration official and must 

specify the findings or issues in the 

reconsideration decision with which 

either CMS or the MA organization 

disagrees and the reasons for the 

disagreement. 

(iii) Hearing procedures. (A) CMS 

provides written notice of the time and 

place of the hearing at least 30 calendar 

days before the scheduled date. 

(B) The hearing will be held on the 

record, unless the parties request, 

subject to the hearing officer’s 

discretion, a live or telephonic hearing. 

The hearing officer may schedule a live 


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or telephonic hearing on his/her own 

motion. 

(C) The hearing is conducted by the 

CMS hearing officer who neither 

receives testimony nor accepts any new 

evidence that was not presented with 

the request for reconsideration. The 

CMS hearing officer is limited to the 

review of the record that was before 

CMS when CMS made either its initial 

RADV payment error calculation 

determination or its post-medical record 

review appeal payment error calculation 

determination and when the CMS 

reconsideration official issued the 

written reconsideration decision. 

(C) The hearing officer has full power 

to make rules and establish procedures, 

consistent with the law, regulations, and 

CMS rulings. These powers include the 

authority to dismiss the appeal with 

prejudice or take any other action which 

the hearing officer considers appropriate 

for failure to comply with such rules 

and procedures. 

(iv) Decision of the CMS Hearing 

Officer. The CMS hearing officer 

decides whether the reconsideration 

official’s decision was correct, and 

sends a written decision to CMS and the 

MA organization, explaining the basis 

for the decision. 

(v) Effect of the Hearing Officer’s 

decision. The hearing officer’s decision 

is final and binding, unless the decision 

is reversed or modified by the 

Administrator in accordance with 

paragraph (c)(5) of this section. 

(vi) Review by the CMS Administrator. 

(A) CMS or a MA organization that has 

received a hearing officer’s decision 

upholding or overturning a CMS initial 

or reconsideration-level RADV payment 

error calculation determination may 

request review by the CMS 

Administrator within 30 calendar days 

of receipt of the hearing officer’s 

decision. 

(B) At his or her discretion, the CMS 

Administrator can choose to either 

review or not review a case. 

(C) If the CMS Administrator chooses 

to review the case, the CMS 

Administrator— 

(1) Acknowledges his or her decision 

to review the hearing officer’s decision 

in writing; and 

(2) Determines whether to uphold, 

reverse, or modify the Hearing Officer’s 

decision based on his or her review of 

the following: 

(i) The Hearing Officer’s decision. 

(ii) Written documents submitted by 

CMS or the MA organization to the 

Hearing Officer. 

(iii) Any other any other information 

included in the record of the Hearing 

Officer’s decision. 

(D) The Administrator notifies both 

parties of his or her determination 

regarding review of the hearing decision 

within 30 calendar days of receiving the 

request for review. 

(E) If the Administrator chooses to 

review, the Administrator’s 

determination is final and binding. 

(F) The decision of the hearing officer 

is final if the Administrator— 

(1) Declines to review the hearing 

decision; or 

(2) Does not make a determination 

regarding review within 30 calendar 

days. 

Subpart K—Contracts With Medicare 

Advantage Organizations 

■ 28. Section 422.501 is amended by— 

■ A. Redesignating paragraphs (b) 

through (e) as paragraphs (c) through (f), 

respectively. 

■ B. Adding a new paragraph (b). 

■ C. Revising newly redesignated 

paragraph (c)(1) introductory text and 

paragraph (c)(2). 

The addition and revisions read as 

follows: 

§ 422.501 Application requirements. 

* * * * * 

(b) Completion of a notice of intent to 

apply. (1) An organization submitting an 

application under this section for a 

particular contract year must first 

submit a completed Notice of Intent to 

Apply by the date established by CMS. 

CMS will not accept applications from 

organizations that do not first submit a 

timely Notice of Intent to Apply. 

(2) Submitting a Notice of Intent to 

Apply does not bind that organization to 

submit an application for the applicable 

contract year. 

(3) An organization’s decision not to 

submit an application after submitting a 

Notice of Intent To Apply will not form 

the basis of any action taken against the 

organization by CMS. 

(c) * * * 

(1) In order to obtain a determination 

on whether it meets the requirements to 

become an MA organization and is 

qualified to provide a particular type of 

MA plan, an entity, or an individual 

authorized to act for the entity (the 

applicant) must fully complete all parts 

of a certified application, in the form 

and manner required by CMS, including 

the following: 

* * * * * 

(2) The authorized individual must 

thoroughly describe how the entity and 

MA plan meet, or will meet, all the 

requirements described in this part. 

* * * * * 

■ 29. Section 422.502 is amended by— 

■ A. Revising paragraphs (a)(1), (a)(2), 

and (b). 

■ B. Adding a new paragraph (c)(2)(iii). 

■ C. Revising paragraph (c)(3)(iii). 

■ D. Removing paragraph (d). 

The revisions and addition read as 

follows: 

§ 422.502 Evaluation and determination 

procedures. 

(a) * * * 

(1) With the exception of evaluations 

conducted under paragraph (b) of this 

section, CMS evaluates an application 

for an MA contract solely on the basis 

of information contained in the 

application itself and any additional 

information that CMS obtains through 

other means such as on-site visits. 

(2) After evaluating all relevant 

information, CMS determines whether 

the applicant’s application meets all the 

requirements described in this part. 

(b) Use of information from a current 

or prior contract. If an MA organization 

fails during the 14 months preceding the 

deadline established by CMS for the 

submission of contract qualification 

applications to comply with the 

requirements of the Part C program 

under any current or prior contract with 

CMS under title XVIII of the Act or fails 

to complete a corrective action plan 

during the 14 months preceding the 

deadline established by CMS for the 

submission of contract qualification 

applications, CMS may deny an 

application based on the applicant’s 

failure to comply with the requirements 

of the Part C program under any current 

or prior contract with CMS even if the 

applicant currently meets all of the 

requirements of this part. 

(c) * * * 

(2) * * * 

(iii) If CMS does not receive a revised 

application within 10 days from the 

date of the notice, or if after timely 

submission of a revised application, 

CMS still finds the applicant does not 

appear qualified to contract as an MA 

organization or has not provided enough 

information to allow CMS to evaluate 

the application, CMS will deny the 

application. 

(3) * * * 

(iii) The applicant’s right to request a 

hearing in accordance with the 

procedures specified in subpart N of 

this part. 

■ 30. Section 422.503 is amended by— 

■ A. Revising paragraphs (b)(4)(vi). 

■ B. Adding new paragraph (b)(7). 

The revisions and addition read as 

follows: 

§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) Adopt and implement an effective 

compliance program, which must 


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include measures that prevent, detect, 

and correct non-compliance with CMS’ 

program requirements as well as 

measures that prevent, detect, and 

correct fraud, waste, and abuse. The 

compliance program must, at a 

minimum, include the following core 

requirements: 

(A) Written policies, procedures, and 

standards of conduct that— 

(1) Articulate the organization’s 

commitment to comply with all 

applicable Federal and State standards; 

(2) Describe compliance expectations 

as embodied in the standards of 

conduct; 

(3) Implement the operation of the 

compliance program; 

(4) Provide guidance to employees 

and others on dealing with potential 

compliance issues; 

(5) Identify how to communicate 

compliance issues to appropriate 

compliance personnel; 

(6) Describe how potential 

compliance issues are investigated and 

resolved by the organization; and 

(7) Include a policy of nonintimidation and non-retaliation for 

good faith participation in the 

compliance program, including but not 

limited to reporting potential issues, 

investigating issues, conducting selfevaluations, audits and remedial 

actions, and reporting to appropriate 

officials. 

(B) The designation of a compliance 

officer and a compliance committee 

who report directly and are accountable 

to the organization’s chief executive or 

other senior management. 

(1) The compliance officer, vested 

with the day-to-day operations of the 

compliance program, must be an 

employee of the MA organization, 

parent organization or corporate 

affiliate. The compliance officer may not 

be an employee of the MA 

organization’s first tier, downstream or 

related entity. 

(2) The compliance officer and the 

compliance committee must 

periodically report directly to the 

governing body of the MA organization 

on the activities and status of the 

compliance program, including issues 

identified, investigated, and resolved by 

the compliance program. 

(3) The governing body of the MA 

organization must be knowledgeable 

about the content and operation of the 

compliance program and must exercise 

reasonable oversight with respect to the 

implementation and effectiveness of the 

compliance programs. 

(C)(1) Each MA organization must 

establish and implement effective 

training and education between the 

compliance officer and organization 

employees, the MA organization’s chief 

executive or other senior administrator, 

managers and governing body members, 

and the MA organization’s first tier, 

downstream, and related entities. Such 

training and education must occur at a 

minimum annually and must be made a 

part of the orientation for a new 

employee, new first tier, downstream 

and related entities, and new 

appointment to a chief executive, 

manager, or governing body member. 

(2) First tier, downstream, and related 

entities who have met the fraud, waste, 

and abuse certification requirements 

through enrollment into the Medicare 

program are deemed to have met the 

training and educational requirements 

for fraud, waste, and abuse. 

(D) Establishment and 

implementation of effective lines of 

communication, ensuring 

confidentiality, between the compliance 

officer, members of the compliance 

committee, the MA organization’s 

employees, managers and governing 

body, and the MA organization’s first 

tier, downstream, and related entities. 

Such lines of communication must be 

accessible to all and allow compliance 

issues to be reported including a 

method for anonymous and confidential 

good faith reporting of potential 

compliance issues as they are identified. 

(E) Well-publicized disciplinary 

standards through the implementation 

of procedures which encourage good 

faith participation in the compliance 

program by all affected individuals. 

These standards must include policies 

that— 

(1) Articulate expectations for 

reporting compliance issues and assist 

in their resolution, 

(2) Identify noncompliance or 

unethical behavior; and 

(3) Provide for timely, consistent, and 

effective enforcement of the standards 

when noncompliance or unethical 

behavior is determined. 

(F) Establishment and implementation 

of an effective system for routine 

monitoring and identification of 

compliance risks. The system should 

include internal monitoring and audits 

and, as appropriate, external audits, to 

evaluate the MA organization, including 

first tier entities’, compliance with CMS 

requirements and the overall 

effectiveness of the compliance 

program. 

(G) Establishment and 

implementation of procedures and a 

system for promptly responding to 

compliance issues as they are raised, 

investigating potential compliance 

problems as identified in the course of 

self-evaluations and audits, correcting 

such problems promptly and thoroughly 

to reduce the potential for recurrence, 

and ensure ongoing compliance with 

CMS requirements. 

(1) If the MA organization discovers 

evidence of misconduct related to 

payment or delivery of items or services 

under the contract, it must conduct a 

timely, reasonable inquiry into that 

conduct. 

(2) The MA organization must 

conduct appropriate corrective actions 

(for example, repayment of 

overpayments, disciplinary actions 

against responsible employees) in 

response to the potential violation 

referenced in paragraph (b)(4)(vi)(G)(1) 

of this section. 

(3) The MA organization should have 

procedures to voluntarily self-report 

potential fraud or misconduct related to 

the MA program to CMS or its designee. 

* * * * * 

(7) Not have terminated a contract by 

mutual consent under which, as a 

condition of the consent, the MA 

organization agreed that it was not 

eligible to apply for new contracts or 

service area expansions for a period of 

2 years per § 422.508(c) of this subpart. 

* * * * * 

■ 31. Section 422.504 is amended by— 

■ A. Redesignating paragraph (e)(1(ii) 

and (e)(1)(iii) as paragraph (e)(1)(iii) and 

(e)(1)(iv), respectively. 

■ B. Adding a new paragraph (e)(1)(ii). 

■ C. Revising newly redesignated 

paragraph (e)(1)(iii). 

■ D. Revising paragraph (i)(2)(i). 

■ E. Add a new paragraph (m). 

The additions and revisions read as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(e) * * * 

(1) * * * 

(ii) Compliance with CMS 

requirements for maintaining the 

privacy and security of protected health 

information and other personally 

identifiable information of Medicare 

enrollees; 

(iii) The facilities of the MA 

organization to include computer and 

other electronic systems; and 

* * * * * 

(i) * * * 

(2) * * * 

(i) 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 entities related to 

CMS’ contract with the MA 

organization. 

* * * * * 


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(m)(1) CMS may determine that an 

MA organization is out of compliance 

with a Part C requirement when the 

organization fails to meet performance 

standards articulated in the Part C 

statutes, regulations, or guidance. 

(2) If CMS has not already articulated 

a measure for determining 

noncompliance, CMS may determine 

that a MA organization is out of 

compliance when its performance in 

fulfilling Part C requirements represents 

an outlier relative to the performance of 

other MA organizations. 

■ 32. Section 422.506 is amended by— 

■ A. Revising paragraph (a)(2)(ii). 

■ B. Removing paragraph (a)(2)(iii). 

■ C. Revising paragraph (a)(3)(i). 

■ D. Adding a new paragraph (b)(1)(iv). 

■ E. Revising paragraph (b)(2)(ii). 

■ F. Removing paragraph (b)(2)(iii). 

■ G. Revising paragraph (b)(3). 

The revisions and addition read as 

follows: 

§ 422.506 Nonrenewal of contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective. The 

MA organization must also provide 

information about alternative 

enrollment options by doing one or 

more of the following: 

(A) Provide a CMS approved written 

description of alternative MA plan, 

MA–PD plan, and PDP options available 

for obtaining qualified Medicare 

services within the beneficiaries’ region. 

(B) Place outbound calls to all affected 

enrollees to ensure beneficiaries know 

who to contact to learn about their 

enrollment options. 

(3) * * * 

(i) The MA organization notifies its 

Medicare enrollees in accordance with 

paragraph (a)(2)(ii) of this section; and 

* * * * * 

(b) * * * 

(1) * * * 

(iv) The contract must be nonrenewed 

as to an individual MA plan if that plan 

does not have a sufficient number of 

enrollees to establish that it is a viable 

independent plan option. 

(2) * * * 

(ii) To each of the MA organization’s 

Medicare enrollees by mail at least 90 

calendar days before the date on which 

the nonrenewal is effective, or at the 

conclusion of the appeals process if 

applicable. 

(b) * * * 

(3) Opportunity to develop and 

implement a corrective action plan. 

(i) Before providing a notice of intent 

of nonrenewal of the contract, CMS will 

provide the MA organization with 

notice specifying the MA organization’s 

deficiencies and a reasonable 

opportunity of at least 30 calendar days 

to develop and implement a corrective 

action plan to correct the deficiencies. 

(ii) The MA organization is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

* * * * * 

■ 33. Section 422.508 is amended by 

adding paragraph (c) to read as follows: 

§ 422.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(c) Agreement to limit new MA 

applications. As a condition of the 

consent to a mutual termination CMS 

will require, as a provision of the 

termination agreement language 

prohibiting the MA organization from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. 

■ 34. Section 422.510 is amended by— 

■ A. Revising paragraphs (a), (b) 

introductory text, and (b)(2)(i). 

■ B. Redesignating paragraphs (b)(2)(ii) 

and (b)(2)(iii) as (b)(2)(iii) and (b)(2)(iv), 

respectively. 

■ C. Adding a new paragraph (b)(2)(ii). 

■ D. Revising paragraph (c). 

The revisions and addition read as 

follows: 

§ 422.510 Termination of contract by CMS. 

(a) Termination by CMS. CMS may at 

any time terminate a contract if CMS 

determines that the MA organization 

meets any of the following: 

(1) Has failed substantially to carry 

out the contract. 

(2) Is carrying out the contract in a 

manner that is inconsistent with the 

efficient and effective administration of 

this part. 

(3) No longer substantially meets the 

applicable conditions of this part. 

(4) Based on creditable evidence, has 

committed or participated in false, 

fraudulent or abusive activities affecting 

the Medicare, Medicaid or other State or 

Federal health care programs, including 

submission of false or fraudulent data. 

(5) Substantially fails to comply with 

the requirements in subpart M of this 

part relating to grievances and appeals. 

(6) Fails to provide CMS with valid 

data as required under § 422.310. 

(7) Fails to implement an acceptable 

quality assessment and performance 

improvement program as required under 

subpart D of this part. 

(8) Substantially fails to comply with 

the prompt payment requirements in 

§ 422.520. 

(9) Substantially fails to comply with 

the service access requirements in 

§ 422.112 or § 422.114. 

(10) Fails to comply with the 

requirements of § 422.208 regarding 

physician incentive plans. 

(11) Substantially fails to comply with 

the marketing requirements in subpart V 

of this part. 

(12) Fails to comply with the 

regulatory requirements contained in 

this part or part 423 of this chapter or 

both. 

(13) Fails to meet CMS performance 

requirements in carrying out the 

regulatory requirements contained in 

this part or part 423 of this chapter or 

both. 

(b) Notice. If CMS decides to 

terminate a contract it gives notice of 

the termination as follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. (i) The procedures specified in 

paragraph (b)(1) of this section do not 

apply if— 

(A) CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the MA 

organization; or 

(B) The MA organization experiences 

financial difficulties so severe that its 

ability to make necessary health services 

available is impaired to the point of 

posing an imminent and serious risk to 

the health of its enrollees, or otherwise 

fails to make services available to the 

extent that such a risk to health exists; 

or 

(C) The contract is being terminated 

based on the grounds specified in 

paragraph (a)(4) of this section. 

(ii) CMS notifies the MA organization 

in writing that its contract will be 

terminated on a date specified by CMS. 

If a termination is effective in the 

middle of a month, CMS has the right 

to recover the prorated share of the 

capitation payments made to the MA 

organization covering the period of the 

month following the contract 

termination. 

* * * * * 

(c) Opportunity to develop and 

implement a corrective action plan—(1) 

General. (i) Before providing a notice of 

intent to terminate the contract, CMS 

will provide the MA organization with 

notice specifying the MA organization’s 

deficiencies and a reasonable 


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19812 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

opportunity of at least 30 calendar days 

to develop and implement a corrective 

action plan to correct the deficiencies. 

(ii) The MA organization is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

(2) Exceptions. The MA organization 

will not be provided with an 

opportunity to develop and implement 

a corrective action plan prior to 

termination if— 

(i) CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the MA 

organization; 

(ii) The MA organization experiences 

financial difficulties so severe that its 

ability to make necessary health services 

available is impaired to the point of 

posing an imminent and serious risk to 

the health of its enrollees, or otherwise 

fails to make services available to the 

extent that such a risk to health exists; 

or 

(iii) The contract is being terminated 

based on the violation specified in (a)(4) 

of this section. 

* * * * * 

■ 35. Section 422.516 is amended by— 

■ A. Revising the section heading. 

■ B. Adding a new paragraph (g). 

The revision and addition to read as 

follows: 

§ 422.516 Validation of Part C reporting 

requirements. 

* * * * * 

(g) Data validation. Each Part C 

sponsor must subject information 

collected under paragraph (a) of this 

section to a yearly independent audit to 

determine their reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. 

Subpart M—Grievances, Organization 

Determinations, and Appeals 

■ 36. Section 422.561 is amended by 

revising the definition of 

‘‘Representative’’ to read as follows: 

§ 422.561 Definitions. 

* * * * * 

Representative means an individual 

appointed by an enrollee or other party, 

or authorized under State or other 

applicable law, to act on behalf of an 

enrollee or other party involved in the 

grievance or appeal. Unless otherwise 

stated in this subpart, the representative 

will have all the rights and 

responsibilities of an enrollee or party 

in filing a grievance, and in obtaining an 

organization determination or in dealing 

with any of the levels of the appeals 

process, subject to the applicable rules 

described in part 405 of this chapter. 

§ 422.566 [Amended] 

■ 37. Section 422.566 is amended by— 

■ A. Republishing paragraph (b) 

introductory text. 

■ B. Revising paragraph (b)(4). 

■ C. Redesignating paragraph (b)(5) as 

(b)(6). 

■ D. Adding a new paragraph (b)(5). 

■ E. In paragraphs (c)(1)(i), and (c)(2)(i) 

removing the parenthetical phrase 

‘‘(including his or her authorized 

representative)’’ is removed and 

‘‘(including his or her representative)’’ is 

added in its place. 

The revision and addition to read as 

follows: 

§ 422.566 Organization determinations. 

* * * * * 

(b) Actions that are organization 

determinations. An organization 

determination is any determination 

made by an MA organization with 

respect to any of the following: 

* * * * * 

(4) Reduction, or premature 

discontinuation, of a previously 

authorized ongoing course of treatment. 

(5) Reduction of a previously 

authorized course of treatment if the 

enrollee believes that continuation of 

the course of treatment is medically 

necessary. 

* * * * * 

■ 38. Section 422.568 is amended by — 

■ A. Redesignating paragraphs (a) 

through (f) as paragraphs (b) through (g), 

respectively. 

■ B. Adding a new paragraph (a). 

■ C. Revising newly designated 

paragraph (d). 

The addition and revision read as 

follows: 

§ 422.568 Standard timeframes and notice 

requirements for organization 

determinations. 

(a) Method and place for filing a 

request. An enrollee must ask for a 

standard organization determination by 

making a request with the MA 

organization or, if applicable, to the 

entity responsible for making the 

determination (as directed by the MA 

organization), in accordance with the 

following: 

(1) The request may be made orally or 

in writing, except as provided in 

paragraph (a)(2) of this section. 

(2) Requests for payment must be 

made in writing (unless the MA 

organization or entity responsible for 

making the determination has 

implemented a voluntary policy of 

accepting verbal payment requests). 

* * * * * 

(d) Written notice for MA organization 

denials. The MA organization must give 

the enrollee a written notice if— 

(1) An MA organization decides to 

deny service or payment in whole or in 

part, or reduce or prematurely 

discontinue the level of care for a 

previously authorized ongoing course of 

treatment. 

(2) An enrollee requests an MA 

organization to provide an explanation 

of a practitioner’s denial of an item or 

service, in whole or in part. 

* * * * * 

■ 39. Section 422.574 is amended by 

revising paragraph (a) to read as follows: 

§ 422.574 Parties to the organization 

determination. 

* * * * * 

(a) The enrollee (including his or her 

representative); 

* * * * * 

■ 40. Section 422.622 is amended by 

revising paragraph (f)(3) to read as 

follows: 

§ 422.622 Requesting immediate QIO 

review of the decision to discharge from the 

inpatient hospital. 

* * * * * 

(f) * * * 

(3) If the QIO determines that the 

enrollee still requires inpatient hospital 

care, the hospital must provide the 

enrollee with a notice consistent with 

§ 422.620(c) of this subpart when the 

hospital or MA organization once again 

determines that the enrollee no longer 

requires inpatient hospital care. 

* * * * * 

■ 41. Section 422.624 is amended by 

revising paragraph (c)(1) to read as 

follows: 

§ 422.624 Notifying enrollees of 

termination of provider services. 

* * * * * 

(c) * * * 

(1) The enrollee (or the enrollee’s 

representative) has signed and dated the 

notice to indicate that he or she has 

received the notice and can comprehend 

its contents; and 

* * * * * 

■ 42. Section 422.626 is amended by— 

■ A. Redesignating paragraph (f) as 

paragraph (g). 

■ B. Redesignating paragraph (e)(5) as 

paragraph (f) and revising the newly 

redesignated paragraph (f). 


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The revisions read as follows: 

§ 422.626 Fast-track appeals of service 

terminations to independent review entities 

(IREs). 

* * * * * 

(f) Responsibilities of the provider. If 

an IRE reverses an MA organization’s 

termination decision, the provider must 

provide the enrollee with a new notice 

consistent with § 422.624(b) of this 

subpart. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

■ 43. Section 422.644 is amended by 

revising paragraph (c) to read as follows: 

§ 422.644 Notice of contract determination. 

* * * * * 

(c) CMS-initiated terminations—(1) 

General rule. Except as provided in 

(c)(2) of this section, CMS mails notice 

to the MA organization 90 calendar days 

before the anticipated effective date of 

the termination. 

(2) Exception. If a contract is 

terminated in accordance with 

§ 422.510(b)(2)(i) of this part, CMS 

notifies the MA organization of the date 

that it will terminate the MA 

organization’s contract. 

* * * * * 

■ 44. Section § 422.660 is revised to 

read as follows: 

§ 422.660 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

(a) Right to a hearing. The following 

parties are entitled to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS under Part C 

of Title XVIII of the Act in accordance 

with § 422.501 and § 422.502. 

(2) An MA organization whose 

contract has been terminated under 

§ 422.510 of this part. 

(3) An MA organization whose 

contract has not been renewed under 

§ 422.506 of this part. 

(4) An MA organization who has had 

an intermediate sanction imposed in 

accordance with § 422.752(a) through 

(b) of this part. 

(b) Burden of proof, standard of proof, 

and standards of review at a hearing. (1) 

During a hearing to review a contract 

determination as described at 

§ 422.641(a) of this subpart, the 

applicant has the burden of proving by 

a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.501 and 

§ 422.502 of this part. 

(2) During a hearing to review a 

contract determination as described at 

§ 422.641(b) of this subpart, the MA 

organization has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.506 of 

this part. 

(3) During a hearing to review a 

contract determination as described at 

§ 422.641(c) of this subpart, the MA 

organization has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.510 of 

this part. 

(4) During a hearing to review the 

imposition of an intermediate sanction 

as described at § 422.750 of this part, the 

MA organization has the burden of 

proving by a preponderance of the 

evidence that CMS’ determination was 

inconsistent with the requirements of 

§ 422.752 of this part. 

(c) Timing of favorable decisions. 

Notice of any decision favorable to the 

MA organization appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by September 1 for the contract 

in question to be effective on January 1 

of the following year. 

■ 45. Section 422.662 is amended by 

revising paragraphs (a) and (b) to read 

as follows: 

§ 422.662 Request for hearing. 

(a) Method and place for filing a 

request. (1) A request for a hearing must 

be made in writing and filed by an 

authorized official of the contract 

applicant or MA organization that was 

the party to the determination under the 

appeal. 

(2) The request for the hearing must 

be filed in accordance with the 

requirements specified in the notice. 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

calendar days after the receipt of the 

notice of the contract determination or 

intermediate sanction. 

* * * * * 

■ 46. Section 422.664 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 422.664 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

* * * * * 

(b) * * * 

(2) A contract terminated in 

accordance with § 422.510(b)(2)(i) of 

this part will be terminated on the date 

specified by CMS and will not be 

postponed if a hearing is requested. 

■ 47. Section 422.670 is revised to read 

as follows: 

§ 422.670 Time and place of hearing. 

(a) The hearing officer— 

(1) Fixes a time and place for the 

hearing, which is not to exceed 30 

calendar days after the receipt of the 

request for the hearing; and 

(2) Sends written notice to the parties 

that informs the parties of the general 

and specific issues to be resolved, the 

burden of proof, and information about 

the hearing procedure. 

(b)(1) The hearing officer may, on his 

or her own motion, change the time and 

place of the hearing. 

(2) The hearing officer may adjourn or 

postpone the hearing. 

(c)(1) The MA organization or CMS 

may request an extension by filing a 

written request no later than 10 calendar 

days prior to the scheduled hearing. 

(2) When either the MA organization 

or CMS requests an extension, the 

hearing officer will provide a one-time 

15 calendar day extension. 

(3) Additional extensions may be 

granted at the discretion of the hearing 

officer. 

■ 48. Section 422.676 is amended by 

revising paragraph (d) to read as 

follows: 

§ 422.676 Conduct of hearing. 

* * * * * 

(d) The MA organization bears the 

burden of going forward and must first 

present evidence and argument before 

CMS presents its evidence and 

argument. 

■ 49. Section 422.682 is revised to read 

as follows: 

§ 422.682 Witness lists and documents. 

Witness lists and documents must be 

identified and exchanged at least 5 

calendar days before the scheduled 

hearing. 

■ 50. Section 422.692 is amended by 

revising paragraphs (a) and (c) to read as 

follows: 

§ 422.692 Review by the Administrator. 

(a) Request for review by 

Administrator. CMS or an MA 

organization that has received a hearing 

decision may request a review by the 

Administrator within 15 calendar days 

after receipt of the hearing decision as 

provided under § 422.690(b). Both the 

MA organization and CMS may provide 

written arguments to the Administrator 

for review. 

* * * * * 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days after receipt of request for review. 


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If the Administrator declines to review 

the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

hearing officer is final. 

* * * * * 

■ 51. Section 422.696 is amended by 

revising the section heading and 

paragraph heading for paragraph (a) to 

read as follows: 

§ 422.696 Reopening of a contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Contract determination.* * * 

* * * * * 

Subpart O—Intermediate Sanctions 

■ 52. Section 422.750 is amended by 

revising paragraph (a) to read as follows: 

§ 422.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur: 

(1) Suspension of the MA 

organization’s enrollment of Medicare 

beneficiaries. 

(2) Suspension of payment to the MA 

organization for Medicare beneficiaries 

enrolled after the date CMS notifies the 

organization of the intermediate 

sanction. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by 

an MA organization. 

* * * * * 

■ 53. Section 422.752 is amended by 

revising paragraphs (a) introductory 

text, (a)(1), (a)(3), and (a)(4) to read as 

follows: 

§ 422.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph, CMS 

may impose one or more of the 

sanctions specified in § 422.750(a) of 

this subpart on any MA organization 

with a contract. The MA organization 

may also be subject to other remedies 

authorized under law. 

(1) Fails substantially to provide 

medically necessary items and services 

that are required (under law or under 

the contract) to be provided to an 

individual covered under the contract, if 

the failure has adversely affected (or has 

the substantial likelihood of adversely 

affecting) the individual. 

* * * * * 

(3) Acts to expel or refuses to re-enroll 

a beneficiary in violation of the 

provisions of this part. 

(4) Engages in any practice that would 

reasonably be expected to have the 

effect of denying or discouraging 

enrollment (except as permitted by this 

part) by eligible individuals with the 

organization whose medical condition 

or history indicates a need for 

substantial future medical services. 

* * * * * 

■ 54. Section 422.756 amended by— 

■ A. Revising paragraph (b). 

■ B. Removing paragraph (c). 

■ C. Redesignating paragraphs (d) 

through (f) as paragraphs (c) through (e), 

respectively. 

■ D. Revising the newly redesignated 

paragraphs (c)(1) and (c)(3). 

The revisions read as follows: 

§ 422.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

* * * * * 

(b) Hearing. (1) The MA organization 

may request a hearing before a CMS 

hearing officer. 

(2) A written request must be received 

by the designated CMS office within 15 

calendar days after the receipt of the 

notice. 

(3) A request for a hearing under 

§ 422.660 does not delay the date 

specified by CMS when the sanction 

becomes effective. 

(4) The MA organization must follow 

the right to a hearing procedure as 

specified at § 422.660 through § 422.684. 

(c) Effective date and duration of 

sanction—(1) Effective date. The 

effective date of the sanction is the date 

specified by CMS in the notice. 

* * * * * 

(3) Duration of sanction. The sanction 

remains in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur. 

(i) CMS may require that the MA 

organization hire an independent 

auditor to provide CMS with additional 

information to determine if the 

deficiencies that are the basis for the 

sanction determination have been 

corrected and are not likely to recur. 

The independent auditor must work in 

accordance with CMS specifications and 

must be willing to attest that a complete 

and full independent review has been 

performed. 

(ii) In instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed, CMS may 

require an MA organization to market or 

to accept enrollments or both for a 

limited period of time in order to assist 

CMS 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. 

(A) If, following this time period, 

CMS determines the deficiencies have 

not been corrected or are likely to recur, 

the intermediate sanctions will remain 

in effect until such time that CMS is 

assured the deficiencies have been 

corrected and are not likely to recur. 

(B) The MA organization does not 

have a right to a hearing under 

§ 422.660(a)(4) of this part to challenge 

CMS’ determination to keep the 

intermediate sanctions in effect. 

* * * * * 

Subpart V—Medicare Advantage 

Marketing Requirements 

■ 55. Section 422.2260 is amended by 

revising paragraph (5)(vii) of the 

definition of ‘‘marketing materials’’ and 

adding a new paragraph (6) to read as 

follows: 

§ 422.2260 Definitions concerning 

marketing materials. 

* * * * * 

Marketing materials.* * * 

(5) * * * 

(vii) Membership activities (for 

example, materials on rules involving 

non-payment of premiums, 

confirmation of enrollment or 

disenrollment, or nonclaim specific 

notification information).— 

(6) Marketing materials exclude ad 

hoc enrollee communications materials, 

meaning informational materials that— 

(i) Are targeted to current enrollees; 

(ii) Are customized or limited to a 

subset of enrollees or apply to a specific 

situation; 

(iii) Do not include information about 

the plan’s benefit structure; and 

(iv) Apply to a specific situation or 

cover claims processing or other 

operational issues. 

■ 56. Section 422.2262 is amended by— 

■ A. Revising the section heading. 

■ B. Revising paragraphs (a)(1) and (b). 

■ C. Adding new paragraphs (c) and (d). 

The revisions and additions read as 

follows: 

§ 422.2262 Review and distribution of 

marketing materials. 

(a) * * * 

(1) Except as provided in paragraph 

(b) of this section, an MA organization 

may not distribute any marketing 

materials (as defined in § 422.2260 of 

this subpart), or election forms, or make 

such materials or forms available to 

individuals eligible to elect an MA 

organization unless— 


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(i) At least 45 days (or 10 days if using 

certain types of marketing materials that 

use, without modification, proposed 

model language and format, including 

standardized language and formatting, 

as specified by CMS) before the date of 

distribution the MA organization has 

submitted the material or form to CMS 

for review under the guidelines in 

§ 422.2264 of this subpart; and 

(ii) CMS does not disapprove the 

distribution of new material or form. 

* * * * * 

(b) File and use. The MA organization 

may distribute certain types of 

marketing material, designated by CMS, 

5 days following their submission to 

CMS if the MA organization certifies 

that in the case of these marketing 

materials, it followed all applicable 

marketing guidelines and, when 

applicable, used model language 

specified by CMS without modification. 

(c) Standardized model marketing 

materials. When specified by CMS, 

organizations must use standardized 

formats and language in model 

materials. 

(d) Ad hoc enrollee communication 

materials. Ad hoc enrollee 

communication materials may be 

reviewed by CMS, which may upon 

review determine that such materials 

must be modified, or may no longer be 

used. 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

■ 57. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

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

1395w–152, and 1395hh). 

Subpart B—Eligibility and Enrollment 

■ 58. Section 423.34 is revised to read 

as follows: 

§ 423.34 Enrollment of low-income 

subsidy eligible individuals. 

(a) General rule. CMS must ensure the 

enrollment into Part D plans of lowincome subsidy eligible individuals 

who fail to enroll in a Part D plan. 

(b) Definitions—Full-benefit dualeligible individual. For purposes of this 

section, a full-benefit dual eligible 

individual means an individual who 

is— 

(1) Determined eligible by the State 

for— 

(i) Medical assistance for full-benefits 

under Title XIX of the Act for the month 

under any eligibility category covered 

under the State plan or comprehensive 

benefits under a demonstration under 

section 1115 of the Act; or 

(ii) Medical assistance under section 

1902(a)(10(C) of the Act (medically 

needy) or section 1902(f) of the Act 

(States that use more restrictive 

eligibility criteria than are used by the 

SSI program) for any month if the 

individual was eligible for medical 

assistance in any part of the month. 

(2) Eligible for Part D in accordance 

with § 423.30(a) of this subpart. 

Low-income subsidy-eligible 

individual. For purposes of this section, 

a low-income subsidy eligible 

individual means an individual who 

meets the definition of full subsidy 

eligible (including full benefit dual 

eligible individuals as set forth in this 

section) or other subsidy eligible in 

§ 423.772 of this part. 

(c) Reassigning low-income subsidyeligible individuals. Notwithstanding 

§ 423.32(e) of this subpart, during the 

annual coordinated election period, 

CMS may reassign certain low-income 

subsidy-eligible individuals in another 

PDP if CMS determines that the further 

enrollment is warranted. 

(d) Enrollment rules—(1) General rule. 

Except for low-income subsidy eligible 

individuals who are qualifying covered 

retirees with a group health plan 

sponsor as specified in paragraph (d)(3) 

of this section, CMS enrolls those 

individuals who fail to enroll in a Part 

D plan into a PDP offering basic 

prescription drug coverage in the area 

where the beneficiary resides that has a 

monthly beneficiary premium amount 

that does not exceed the low-income 

subsidy amount (as defined in 

§ 423.780(b) of this part). In the event 

that there is more than one PDP in an 

area with a monthly beneficiary 

premium at or below the low-income 

premium subsidy amount, individuals 

are enrolled in such PDPs on a random 

basis. 

(2) Individuals enrolled in an MSA 

plan or one of the following that does 

not offer a Part D benefit. Low-income 

subsidy eligible individuals enrolled in 

an MA private fee-for-service plan or 

cost-based HMO or CMP that does not 

offer qualified prescription drug 

coverage or an MSA plan and who fail 

to enroll in a Part D plan must be 

enrolled into a PDP plan as described in 

paragraph (d)(1) of this section. 

(3) Exception for individuals who are 

qualifying covered retirees. (i) Full 

benefit dual eligible individuals who are 

qualifying covered retirees as defined in 

§ 423.882 of this part, and for whom 

CMS has approved the group health 

plan sponsor to receive the retirement 

drug subsidy described in subpart R of 

this part, also are automatically enrolled 

in a Part D plan, consistent with this 

paragraph, unless they elect to decline 

that enrollment. 

(ii) Before effectuating such an 

enrollment, CMS provides notice to 

such individuals of their choices and 

advises them to discuss the potential 

impact of Medicare Part D coverage on 

their group health plan coverage. The 

notice informs individuals that they will 

be deemed to have declined to enroll in 

Part D unless they affirmatively enroll 

in a Part D plan or contact CMS and 

confirm that they wish to be autoenrolled in a PDP. Individuals who elect 

not to be auto-enrolled, may enroll in 

Medicare Part D at a later time if they 

choose to do so. 

(iii) All other low income subsidy 

eligible beneficiaries who are qualified 

covered retirees are not enrolled by 

CMS into PDPs. 

(e) Declining enrollment and 

disenrollment. Nothing in this section 

prevents a low income subsidy eligible 

individual from— 

(1) Affirmatively declining enrollment 

in Part D; or 

(2) Disenrolling from the Part D plan 

in which the individual is enrolled and 

electing to enroll in another Part D plan 

during the special enrollment period 

provided under § 423.38. 

(f) Effective date of enrollment for 

full-benefit dual eligible individuals. 

Enrollment of full-benefit dual eligible 

individuals under this section must be 

effective as follows: 

(1) January 1, 2006 for individuals 

who are full-benefit dual-eligible 

individuals as of December 31, 2005. 

(2) The first day of the month the 

individual is eligible for Part D under 

§ 423.30(a)(1) for individuals who are 

Medicaid eligible and subsequently 

become newly eligible for Part D under 

§ 423.30(a)(1) on or after January 1, 

2006. 

(3) For individuals who are eligible 

for Part D under § 423.30(a)(1) of this 

subpart and subsequently become newly 

eligible for Medicaid on or after January 

1, 2006, enrollment is effective with the 

first day of the month when the 

individuals become eligible for both 

Medicaid and Part D. 

(g) Effective date of enrollment for 

non-full-benefit dual-eligible 

individuals who are low-income 

subsidy-eligible individuals. The 

effective date for non-full-benefit dualeligible individuals who are low-income 

subsidy-eligible individuals is no later 

than the first day of the second month 

after CMS determines that they meet the 

criteria for enrollment under this 

section. 


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■ 59. Section 423.38 is amended by 

revising paragraph (c)(4) to read as 

follows: 

§ 423.38 Enrollment periods. 

* * * * * 

(c) * * * 

(4) The individual is a full-subsidy 

eligible individual or other subsidyeligible individual as defined in 

§ 423.772 of this part. 

* * * * * 

■ 60. Section 423.44 is amended by— 

■ A. Redesignating paragraphs (d)(1)(iii) 

and (d)(1)(iv) as paragraphs (d)(1)(iv) 

and (d)(1)(v), respectively. 

■ B. Adding a new paragraph (d)(1)(iii). 

■ C. Redesignating the introductory text 

of paragraph (d)(5) as paragraph 

(d)(5)(i). 

■ D. Adding new paragraph (d)(5)(ii). 

The revisions and additions read as 

follows: 

§ 423.44 Involuntary disenrollment by the 

PDP. 

* * * * * 

(d) * * * 

(1) * * * 

(iii) The PDP sponsor provides the 

individual with a grace period, that is, 

an opportunity to pay past due 

premiums in full. The grace period 

must— 

(A) Be at least 2 months; and 

(B) Begin on the first day of the month 

for which the premium is unpaid or the 

first day of the month following the date 

on which premium payment is 

requested, whichever is later. 

* * * * * 

(5) * * * 

(ii) Special rule. If the individual has 

not moved from the PDP service area, 

but has been absent from the service 

area for more than 12 consecutive 

months, the PDP sponsor must disenroll 

the individual from the plan effective on 

the first day of the 13th month after the 

individual left the service area. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

■ 61. Section 423.100 is amended by 

adding the definitions of ‘‘Drug category 

or class,’’ ‘‘Major or life threatening 

clinical consequences,’’ ‘‘Multiple 

drugs,’’ ‘‘Restricted access,’’ and 

‘‘Significant need for access to multiple 

drugs’’ to read as follows: 

§ 423.100 Definitions. 

* * * * * 

Drug category or class means, for the 

purpose of § 423.120(b)(2)(v) of the 

subpart, the identification of a drug 

grouping that is reasonable to identify 

the applicable drug products. 

* * * * * 

Major or life threatening clinical 

consequences means consequences in 

which serious clinical events may arise 

as a result of not taking a drug that can 

lead to patient hospitalization, or a 

persistent or significant disability or 

incapacity, or that can result in death. 

Multiple drugs mean two or more Part 

D drugs. 

* * * * * 

Restricted access means, for the 

purposes of § 423.120(b)(2)(v)(A) of this 

subpart, an enrollee who but for 

§ 423.120(b0(2)(v) of this subpart 

urgently requires a Part D drug but is 

waiting for an expedited 

redetermination by a Part D plan or an 

CMS independent review entity with 

respect to coverage of that drug. 

* * * * * 

Significant need for access to multiple 

drugs means instances in which — 

(1) There is a need for simultaneous 

use of drugs within a drug grouping 

because such drugs work in 

combination with each other; or 

(2) There is a strong likelihood of 

sequential use of drugs within a class or 

category within a short period of time 

due to the unique effects the drugs have 

on various individuals. 

* * * * * 

■ 62. Section 423.104 by— 

■ A. Revising paragraph (b). 

■ B. Adding a new paragraph (d)(2)(iii). 

The revision and addition read as 

follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(b) Availability of prescription drug 

plan. A PDP sponsor offering a 

prescription drug plan must offer the 

plan— 

(1) To all Part D eligible beneficiaries 

residing in the plan’s service area; and 

(2) At a uniform premium, with 

uniform benefits and level of costsharing throughout the plan’s service 

area. 

* * * * * 

(d) * * * 

(2) * * * 

(iii) Tiered cost sharing under 

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

may not exceed levels annually 

determined by CMS to be 

discriminatory. 

* * * * * 

■ 63. Section 423.112 is amended by 

revising paragraph (a) to read as follows: 

§ 423.112 Establishment of prescription 

drug plan sponsor service areas. 

(a) Service area for prescription drug 

plan sponsors. The service area for a 

prescription drug plan sponsor other 

than a fallback prescription drug plan 

sponsor consists of one or more PDP 

regions as established under paragraphs 

(b) and (c) of this section. 

* * * * * 

■ 64. Section 423.120 is amended by— 

■ A. Revising paragraph (a). 

■ B. Redesignating paragraphs (b)(1)(ix) 

as paragraph (b)(1)(x). 

■ C. Adding a new paragraph (b)(1)(ix). 

■ E. Revising paragraph (b)(3). 

■ F. Redesignating paragraph (c) as 

paragraph (c)(1). 

■ G. Adding new paragraphs (c)(2) 

through (c)(4). 

The revisions and additions read as 

follows: 

§ 423.120 Access to covered Part D drugs. 

(a) Assuring pharmacy access—(1) 

Standards for convenient access to 

network pharmacies. Except as provided 

in paragraph (a)(7) of this section, a Part 

D sponsor (as defined in § 423.4 of this 

part) must have a contracted pharmacy 

network consisting of retail pharmacies 

sufficient to ensure that, for 

beneficiaries residing in each State in a 

PDP sponsor’s service area (as defined 

in § 423.112(a) of this part), each State 

in a regional MA-organization’s service 

area (as defined in § 422.2 of this part), 

the entire service area of a local MA 

organization (as defined in § 422.2 of 

this chapter) or the entire geographic 

area of a cost contract (as defined in 

§ 417.401 of this chapter) all of the 

following requirements are satisfied: 

(i) At least 90 percent of Medicare 

beneficiaries, on average, in urban areas 

served by the Part D sponsor live within 

2 miles of a network pharmacy that is 

a retail pharmacy or a pharmacy 

described under paragraph (a)(2) of this 

section. 

(ii) At least 90 percent of Medicare 

beneficiaries, on average, in suburban 

areas served by the Part D sponsor live 

within 5 miles of a network pharmacy 

that is a retail pharmacy or a pharmacy 

described under paragraph (a)(2) of this 

section. 

(iii) At least 70 percent of Medicare 

beneficiaries, on average, in rural areas 

served by the Part D sponsor live within 

15 miles of a network pharmacy that is 

a retail pharmacy or a pharmacy 

described under paragraph (a)(2) of this 

section. 

(2) Applicability of some non-retail 

pharmacies to standards for convenient 

access. Part D sponsors may count I/T/ 

U pharmacies and pharmacies operated 


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by Federally Qualified Health Centers 

and Rural Health Centers toward the 

standards for convenient access to 

network pharmacies in paragraph (a)(1) 

of this section. 

(3) Access to non-retail pharmacies. A 

Part D sponsor’s contracted pharmacy 

network may be supplemented by nonretail pharmacies, including pharmacies 

offering home delivery via mail-order 

and institutional pharmacies, provided 

the requirements of paragraph (a)(1) of 

this section are met. 

(4) Access to home infusion 

pharmacies. A Part D sponsor’s 

contracted pharmacy network must 

provide adequate access to home 

infusion pharmacies consistent with 

written policy guidelines and other 

CMS instructions. A Part D plan must 

ensure that such network pharmacies, at 

a minimum meet all the following 

requirements: 

(i) Are capable of delivering homeinfused drugs in a form that can be 

administered in a clinically appropriate 

fashion. 

(ii) Are capable of providing infusible 

Part D drugs for both short-term acute 

care and long-term chronic care 

therapies. 

(iii) Ensure that the professional 

services and ancillary supplies 

necessary for home infusion therapy are 

in place before dispensing Part D home 

infusion drugs. 

(iv) Provide delivery of home infusion 

drugs within 24 hours of discharge from 

an acute care setting, or later if so 

prescribed. 

(5) Access to long-term care 

pharmacies. A Part D sponsor must offer 

standard contracting terms and 

conditions, including performance and 

service criteria for long-term care 

pharmacies that CMS specifies, to all 

long-term care pharmacies in its service 

area. The sponsor must provide 

convenient access to long-term care 

pharmacies consistent with written 

policy guidelines and other CMS 

instructions. 

(6) Access to I/T/U pharmacies. A 

Part D sponsor must offer standard 

contracting terms and conditions 

conforming to the model addendum that 

CMS develops, to all I/T/U pharmacies 

in its service area. The sponsor must 

provide convenient access to I/T/U 

pharmacies consistent with written 

policy guidelines and other CMS 

instructions. 

(7) Waiver of pharmacy access 

requirements. CMS waives the 

requirements under paragraph (a)(1) of 

this section in the case of either of the 

following: 

(i) An MA organization or cost 

contract (as described in section 1876(h) 

of the Act) that provides its enrollees 

with access to covered Part D drugs 

through pharmacies owned and 

operated by the MA organization or cost 

contract, provided the organization’s or 

plan’s pharmacy network meets the 

access standard set forth— 

(A) At § 422.112 of this chapter for an 

MA organization; or 

(B) At § 417.416(e) of this chapter for 

a cost contract. 

(ii) An MA organization offering a 

private fee-for-service plan described in 

§ 422.4 of this chapter that— 

(A) Offers qualified prescription drug 

coverage; and 

(B) Provides plan enrollees with 

access to covered Part D drugs 

dispensed at all pharmacies, without 

regard to whether they are contracted 

network pharmacies and without 

charging cost-sharing in excess of that 

described in § 423.104(d)(2) and (d)(5). 

(8) Pharmacy network contracting 

requirements. In establishing its 

contracted pharmacy network, a Part D 

sponsor offering qualified prescription 

drug coverage— 

(i) Must contract with any pharmacy 

that meets the Part D sponsor’s standard 

terms and conditions; and 

(ii) May not require a pharmacy to 

accept insurance risk as a condition of 

participation in the Part D sponsor’s 

contracted pharmacy network. 

(9) Differential cost-sharing for 

preferred 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 preferred pharmacy 

relative to the copayments or 

coinsurance applicable for such drugs 

when obtained through a non-preferred 

pharmacy. Such differentials are taken 

into account in determining whether the 

requirements under § 423.104(d)(2) and 

(d)(5) and § 423.104(e) are met. Any 

cost-sharing reduction under this 

section must not increase CMS 

payments to the Part D plan under 

§ 423.329. 

(10) Level playing field between mailorder and network pharmacies. A Part D 

sponsor must permit its Part D plan 

enrollees to receive benefits, which may 

include a 90-day supply of covered Part 

D drugs, at any of its network 

pharmacies that are retail pharmacies. A 

Part D sponsor may require an enrollee 

obtaining a covered Part D drug at a 

network pharmacy that is a retail 

pharmacy to pay any higher cost-sharing 

applicable to that covered Part D drug 

at the network pharmacy that is a retail 

pharmacy instead of the cost-sharing 

applicable to that covered Part D drug 

at the network pharmacy that is a mailorder pharmacy. 

(b) * * * 

(1) * * * 

(ix) Reviews and approves all clinical 

prior authorization criteria, step therapy 

protocols, and quantity limit restrictions 

applied to each covered Part D drug. 

* * * * * 

(3) Transition process. A Part D 

sponsor must provide for an appropriate 

transition process for enrollees 

prescribed Part D drugs that are not on 

its Part D plan’s formulary (including 

Part D drugs that are on a sponsor’s 

formulary but require prior 

authorization or step therapy under a 

plan’s utilization management rules). 

The transition process must: 

(i) Be applicable to all of the 

following: 

(A) New enrollees into Part D plans 

following the annual coordinated 

election period. 

(B) Newly eligible Medicare enrollees 

from other coverage. 

(C) Individuals who switch from one 

plan to another after the start of the 

contract year. 

(D) Current enrollees remaining in the 

plan affected by formulary changes. 

(ii) Ensure access to a temporary 

supply of drugs within the first 90 days 

of coverage under a new plan. This 90 

day timeframe applies to retail, home 

infusion, long-term care and mail-order 

pharmacies, 

(iii) Ensure the provision of a 

temporary fill when an enrollee requests 

a fill of a non-formulary drug during the 

time period specified in paragraph 

(b)(3)(ii) of this section (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). 

(A) In the outpatient setting, the onetime, temporary supply of nonformulary Part D drugs (including Part 

D drugs that are on a sponsor’s 

formulary but require prior 

authorization or step therapy under a 

sponsor’s utilization management rules) 

must be for at least 30 days of 

medication, unless the prescription is 

written by a prescriber for less than 30 

days and requires the Part D sponsor to 

allow multiple fills to provide up to a 

total of 30 days of medication. 

(B) In the long-term care setting, the 

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules) must be for up to 93 

days in 31 day supply increments, with 

refills provided, if needed, unless a 


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lesser amount is actually prescribed by 

the prescriber. 

(iv) Ensure written notice is provided 

to each affected enrollee within 3 

business days after adjudication of the 

temporary fill. 

(v) Ensure that reasonable efforts are 

made to notify prescribers of affected 

enrollees who receive a transition notice 

under paragraph (b)(3)(iv) of this 

section. 

(c) * * * 

(2) When processing Part D claims, a 

Part D sponsor or its intermediary must 

comply with the electronic transaction 

standards established by 45 CFR 

162.1102. CMS will issue guidance on 

the use of conditional fields within such 

standards. 

(3) A Part D sponsor must require its 

network pharmacies to submit claims to 

the Part D sponsor or its intermediary 

whenever the card described in 

paragraph (c)(1) of this section is 

presented or on file at the pharmacy 

unless the enrollee expressly requests 

that a particular claim not be submitted 

to the Part D sponsor or its 

intermediary. 

(4) Beginning January 1, 2012, a part 

D sponsor must assign and exclusively 

use a unique— 

(i) Part D BIN or RxBIN and Part D 

processor control number (RxPCN) 

combination in its Medicare line of 

business; and 

(ii) Part D cardholder identification 

number (RxID) to each Medicare Part D 

enrollee to clearly identify Medicare 

Part D beneficiaries. 

■ 65. Section 423.128 is amended by 

adding a new paragraph (f) to read as 

follows: 

§ 423.128 Dissemination of Part D plan 

information. 

* * * * * 

(f) Disclosure requirements. CMS may 

require a Part D plan sponsor to disclose 

to its enrollees or potential enrollees, 

the Part D plan sponsor’s performance 

and contract compliance deficiencies in 

a manner specified by CMS. 

■ 66. Section 423.132 is amended by— 

■ A. Revising the introductory text of 

paragraph c. 

■ B. In paragraphs (c)(2) and (c)(3), 

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

place. 

■ C. In paragraph (c)(4), removing ‘‘; 

and’’ and adding a ‘‘.’’ in its place. 

■ D. Redesignating paragraph (c)(5) as 

(c)(6). 

■ E. Adding a new paragraph (c)(5). 

■ F. Revising paragraph (d). 

The revisions and additions read as 

follows: 

§ 423.132 Public disclosure of 

pharmaceutical prices for equivalent drugs. 

* * * * * 

(c) Waiver of public disclosure 

requirement. CMS waives the 

requirement under paragraph (a) of this 

section in any of the following cases: 

* * * * * 

(5) A long-term care network 

pharmacy. 

* * * * * 

(d) Modification of timing 

requirement. CMS modifies the 

requirement under paragraph (b) of this 

section under circumstances where 

CMS deems compliance with this 

requirement to be impossible or 

impracticable. 

Subpart D—Cost Control and Quality 

Improvement Requirements 

■ 67. Section 423.153 is amended by— 

■ A. Adding paragraphs (d)(1)(v) 

through (vii). 

■ B. Revising paragraph (d)(2). 

The additions and revisions read as 

follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs). 

* * * * * 

(d) * * * 

(1) * * * 

(v) Must enroll targeted beneficiaries 

using an opt-out method of enrollment 

only. 

(vi) Must target beneficiaries for 

enrollment in the MTMP at least 

quarterly during each plan year. 

(vii) Must offer a minimum level of 

medication therapy management 

services for each beneficiary enrolled in 

the MTMP that includes all of the 

following: 

(A) Interventions for both 

beneficiaries and prescribers. 

(B) Annual comprehensive 

medication reviews with written 

summaries. The comprehensive medical 

review must include an interactive, 

person-to-person consultation 

performed by a pharmacist or other 

qualified provider unless the beneficiary 

is in a long-term care setting. 

(C) Quarterly targeted medication 

reviews with follow-up interventions 

when necessary. 

(2) Targeted beneficiaries. Targeted 

beneficiaries for the MTMP described in 

paragraph (d)(1) of this section are 

enrollees in the sponsor’s Part D plan 

who meet all of the following: 

(i) Have multiple chronic diseases, 

with three chronic diseases being the 

maximum number a Part D plan sponsor 

may require for targeted enrollment. 

(ii) Are taking multiple Part D drugs, 

with eight Part D drugs being the 

maximum number of drugs a Part D 

plan sponsor may require for targeted 

enrollment. 

(iii) Are likely to incur the following 

annual Part D drug costs: 

(A) For 2011, costs for covered Part D 

drugs greater than or equal to $3,000. 

(B) For 2012 and subsequent years, 

costs for covered Part D drugs in an 

amount greater than or equal to $3000 

increased by the annual percentage 

specified in § 423.104(d)(5)(iv) of this 

part. 

* * * * * 

■ 68. Section 423.156 is revised to read 

as follows: 

§ 423.156 Consumer satisfaction surveys. 

Part D contracts with 600 or more 

enrollees as of July of the prior year 

must contract with approved Medicare 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

vendors to conduct the Medicare 

CAHPS satisfaction survey of Part D 

plan enrollees in accordance with CMS 

specifications and submit the survey 

data to CMS. 

■ 69. Section 423.165 is amended by— 

■ A. Removing paragraph (b)(4). 

■ B. Revising paragraph (f). 

The revision reads as follows: 

§ 423.165 Compliance deemed on the 

basis of accreditation. 

* * * * * 

(f) Authority. Nothing in this section 

limits CMS’ authority under subparts K 

and O of this part, including, but not 

limited to the ability to impose 

intermediate sanctions, civil money 

penalties, and terminate a contract with 

a Part D plan sponsor. 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval 

■ 70. Section 423.265 is amended by 

revising paragraph (b) to read as follows: 

§ 423.265 Submission of bids and related 

information. 

* * * * * 

(b) Bid submission—(1) General. Not 

later than the first Monday in June, each 

potential Part D sponsor must submit 

bids and supplemental information 

described in this section for each Part D 

plan it intends to offer in the subsequent 

calendar year. 

(2) Substantial differences between 

bids. Potential Part D sponsors’ bid 

submissions must reflect differences in 

benefit packages or plan costs that CMS 

determines to represent substantial 

differences relative to a sponsor’s other 

bid submissions. In order to be 


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considered ‘‘substantially different,’’ 

each bid must be significantly different 

from the sponsor’s other bids with 

respect to beneficiary out-of-pocket 

costs or formulary structures. 

* * * * * 

■ 71. Section 423.272 is amended by 

adding a new paragraph (b)(3) to read as 

follows: 

§ 423.272 Review and negotiation of bid 

and approval of plans submitted by 

potential Part D sponsors. 

* * * * * 

(b) * * * 

(3) Substantial differences between 

bids—(i) General. CMS approves a bid 

only if it finds that the benefit package 

or plan costs represented by that bid are 

substantially different as provided 

under § 423.265(b)(2) of this subpart 

from the benefit package or plan costs 

represented by another bid submitted by 

the same Part D sponsor. 

(ii) Transition period for PDP 

sponsors with new acquisitions. After a 

2-year transition period, as determined 

by CMS, CMS approves a bid offered by 

a PDP sponsor (or by a parent 

organization to that PDP sponsor) that 

recently purchased (or otherwise 

acquired or merged with) another Part D 

sponsor if it finds that the benefit 

package or plan costs represented by 

that bid are substantially different from 

any benefit package or plan costs 

represented by another bid submitted by 

the same Part D sponsor (or parent 

organization to that Part D sponsor. 

* * * * * 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

§ 423.308 [Amended] 

■ 72. Section 423.308 is amended in 

paragraph (1) of the definition of ‘‘gross 

covered prescription drug costs’’ by 

removing the phrase ‘‘The share of 

negotiated prices’’ and adding in its 

place ‘‘The share of actual costs’’. 

Subpart J—Coordination Under Part D 

Plans With Other Prescription Drug 

Coverage 

■ 73. Section 423.462 is amended by— 

■ A. Redesignating the existing text as 

paragraph (a). 

■ B. Adding a paragraph heading for 

paragraph (a) and new paragraph (b). 

The additions read as follows: 

§ 423.462 Medicare secondary payer 

procedures. 

(a) General rule. * * * 

(b) Reporting requirements. A Part D 

sponsor must report credible new or 

changed primary payer information to 

the CMS Coordination of Benefits 

Contractor in accordance with the 

processes and timeframes specified by 

CMS. 

■ 74. Section 423.464 is amended by 

adding new paragraphs (a)(3), (e)(1)(vi), 

(g), and (h) to read as follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

(a) * * * 

(3) Retroactive claims adjustments, 

underpayment reimbursements, and 

overpayment recoveries as described in 

paragraph (g) of this section and 

§ 423.466(a) of this subpart. 

* * * * * 

(e) * * * 

(1) * * * 

(vi) Does not engage in midyear plan 

or noncalendar year plan enrollment 

changes on behalf of a substantial 

number of its members when authorized 

to do so on the beneficiary’s behalf. 

* * * * * 

(g) Responsibility to account for other 

providers of prescription drug coverage 

when a retroactive claims adjustment 

creates an overpayment or 

underpayment. When a Part D sponsor 

makes a retroactive claims adjustment, 

the sponsor has the responsibility to 

account for SPAPs and other entities 

providing prescription drug coverage in 

reconciling the claims adjustments that 

create overpayments or underpayments. 

In carrying out these reimbursements 

and recoveries, Part D sponsors must 

also account for payments made and for 

amounts being held for payment by 

other individuals or entities. Part D 

sponsors must have systems to track and 

report adjustment transactions and to 

support all of the following: 

(1) Adjustments involving payments 

by other plans and programs providing 

prescription drug coverage have been 

made. 

(2) Reimbursements for excess costsharing and premiums for low-income 

subsidy eligible individuals have been 

processed in accordance with the 

requirements in § 423.800(c). 

(3) Recoveries of erroneous payments 

for enrollees as specified in 

§ 423.464(f)(4) have been sought. 

(h) Reporting requirements. A Part D 

sponsor must report credible new or 

changed supplemental prescription drug 

coverage information to the CMS 

Coordination of Benefits Contractor in 

accordance with the processes and 

timeframes specified by CMS. 

■ 75. A new § 423.466 is added to 

subpart J to read as follows: 

§ 423.466 Timeframes for coordination of 

benefits. 

(a) Retroactive claims adjustments, 

underpayment refunds, and 

overpayment recoveries. Whenever a 

sponsor receives information that 

necessitates a retroactive claims 

adjustment, the sponsor must process 

the adjustment and issue refunds or 

recovery notices within 45 days of the 

sponsor’s receipt of complete 

information regarding claims 

adjustment. 

(b) Coordination of benefits. Part D 

sponsors must coordinate benefits with 

SPAPs, other entities providing 

prescription drug coverage, 

beneficiaries, and others paying on the 

beneficiaries’ behalf for a period not to 

exceed 3 years from the date on which 

the prescription for a covered Part D 

drug was filled. 

Subpart K—Application Procedures 

and Contracts With PDP Sponsors 

■ 76. Section 423.502 is amended by— 

■ A. Redesignating paragraphs (b) 

through (d) as (c) through (e), 

respectively 

■ B. Adding a new paragraph (b). 

■ C. Revising newly redesignated 

paragraph (c)(1) introductory text and 

paragraph (c)(2). 

The addition and revisions reads as 

follows: 

§ 423.502 Application requirements. 

* * * * * 

(b) Completion of a notice of intent to 

apply. (1) An organization submitting an 

application under this section for a 

particular contract year must first 

submit a completed Notice of Intent to 

Apply by the date established by CMS. 

CMS will not accept applications from 

organizations that do not submit a 

timely Notice of Intent to Apply. 

(2) Submitting a Notice of Intent to 

Apply does not bind that organization to 

submit an application for the applicable 

contract year. 

(3) An organization’s decision not to 

submit an application after submitting 

an Notice of Intent to Apply will not 

form the basis of any action taken 

against the organization by CMS. 

(c) * * * 

(1) In order to obtain a determination 

on whether it meets the requirements to 

become a Part D plan sponsor, an entity, 

or an individual authorized to act for 

the entity (the applicant), must fully 

complete all parts of a certified 

application in the form and manner 

required by CMS, including the 

following: 

* * * * * 

(2) The authorized individual must 

describe thoroughly how the entity is 


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qualified to meet the all requirements 

described in this part. 

* * * * * 

■ 77. Section 423.503 is amended by— 

■ A. Revising paragraphs (a)(1), (a)(2), 

and (b). 

■ B. Adding a new paragraph (c)(2)(iii). 

■ C. Revising paragraph(c)(3)(iii). 

■ D. Removing paragraph (d). 

The revisions and addition read as 

follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

(a) * * * 

(1) With the exception of evaluations 

conducted under paragraph (b) of this 

section, CMS evaluates an entity’s 

application solely on the basis of 

information contained in the 

application itself and any additional 

information that CMS obtains through 

on-site visits. 

(2) After evaluating all relevant 

information, CMS determines whether 

the application meets all the 

requirements described in this part. 

(b) Use of information from a current 

or prior contract. If a Part D plan 

sponsor fails during the 14 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications (or in the case 

of a fallback entity, the previous 3-year 

contract) to comply with the 

requirements of the Part D program 

under any current or prior contract with 

CMS under title XVIII of the Act or fails 

to complete a corrective action plan 

during the 14 months preceding the 

deadline established by CMS for the 

submission of contract qualification 

applications, CMS may deny an 

application based on the applicant’s 

failure to comply with the requirements 

of the Part D program under any current 

or prior contract with CMS even if the 

applicant currently meets all of the 

requirements of this part. 

(c) * * * 

(2) * * * 

(iii) If CMS does not receive a revised 

application within 10 days from the 

date of the notice, or if after timely 

submission of a revised application, 

CMS still finds the applicant does not 

appear qualified to contract as a Part D 

plan sponsor or has not provided 

enough information to allow CMS to 

evaluate the application, CMS denies 

the application. 

(3) * * * 

(iii) The applicant’s right to request a 

hearing in accordance with the 

procedures specified in subpart N of 

this part. 

■ 78. Section 423.504 is amended by— 

■ A. Revising paragraph (b)(4)(vi) 

■ B. Redesignating paragraph (b)(6) as 

paragraph (b)(7). 

■ C. Adding a new paragraph (b)(6). 

The revision and addition read as 

follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) Adopt and implement an effective 

compliance program, which must 

include measures that prevent, detect, 

and correct noncompliance with CMS’ 

program requirements as well as 

measures that prevent, detect, and 

correct fraud, waste, and abuse. The 

compliance program must, at a 

minimum, include the following core 

requirements: 

(A) Written policies, procedures, and 

standards of conduct that— 

(1) Articulate the Part D plan 

sponsor’s commitment to comply with 

all applicable Federal and State 

standards; 

(2) Describe compliance expectations 

as embodied in the standards of 

conduct; 

(3) Implement the operation of the 

compliance program; 

(4) Provide guidance to employees 

and others on dealing with potential 

compliance issues; 

(5) Identify how to communicate 

compliance issues to appropriate 

compliance personnel; 

(6) Describe how potential 

compliance issues are investigated and 

resolved by the Part D plan sponsor; and 

(7) Include a policy of nonintimidation and non-retaliation for 

good faith participation in the 

compliance program, including but not 

limited to reporting potential issues, 

investigating issues, conducting selfevaluations, audits and remedial 

actions, and reporting to appropriate 

officials. 

(B) The designation of a compliance 

officer and a compliance committee 

who report directly and are accountable 

to the Part D plan sponsor’s chief 

executive or other senior management. 

(1) The compliance officer, vested 

with the day-to-day operations of the 

compliance program, must be an 

employee of the Part D plan sponsor, 

parent organization or corporate 

affiliate. The compliance officer may not 

be an employee of the Part D plan 

sponsor’s first tier, downstream or 

related entity. 

(2) The compliance officer and the 

compliance committee must 

periodically report directly to the 

governing body of the Part D plan 

sponsor on the activities and status of 

the compliance program, including 

issues identified, investigated, and 

resolved by the compliance program. 

(3) The governing body of the Part D 

plan sponsor must be knowledgeable 

about the content and operation of the 

compliance program and must exercise 

reasonable oversight with respect to the 

implementation and effectiveness of the 

compliance programs. 

(C)(1) Each Part D plan sponsor must 

establish, implement and provide 

effective training and education for its 

employees including, the chief 

executive and senior administrators or 

managers; governing body members; 

and first tier, downstream, and related 

entities. 

(2) The training and education must 

occur at a least annually and be a part 

of the orientation for new employees 

including, the chief executive and 

senior administrators or managers; 

governing body members; and first tier, 

downstream, and related entities. 

(3) First tier, downstream, and related 

entities who have met the fraud, waste, 

and abuse certification requirements 

through enrollment into the Medicare 

program or accreditation as a Durable 

Medical Equipment, Prosthetics, 

Orthotics, and Supplies (DMEPOS) are 

deemed to have met the training and 

educational requirements for fraud, 

waste, and abuse. 

(D) Establishment and 

implementation of effective lines of 

communication, ensuring 

confidentiality, between the compliance 

officer, members of the compliance 

committee, the Part D plan sponsor’s 

employees, managers and governing 

body, and the Part D plan sponsor’s first 

tier, downstream, and related entities. 

Such lines of communication must be 

accessible to all and allow compliance 

issues to be reported including a 

method for anonymous and confidential 

good faith reporting of potential 

compliance issues as they are identified. 

(E) Well-publicized disciplinary 

standards through the implementation 

of procedures which encourage good 

faith participation in the compliance 

program by all affected individuals. 

These standards must include policies 

that— 

(1) Articulate expectations for 

reporting compliance issues and assist 

in their resolution; 

(2) Identify non-compliance or 

unethical behavior; and 

(3) Provide for timely, consistent, and 

effective enforcement of the standards 

when non-compliance or unethical 

behavior is determined. 

(F) Establishment and implementation 

of an effective system for routine 

monitoring and identification of 


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compliance risks. The system should 

include internal monitoring and audits 

and, as appropriate, external audits, to 

evaluate the Part D plan sponsors, 

including first tier entities’, compliance 

with CMS requirements and the overall 

effectiveness of the compliance 

program. 

(G) Establishment and 

implementation of procedures and a 

system for promptly responding to 

compliance issues as they are raised, 

investigating potential compliance 

problems as identified in the course of 

self-evaluations and audits, correcting 

such problems promptly and thoroughly 

to reduce the potential for recurrence, 

and ensure ongoing compliance with 

CMS requirements. 

(1) If the Part D sponsor discovers 

evidence of misconduct related to 

payment or delivery of prescription 

drug items or services under the 

contract, it must conduct a timely, 

reasonable inquiry into that conduct; 

(2) The Part D sponsor must conduct 

appropriate corrective actions (for 

example, repayment of overpayments 

and disciplinary actions against 

responsible individuals) in response to 

the potential violation referenced above. 

(3) The Part D plan sponsor should 

have procedures to voluntarily selfreport potential fraud or misconduct 

related to the Part D program to CMS or 

its designee. 

* * * * * 

(6) Not have terminated a contract by 

mutual consent under which, as a 

condition of the consent, the Part D plan 

sponsor agreed that it was not eligible 

to apply for new contracts or service 

area expansions for a period up to 2 

years per § 423.508(e) of this subpart. 

* * * * * 

■ 79. Section 423.505 is amended by— 

■ A. Redesignating paragraph (e)(1)(ii) 

and (e)(1)(iii) as paragraph (e)(1)(iii) and 

(e)(1)(iv), respectively. 

■ B. Adding a new paragraph (e)(1)(ii). 

■ C. Revising newly redesignated 

paragraph (e)(1)(iii). 

■ D. Revising paragraph (f)(3) 

introductory text. 

■ E. Revising paragraphs (i)(2)(i) and 

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

■ F. Add a new paragraph (n). 

The additions and revisions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(e) * * * 

(1) * * * 

(ii) Compliance with CMS 

requirements for maintaining the 

privacy and security of protected health 

information and other personally 

identifiable information of Medicare 

enrollees; 

(iii) The facilities of the Part D 

sponsor to include computer and other 

electronic systems; and 

* * * * * 

(f) * * * 

(3) All data elements included in all 

its drug claims for purposes deemed 

necessary and appropriate by the 

Secretary, including, but not limited to 

the following: 

* * * * * 

(i) * * * 

(2) * * * 

(i) 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 entities related 

to CMS’ contract with the Part D 

sponsor. 

* * * * * 

(m)(1) * * * 

(iii) * * * 

(C) Plan identifier elements on the 

claim are encrypted or unavailable for 

release to external entities with the 

exception of HHS grantees that CMS 

determines meet all of the following 

criteria: 

(1) The plan identifier is essential to 

the study. 

(2) The study is key to the mission of 

the sponsoring agency. 

(3) The study provides significant 

benefit to the Medicare program. 

(4) The requestor attests that any 

public findings or publications will not 

identify plans. 

* * * * * 

(n)(1) CMS may determine that a Part 

D plan sponsor is out of compliance 

with a Part D requirement when the 

sponsor fails to meet performance 

standards articulated in the Part D 

statutes, regulations, or guidance. 

(2) If CMS has not already articulated 

a measure for determining 

noncompliance, CMS may determine 

that a Part D sponsor is out of 

compliance when its performance in 

fulfilling Part D requirements represents 

an outlier relative to the performance of 

other Part D sponsors. 

■ 80. Section 423.507 is amended by— 

■ A. Revising paragraph (a)(2)(ii) 

■ B. Removing paragraph (a)(2)(iii). 

■ C. Adding a new paragraph (b)(1)(iii). 

■ D. Revising paragraph (b)(2)(ii). 

■ E. Removing (b)(2)(iii). 

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

as (b)(2)(iii). 

■ G. In newly redesignated paragraph 

(b)(2)(iii), removing the reference 

‘‘paragraphs (b)(2)(ii) and (iii) of this 

section’’ and add the reference 

‘‘paragraph (b)(2)(ii) of this section’’ in 

its place. 

■ H. Revising paragraph (b)(3). 

The revisions and addition read as 

follows: 

§ 423.507 Nonrenewal of a contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective. The 

sponsor must also provide information 

about alternative enrollment options by 

doing one or more of the following: 

(A) Provide a CMS approved written 

description of alternative MA plan and 

PDP options available for obtaining 

qualified prescription drug coverage 

within the beneficiaries’ region. 

(B) Place outbound calls to all affected 

enrollees to ensure beneficiaries know 

who to contact to learn about their 

enrollment options. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) The contract must be nonrenewed 

as to an individual PDP if that plan does 

not have a sufficient number of 

enrollees to establish that it is a viable 

independent plan option. 

(2) * * * 

(ii) To each of the Part D plan 

sponsor’s Medicare enrollees by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective, or at 

the conclusion of the appeals process if 

applicable. 

* * * * * 

(3) Opportunity to develop and 

implement a corrective action plan. (i) 

Before providing a notice of intent of 

nonrenewal of the contract, CMS will 

provide the Part D plan sponsor with 

notice specifying the Part D sponsor’s 

deficiencies and reasonable opportunity 

of at least 30 calendar days to develop 

and implement a corrective action plan 

to correct the deficiencies. 

(ii) The Part D plan sponsor is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

* * * * * 

■ 81. Section 423.508 is amended by 

adding a new paragraph (e) to read as 

follows: 

§ 423.508 Modification or termination of 

contract by mutual consent. 

* * * * * 


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(e) Agreement to limit new Part D 

applications. As a condition of the 

consent to a mutual termination, CMS 

will require, as a provision of the 

termination agreement language 

prohibiting the Part D plan sponsor from 

applying for new contracts or service 

area expansions for a period up to 2 

years, absent circumstances warranting 

special consideration. 

■ 82. Amend § 423.509 by— 

■ A. Revising paragraphs (a), paragraph 

(b) introductory text, and paragraph 

(b)(2)(i). 

■ B. Redesignating paragraphs (b)(2)(ii) 

and (b)(2)(iii) as (b)(2)(iii) and (b)(2)(iv), 

respectively. 

■ C. Adding a new paragraph (b)(2)(ii). 

■ D. Revising paragraph (c). 

The revisions and addition read as 

follows: 

§ 423.509 Termination of contract by CMS. 

(a) Termination by CMS. CMS may at 

any time terminate a contract if CMS 

determines that the Part D plan sponsor 

meets any of the following: 

(1) Has failed substantially to carry 

out the contract. 

(2) Is carrying out the contract in a 

manner that is inconsistent with the 

efficient and effective administration of 

this part. 

(3) No longer substantially meets the 

applicable conditions of this part. 

(4) Based on credible evidence, has 

committed or participated in false, 

fraudulent, or abusive activities 

affecting the Medicare, Medicaid, or 

other State or Federal health care 

programs, including submission of false 

or fraudulent data. 

(5) Substantially fails to comply with 

the requirements in subpart M of this 

part relating to grievances and appeals. 

(6) Fails to provide CMS with valid 

risk adjustment, reinsurance and risk 

corridor related data as required under 

§ 423.322 and § 423.329 (or, for fallback 

entities, fails to provide the information 

in § 423.871(f)). 

(7) Substantially fails to comply with 

the service access requirements in 

§ 423.120. 

(8) Substantially fails to comply with 

either of the following: 

(i) Marketing requirements in subpart 

V of this part. 

(ii) Information dissemination 

requirements of § 423.128 of this part. 

(9) Substantially fails to comply with 

the coordination with plans and 

programs that provide prescription drug 

coverage as described in subpart J of this 

part. 

(10) Substantially fails to comply with 

the cost and utilization management, 

quality improvement, medication 

therapy management and fraud, abuse 

and waste program requirements as 

specified in subparts D and K of this 

part. 

(11) Fails to comply with the 

regulatory requirements contained in 

this part. 

(12) Fails to meet CMS performance 

requirements in carrying out the 

regulatory requirements contained in 

this part. 

(b) Notice. If CMS decides to 

terminate a contract it gives notice of 

the termination as follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. (i) The procedures specified in 

(b)(1) of this section do not apply if— 

(A) CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the Part 

D plan sponsor; 

(B) The Part D plan sponsor 

experiences financial difficulties so 

severe that its ability to make necessary 

health services available is impaired to 

the point of posing an imminent and 

serious risk to the health of its enrollees, 

or otherwise fails to make services 

available to the extent that such a risk 

to health exists; or 

(C) The contract is being terminated 

based on the violation specified in 

paragraph (a)(4) of this section. 

(ii) CMS notifies the MA organization 

in writing that its contract will be 

terminated on a date specified by CMS. 

If a termination in is effective in the 

middle of a month, CMS has the right 

to recover the prorated share of the 

capitation payments made to the Part D 

plan sponsor covering the period of the 

month following the contract 

termination. 

* * * * * 

(c) Opportunity to develop and 

implement a corrective action plan—(1) 

General. (i) Before providing a notice of 

intent to terminate the contract, CMS 

will provide the Part D plan sponsor 

with notice specifying the Part D plan 

sponsor’s deficiencies and a reasonable 

opportunity of at least 30 calendar days 

to develop and implement a corrective 

action plan to correct the deficiencies. 

(ii) The Part D plan sponsor is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

(2) Exceptions. The Part D plan 

sponsor will not be provided with an 

opportunity to develop and implement 

a corrective action plan prior to 

termination if— 

(i) CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the Part 

D plan sponsor; 

(ii) The Part D plan sponsor 

experiences financial difficulties so 

severe that its ability to make necessary 

health services available is impaired to 

the point of posing an imminent and 

serious risk to the health of its enrollees, 

or otherwise fails to make services 

available to the extent that such a risk 

to health exists; or 

(iii) The contract is being terminated 

based on the violation specified in (a)(4) 

of this section. 

* * * * * 

■ 83. Section 423.514 is amended by— 

■ A. Revising the section heading. 

■ B. Adding a new paragraph (g). 

The revision and addition to read as 

follows: 

§ 423.514 Validation of Part D reporting 

requirements. 

* * * * * 

(g) Data validation. Each Part D 

sponsor must subject information 

collected under paragraph (a) of this 

section to a yearly independent audit to 

determine its reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. 

Subpart L—Effect of Change of 

Ownership or Leasing of Facilities 

During Term of Contract 

■ 84. Section 423.551 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 423.551 General provisions. 

* * * * * 

(g) Sale of beneficiaries not permitted. 

(1) CMS will only recognize the sale or 

transfer of an organization’s entire PDP 

line of business, consisting of all PDP 

contracts held by the PDP sponsor with 

the exception of the sale or transfer of 

a full contract between wholly owned 

subsidiaries of the same parent 

organization which will be recognized 

and allowed by CMS. 

(2) CMS will not recognize or allow a 

sale or transfer that consists solely of the 

sale or transfer of individual 

beneficiaries, groups of beneficiaries 

enrolled in a pharmacy benefit package, 

or one contract if the sponsor holds 

more than one PDP contract. 


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Subpart M—Grievances, Coverage 

Determinations, and Appeals 

■ 85. Section 423.568 is revised to read 

as follows: 

§ 423.568 Standard timeframe and notice 

requirements for coverage determinations. 

(a) Method and place for filing a 

request. An enrollee must ask for a 

standard coverage determination by 

making a request with the Part D plan 

sponsor in accordance with the 

following: 

(1) Except as specified in paragraph 

(a)(2) of this section, the request may be 

made orally or in writing. 

(2) Requests for payment must be 

made in writing (unless the Part D plan 

sponsor has implemented a voluntary 

policy of accepting oral payment 

requests). 

(3) The Part D plan sponsor must 

establish and maintain a method of 

documenting all oral requests and retain 

the documentation in the case file. 

(b) Timeframe for requests for drug 

benefits. When a party makes a request 

for a drug benefit, the Part D plan 

sponsor must notify the enrollee (and 

the prescribing physician or other 

prescriber involved, as appropriate) of 

its determination as expeditiously as the 

enrollee’s health condition requires, but 

no later than 72 hours after receipt of 

the request, or, for an exceptions 

request, the physician’s or other 

prescriber’s supporting statement. 

(c) Timeframe for requests for 

payment. When a party makes a request 

for payment, the Part D plan sponsor 

must notify the enrollee of its 

determination and make payment (when 

applicable) no later than 14 calendar 

days after receipt of the request. 

(d) Written notice for favorable 

decisions by a Part D plan sponsor. If a 

Part D plan sponsor makes a completely 

favorable decision under paragraph (b) 

of this section, it must give the enrollee 

written notice of the determination. The 

initial notice may be provided orally, so 

long as a written follow-up notice is 

sent within 3 calendar days of the oral 

notification. 

(e) Form and content of the approval 

notice. The notice of any approval 

under paragraph (d) of this section must 

explain the conditions of the approval 

in a readable and understandable form. 

(f) Written notice for denials by a Part 

D plan sponsor. If a Part D plan sponsor 

decides to deny a drug benefit, in whole 

or in part, it must give the enrollee 

written notice of the determination. 

(g) Form and content of the denial 

notice. The notice of any denial under 

paragraph (f) of this section must meet 

the following requirements: 

(1) Use approved notice language in a 

readable and understandable form. 

(2) State the specific reasons for the 

denial. 

(i) For drug coverage denials, describe 

both the standard and expedited 

redetermination processes, including 

the enrollee’s right to, and conditions 

for, obtaining an expedited 

redetermination and the rest of the 

appeals process. 

(ii) For payment denials, describe the 

standard redetermination process and 

the rest of the appeals process. 

(3) Inform the enrollee of his or her 

right to a redetermination. 

(4) Comply with any other notice 

requirements specified by CMS. 

(h) Effect of failure to meet the 

adjudicatory timeframes. If the Part D 

plan sponsor fails to notify the enrollee 

of its determination in the appropriate 

timeframe under paragraphs (b) or (c) of 

this section, the failure constitutes an 

adverse coverage determination, and the 

plan sponsor must forward the 

enrollee’s request to the IRE within 24 

hours of the expiration of the 

adjudication timeframe. 

■ 86. Section 423.570 is amended by 

revising paragraph (d)(1) to read as 

follows: 

§ 423.570 Expediting certain coverage 

determinations. 

* * * * * 

(d) * * * 

(1) Make the determination within the 

72-hour timeframe established in 

§ 423.568(b) for a standard 

determination. The 72-hour period 

begins on the day the Part D plan 

sponsor receives the request for 

expedited determination, or, for an 

exceptions request, the physician’s or 

other prescriber’s supporting statement. 

* * * * * 

■ 87. Section 423.572 is amended by 

revising paragraphs (b) and (c) to read 

as follows: 

§ 423.572 Timeframes and notice 

requirements for expedited coverage 

determinations. 

* * * * * 

(b) Confirmation of oral notice. If the 

Part D plan sponsor first notifies an 

enrollee of an adverse or favorable 

expedited determination orally, it must 

mail written confirmation to the 

enrollee within 3 calendar days of the 

oral notification. 

(c) Content of the notice of expedited 

determination. (1) If the determination 

is completely favorable to the enrollee, 

the notice must explain the conditions 

of the approval in a readable and 

understandable form. 

(2) If the determination is not 

completely favorable to the enrollee, the 

notice must— 

(i) Use approved language in a 

readable and understandable form; 

(ii) State the specific reasons for the 

denial; 

(iii) Inform the enrollee of his or her 

right to a redetermination; 

(iv) Describe— 

(A) Both the standard and expedited 

redetermination processes, including 

the enrollee’s right to request an 

expedited redetermination; 

(B) Conditions for obtaining an 

expedited redetermination; and 

(C) Other aspects of the appeal 

process. 

* * * * * 

■ 88. Section 423.590 is amended by— 

■ A. Redesignating paragraph (d)(2) as 

paragraph (d)(3). 

■ B. Adding a new paragraph (d)(2). 

■ C. Revising the introductory text of 

paragraph (g). 

■ D. Adding a new paragraph (h). 

The revisions and additions read as 

follows: 

§ 423.590 Timeframes and responsibility 

for making redeterminations. 

* * * * * 

(d) * * * 

(2) Confirmation of oral notice. If the 

Part D plan sponsor first notifies an 

enrollee of an adverse or favorable 

expedited redetermination orally, it 

must mail written confirmation to the 

enrollee within 3 calendar days of the 

oral notification. 

* * * * * 

(g) Form and content of an adverse 

redetermination notice. The notice of 

any adverse determination under 

paragraphs (a)(2), (b)(2), (d)(1) or (d)(2) 

of this section must— 

* * * * * 

(h) Form and content of a completely 

favorable redetermination notice. The 

notice of any completely favorable 

determination under paragraphs (a)(1), 

(d)(1) or (d)(2) of this section must 

explain the conditions of the approval 

in a readable and understandable form. 

Subpart N—Medicare Contract 

Determinations and Appeals 

■ 89. Section 423.642 is amended by 

revising paragraph (c) to read as follows: 

§ 423.642 Notice of contract determination. 

* * * * * 

(c) CMS-initiated terminations—(1) 

General rule. Except as provided in 

(c)(2) of this section, CMS mails notice 

to the Part D plan sponsor 90 calendar 

days before the anticipated effective 

date of the termination. 


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(2) Exception. If a contract is 

terminated in accordance with 

§ 423.509(b)(2)(i) of this part, CMS 

notifies the Part D plan sponsor of the 

date that it will terminate the Part D 

plan sponsor’s contract. 

* * * * * 

■ 90. Section 423.650 is revised to read 

as follows: 

§ 423.650 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

(a) Right to a hearing. The following 

parties are entitled to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS under Part D 

of Title XVIII of the Act in accordance 

with § 423.502 and § 423.503 of this 

part. 

(2) A Part D sponsor whose contract 

has been terminated under § 423.509 of 

this part. 

(3) A Part D sponsor whose contract 

has not been renewed in accordance 

with § 423.507 of this part. 

(4) A Part D sponsor who has had an 

intermediate sanction imposed in 

accordance with § 423.752(a) and (b) of 

this part. 

(b) Burden of proof, standard of proof, 

and standard of review at hearing. (1) 

During a hearing to review a contract 

determination as described at 

§ 423.641(a) of this subpart, the 

applicant has the burden of proving by 

a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 423.502 and 

§ 423.503 of this part. 

(2) During a hearing to review a 

contract determination as described at 

§ 423.641(b) of this part, the Part D plan 

sponsor has the burden of proving by a 

preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 423.507 of 

this part. 

(3) During a hearing to review a 

contract determination as described at 

§ 423.641(c) of this subpart, the Part D 

plan sponsor has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 423.509 of 

this part. 

(4) During a hearing to review the 

imposition of an intermediate sanction 

as described at § 423.750 of this part, the 

Part D sponsor has the burden of 

proving by a preponderance of the 

evidence that CMS’ determination was 

inconsistent with the requirements of 

§ 423.752 of this part. 

(c) Timing of favorable decision. 

Notice of any decision favorable to the 

Part D sponsor appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by September 1 for the contract 

in question to be effective on January 1 

of the following year. 

■ 91. Section 423.651 is amended by 

revising paragraphs (a) and (b) to read 

as follows: 

§ 423.651 Request for hearing. 

(a) Method and place for filing a 

request. (1) A request for a hearing must 

be made in writing and filed by an 

authorized official of the contract 

applicant or Part D plan sponsor that 

was the party to the determination 

under the appeal. 

(2) The request for the hearing must 

be filed in accordance with the 

requirements specified in the notice. 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

calendar days after the receipt of the 

notice of the contract determination or 

intermediate sanction. 

* * * * * 

■ 92. Section 423.652 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 423.652 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

* * * * * 

(b) * * * 

(2) A contract terminated in 

accordance with § 423.509(b)(2)(i) of 

this part will be terminated on the date 

specified by CMS and will not be 

postponed if a hearing is requested. 

* * * * * 

■ 93. Section 423.655 is revised to read 

as follows: 

§ 423.655 Time and place of hearing. 

(a) The hearing officer— 

(1) Fixes a time and place for the 

hearing, which is not to exceed 30 

calendar days after the receipt of request 

for the hearing; 

(2) Sends written notice to the parties 

that informs the parties of the general 

and specific issues to be resolved, the 

burden of proof, and information about 

the hearing procedure. 

(b)(1) The hearing officer may, on his 

or her own motion, change the time and 

place of the hearing. 

(2) The hearing officer may adjourn or 

postpone the hearing. 

(c)(1) The Part D plan sponsor or CMS 

may request an extension by filing a 

written request no later than 10 calendar 

days prior to the scheduled hearing. 

(2) When either the Part D plan 

sponsor or CMS requests an extension 

the hearing officer will provide a onetime 15-calendar day extension. 

(3) Additional extensions may be 

granted at the discretion of the hearing 

officer. 

■ 94. Section 423.658 is amended by 

revising paragraph (d) to read as 

follows: 

§ 423.658 Conduct of hearing. 

* * * * * 

(d) The Part D sponsor bears the 

burden of going forward and must first 

present evidence and argument before 

CMS presents its evidence and 

argument. 

■ 95. Section 423.661 is revised to read 

as follows: 

§ 423.661 Witnesses lists and documents. 

Witness lists and documents must be 

identified and exchanged at least 5 

calendar days prior to the scheduled 

hearing. 

■ 96. Section 423.666 is amended by 

revising paragraphs (a) and (c) to read as 

follows: 

§ 423.666 Review by the Administrator. 

(a) Request for review by 

Administrator. CMS or a Part D plan 

sponsor that has received a hearing 

decision may request a review by the 

Administrator within 15 calendar days 

after receipt of the hearing decision as 

provided under § 423.665(b) of this 

subpart. Both the Part D plan sponsor 

and CMS may provide written 

arguments to the Administrator for 

review. 

* * * * * 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days after receipt of request for review. 

If the Administrator declines to review 

the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

hearing officer is final. 

* * * * * 

■ 97. Section 423.668 is amended by 

revising the section heading and the 

paragraph heading for paragraph (a) to 

read as follows: 

§ 423.668 Reopening of a contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Contract determination. * * * 

* * * * * 

Subpart O—Intermediate Sanctions 

■ 98. Section 423.750 is amended by 

revising paragraph (a) to read as follows: 


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§ 423.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur: 

(1) Suspension of the Part D plan 

sponsor’s enrollment of Medicare 

beneficiaries. 

(2) Suspension of payment to the Part 

D plan sponsor for Medicare 

beneficiaries enrolled after the date 

CMS notifies the organization of the 

intermediate sanction. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by a 

Part D plan sponsor. 

* * * * * 

■ 99. Section 423.752 is amended by 

revising the paragraphs (a) introductory 

text, (a)(1), (a)(3), and (a)(4) to read as 

follows: 

§ 423.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph (a), 

CMS may impose one or more of the 

sanctions specified in § 423.750(a) of 

this subpart on any Part D plan sponsor 

with a contract. The Part D plan sponsor 

may also be subject to other remedies 

authorized under law. 

(1) Fails substantially to provide 

medically necessary items and services 

that are required (under law or under 

the contract) to be provided to an 

individual covered under the contract, if 

the failure has adversely affected (or has 

the substantial likelihood of adversely 

affecting) the individual. 

* * * * * 

(3) Acts to expel or refuses to re-enroll 

a beneficiary in violation of the 

provisions of this part. 

(4) Engages in any practice that would 

reasonably be expected to have the 

effect of denying or discouraging 

enrollment (except as permitted by this 

part) by eligible individuals with the 

organization whose medical condition 

or history indicates a need for 

substantial future medical services. 

* * * * * 

■ 100. Section 423.756 is amended by— 

■ A. Revising paragraph (b). 

■ B. Removing paragraph (c). 

■ C. Redesignating paragraphs (d) 

through (f) as paragraphs (c) through (e), 

respectively. 

■ D. Revising the newly redesignated 

paragraphs (c)(1) and (c)(3). 

The revisions read as follows: 

§ 423.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

* * * * * 

(b) Hearing. (1) The Part D plan 

sponsor may request a hearing before a 

CMS hearing officer. 

(2) A written request must be received 

by the designated CMS office within 15 

calendar days after the receipt of the 

notice. 

(3) A request for a hearing under 

§ 423.650 of this part does not delay the 

date specified by CMS when the 

sanction becomes effective. 

(4) The Part D plan sponsor must 

follow the right to a hearing procedure 

as specified at § 423.650 through 

§ 423.662 of this part. 

(c) * * * 

(1) Effective date. The effective date of 

the sanction is the date specified by 

CMS in the notice. 

* * * * * 

(3) Duration of sanction. The sanction 

remains in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur. 

(i) CMS may require that the Part D 

plan sponsor hire an independent 

auditor to provide CMS with additional 

information to determine if the 

deficiencies that are the basis for the 

sanction determination have been 

corrected and are not likely to recur. 

The independent auditor must work in 

accordance with CMS specifications and 

must be willing to attest that a complete 

and full independent review has been 

performed. 

(ii) In instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed, CMS may 

require a Part D plan sponsor to market 

or to accept enrollments or both for a 

limited period of time in order to assist 

CMS 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. 

(A) If, following this time period, 

CMS determines the deficiencies have 

not been corrected or are likely to recur, 

the intermediate sanctions will remain 

in effect until such time that CMS is 

assured the deficiencies have been 

corrected and are not likely to recur. 

(B) The Part D plan sponsor does not 

have a right to a hearing under 

§ 423.650(a)(4) of this subpart to 

challenge CMS’ determination to keep 

the intermediate sanctions in effect. 

* * * * * 

Subpart P—Premium and Cost-Sharing 

Subsidies for Low-Income Individuals 

■ 101. Section 423.773 by revising 

paragraph (c)(2) to read as follows: 

§ 423.773 Requirements for eligibility. 

* * * * * 

(c) * * * 

(2) CMS notifies an individual treated 

as a full-subsidy eligible under this 

paragraph (c) that he or she does not 

need to apply for the subsidies under 

this subpart, and, at a minimum, is 

deemed eligible for a full subsidy as 

follows: 

(i) For an individual deemed eligible 

between January 1 and June 30 of a 

calendar year, the individual is deemed 

eligible for a full subsidy for the 

remainder of the calendar year. 

(ii) For an individual deemed eligible 

between July 1 and December 31 of a 

calendar year, the individual is deemed 

eligible for the remainder of the 

calendar year and the following 

calendar year. 

* * * * * 

■ 102. Section 423.800 is amended by 

adding a new paragraph (e) to read as 

follows: 

§ 423.800 Administration of subsidy 

program. 

* * * * * 

(e) Timeframe for refunds and 

recoveries due to retroactive 

adjustments to cost sharing. Sponsors 

must process retroactive adjustments to 

cost-sharing for low-income subsidy 

eligible individuals and any resulting 

refunds and recoveries in accordance 

with the timeframe specified in 

§ 423.466(a) of this part. 

Subpart V—Part D Marketing 

Requirements 

■ 103. Section 423.2260 is amended by 

revising paragraph (5)(vii) of the 

definition ‘‘marketing materials’’ and 

adding a new paragraph (6) to read as 

follows: 

§ 423.2260 Definitions concerning 

marketing materials. 

* * * * * 

Marketing materials. * * * 

(5) * * * 

(vii) Membership activities (for 

example, materials on rules involving 

non-payment of premiums, 

confirmation of enrollment or 

disenrollment, or nonclaim-specific 

notification information). 

(6) Marketing materials exclude ad 

hoc enrollee communications materials, 

meaning informational materials that— 

(i) Are targeted to current enrollees; 


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19826 Federal Register / Vol. 75, No. 72 / Thursday, April 15, 2010 / Rules and Regulations 

(ii) Are customized or limited to a 

subset of enrollees or apply to a specific 

situation; 

(iii) Do not include information about 

the plan’s benefit structure; and 

(iv) Apply to a specific situation or 

cover member-specific claims 

processing or other operational issues. 

■ 104. Section 423.2262 is amended 

by— 

■ A. Revising paragraph (a)(1)(i). 

■ B. Adding new paragraphs (c) and (d) 

to read as follows: 

§ 423.2262 Review and distribution of 

marketing materials. 

(a) * * * 

(1) * * * 

(i) At least 45 days (or 10 days if using 

certain types of marketing materials that 

use, without modification, proposed 

model language and format, including 

standardized language and formatting, 

as specified by CMS) before the date of 

distribution, the Part D sponsor submits 

the material or form to CMS for review 

under the guidelines in § 423.2264 of 

this subpart; and 

* * * * * 

(c) Standardized model marketing 

materials. When specified by CMS, 

organizations must use standardized 

formats and language in model 

materials. 

(d) Ad hoc enrollee communication 

materials. Ad hoc enrollee 

communication materials may be 

reviewed by CMS, which may upon 

review determine that such materials 

must be modified, or may not longer be 

used. 

PART 480—ACQUISITION, 

PROTECTION, AND DISCLOSURE 

QUALITY IMPROVEMENT 

ORGANIZATION REVIEW 

INFORMATION 

■ 105. The authority citation for part 

480 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

■ 106. Section 480.140 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 480.140 Disclosure of quality review 

study information. 

* * * * * 

(g) The QIO must disclose to CMS 

quality review study information 

collected as part of the Reporting 

Hospital Quality Data for Annual 

Payment Update program, under section 

1886(b)(3)(B)(viii) of the Act following 

hospital review of the data. The quality 

review study information must include 

identifiers of MA plan beneficiaries, 

hospitals, practitioners, and services 

when CMS requests this information for 

the sole purpose of conducting activities 

related to MA organizations as 

described in § 422.153 of this chapter. 

Authority: 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: March 11, 2010. 

Charlene Frizzera, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: April 2, 2010. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2010–7966 Filed 4–6–10; 4:15 pm] 

BILLING CODE 4120–01–P 


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